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New Delhi’s Hyderabad House is the seat of Indian diplomacy. The 36-room, butterfly-shaped palace, originally the royal residence of the last Nizam of Hyderabad, has played host to foreign heads of state since India’s independence in 1947. So, when Indian Prime Minister Narendra Modi stood alongside his Canadian counterpart, Justin Trudeau, inside that mansion during his ill-fated state visit, the moment was rife with symbolism.

“Canada is [an] energy superpower and can meet our growing energy needs,” Mr. Modi said, speaking in Hindi during a joint news conference in February, 2018. “Today, we have decided to expand our energy dialogue and design the future of our energy partnership.”

Prime Minister Justin Trudeau meets with Indian Prime Minister Narendra Modi in February, 2018.

ADNAN ABIDI/Reuters

More than a year-and-a-half later, Mr. Trudeau’s government has made scant progress in expanding Canada’s energy ties with the South Asian country. With Canadians set to vote in a general election in October, the next government has a golden opportunity to strengthen that energy partnership.

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There’s an imperative to act because the two countries have complementary needs. Canada needs supplementary buyers of oil, while India is seeking more stable (and, yes, scrupulous) sellers, especially now that Saudi Arabia and Iran are embroiled in yet another conflict.

What’s more, gathering economic headwinds in Canada and India underscore why neither country can afford the status quo. Canada’s oil sands are stuck in the doldrums because of depressed prices for heavy crude, diminished capital investment and delayed (and deceased) pipeline projects. India covets energy security and more influence over global commodity trading – especially now that rival China is starting to position the yuan as a petro-currency to challenge the U.S. dollar’s dominance in the oil trade.

As demand for foreign oil grows in India, Gateway House, a Mumbai-based foreign-policy think tank, is urging India to forge a bigger role for its commodity exchanges and currency in the world’s oil trade. A recent report, titled A Case for the Petrorupee, contends that India should use its heft as a top oil importer to bolster its energy security and protect against future price shocks.

As a first step, the report recommends that India establish exchange-traded funds (ETFs) for crude oil on Indian exchanges. Although India has a dearth of domestic oil production, it has an abundance of investors. As a result, new crude oil ETF products in India could prove fortuitous to Canadian companies.

“Private investors are more sophisticated, and more willing to try out new products,” the study’s author, Amit Bhandari, told The Globe and Mail in an e-mail.

“A product could be offered to these investors, giving them exposure to Canadian upstream – one way to do this can be via an ETF (or a regular fund) sold in India, which invests in Canadian upstream (and perhaps other natural resources as well),” he later added.

“An added benefit of establishing crude-oil ETFs will be that the underlying oil, which would be physically stored in India, could be used in an emergency," the report reads. "In effect, it would become the strategic petroleum reserve that the government is trying to create using public money.”

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A new crude oil ETF market in India could also create potential partnership opportunities for Canada’s banks and the Toronto Stock Exchange given their interests in the energy sector – if we can get stranded crude to tide water. The next federal government should make it a priority to help resurrect the Energy East pipeline project, cancelled by TransCanada Corp. in 2017, because East Coast facilities are equipped to handle the ultralarge crude carriers needed to get oil to India.

This is a no-brainer for Ottawa. India is the world’s No. 3 importer of crude oil behind China and the United States. Last year, it purchased oil worth US$114.5-billion, roughly 9.7 per cent of the world’s total crude imports, according to World’s Top Exports. India’s top five suppliers are Iraq, Saudi Arabia, Iran, Nigeria and the United Arab Emirates.

Canada, meanwhile, is the world’s No. 4 exporter of crude oil (behind Saudi Arabia, Russia and Iraq) but doesn’t even rank among India’s top 15 suppliers. It’s a wasted opportunity for both countries.

“India’s oil investments (mostly by government-owned oil companies) so far have often been in countries that are politically or economically unstable – Venezuela, Sudan/South Sudan, Syria, etc. We need to look at more stable destinations if we want secure energy supplies. Canada is right up there,” Mr. Bhandari said in his e-mail.

Canadian producers have long set their sights on capitalizing on India’s increasing demand for imported oil. Officials from the two countries have been talking for years. Now is the time for both countries to walk the walk because neither can afford for China to be the only Asian country with increasing influence over the global oil trade.

China, which is known to meddle in financial markets, has introduced yuan-denominated oil-futures contracts on its new Shanghai International Energy Exchange as direct challengers to West Texas Intermediate and Brent futures contracts. “The rule of law is applied evenly in India – again, a contrast to China, which recently arrested three Canadian citizens on political grounds,” a related report also authored by Mr. Bhandari reads.

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India, he argues, needs to make more oil and gas investments as a hedge against future oil-price spikes. When it comes to Canadian oil companies specifically, he’s previously recommended Indian government firms acquire minority financial stakes in Canadian oil companies.

“A 5-per-cent stake in a Canadian oil company is better than taking up a majority stake in a small oil field, which requires creation of physical infrastructure/presence in yet another country, and with all the attendant complications of running an oil operation,” he said.

“Clearly, stability and rule of law are as important as geology in deciding what oil comes to the market. As investors, Indian companies overlooked this. Their investments have happened largely looking into the rear view mirror, not the road ahead. This needs to change.”

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