Saudi defense pact with Pakistan unlikely to disrupt oil flows to India, source says

Saudi Arabia’s new mutual defense pact with Pakistan is unlikely to alter Riyadh’s energy relationship with key consumer India, a source told CNBC.

Asked whether India would continue to buy Saudi barrels, a senior source familiar with the matter told CNBC, “Of course.”

The source, who could only speak anonymously because of the sensitivity of the matter, added that Saudi Arabia is looking to shore up its security by broadening its alliances, but not at the expense of its commercial ties. 

India, which has been in conflict with neighboring Pakistan for decades, is one of the world’s largest crude consumers and a key customer for Saudi Arabia. Riyadh sold just over 600,000 barrels per day in July, making it one of India’s top three suppliers alongside Russia and Iraq, according to Kpler data.

The source also dismissed long-running speculation of a shift away from the U.S. dollar for Saudi oil trade, describing talk of a non-greenback pricing arrangement as a “phantom agreement.”

Dollar pricing remains the foundation of Saudi crude exports, even as Riyadh balances security ties with the U.S. and Pakistan — while also expanding energy trade with India, a fellow BRICS alliance member.

“Saudi Arabia has always been a very strong partner for us,” Asif Iqbal, president of the Indian Economic Trade Association, told CNBC on Friday, when asked about the Saudi-Pakistan defense deal.

“It’s in their interest,” Iqbal said, stressing that the agreement should be seen through the lens of national priorities. “Those countries have their own interests, just like India has its own interests.”

India’s government said it was “aware that this development, which formalizes a long-standing arrangement between the two countries, had been under consideration,” India’s Ministry of External Affairs said in a statement in response to the Saudi-Pakistan pact.

“We will study the implications of this development for our national security as well as for regional and global stability,” the statement added. 

CNBC has reached out to the Saudi and Indian energy ministries for comment. 

The pact, signed by Saudi Crown Prince Mohammed bin Salman and Pakistani Prime Minister Shehbaz Sharif in Riyadh, marks a deepening of ties between two partners. It also comes as Gulf states grow more uneasy about U.S. defense guarantees following Israel’s strike inside Qatar.

“They’re pivoting to other partners, because there is this perception that the U.S. will not honor its promises as it used to do,” Rashmi Garg, a senior portfolio manager at Al Dhabi Capital told CNBC’s “Access Middle East” on Friday. 

“So far we haven’t seen any break in the relationship between the UAE and the other GCC geographies and the United States. Even the tariff picture has been fairly benign for them. So far, I think things remain good here — but this is something to be kept in the back of mind,” she added. 

At the same time, India has also been shoring up its own Gulf ties. India’s Commerce Minister Piyush Goyal was in the UAE last week to review progress on the UAE-India Comprehensive Economic Partnership Agreement. Abu Dhabi is also a top supplier of crude to India, selling about 400,000 barrels per day with June delivery, according to Kpler.

“We’re quite skeptical that there will be any long-lasting impact, at least over the next 6-12 months,” Manpreet Gill, chief investment officer of Africa, Middle East and Europe at Standard Chartered Wealth Management, told CNBC when asked about the overall price impact.

“Despite all of the geopolitical events that we’ve seen in this region or elsewhere, any rise in oil prices has ultimately proven to be quite temporary,” he said, suggesting that WTI futures will stay near $65 dollars per barrel.