China Takes Over Large Portion of Fuel Imports to Nepal, Previously Dominated by India

On October 29, Nepal signed a preliminary deal to import up to a third of the country‘s fuel from China in response to a severe shortage resulting in a disruption of imports that had previously come from India.  India had held a monopoly position over Nepal‘s fuel imports over the past 40 years leading up to this agreement.  Fuel shortages have been caused by protests of the Madhesi minority, a minority ethnic group in Nepal that feels they are underrepresented by the new Nepalese constitution.  Although the protests are directed at Nepal, not India, they have had the result of blocking main entry points into Nepal from India over the last three weeks and have obstructed the flow of fuel and other important goods.

The Nepalese government believes that India, which they accuse of being sympathetic to the Madhesi cause, is behind the current disruptions.  Whereas India expressed concern over the new Nepalese constitution that came into effect on September 20 (due to its treatment of Nepalese minority groups, like the Madhesi), China has voiced its support for the new constitution.

In response to these supply shortages and a growing resentment towards India, the Nepal Oil Corporation signed a petroleum-supply deal with China National United Oil.  Beijing granted Nepal 1,000 metric tons of petroleum as a ‘‘‘goodwill gesture‘ prior to the deal being signed.  China has agreed to build storage depots on its border with Nepal and Nepalese officials have traveled to the Tibetan region to explore possible routes and pickup points.  Exact fuel prices and logistical details have yet to be worked out, but Nepal has acknowledged that the fuel supplies from China will be more expensive than imports from India.

It appears that India‘s commitment to this cause has resulted in an opportunity in the economic and financial domain that China is seizing on for its strategic benefit.  Although India has long been concerned over increased Chinese activity around its periphery, its position on this issue appears to have opened a significant door that is being taken advantage of by Beijing ‘‘‘ with China replacing a portion of Nepal‘s dependency on India for fuel coming from China.  With the development of new infrastructure to support this trade, this portion could grow over time (and, with it, a shift in dependency from India to China).  This latest development comes after China recently overtook India (in 2014) as the largest source of foreign direct investment in the country and the recent signing of a document between Nepal and China in which the Nepalese government endorsed China‘s ‘‘‘One Belt, One Road‘ initiative.