India Nuclear Deal Passes, But What Does It Mean For South Asia's Energy Needs?

President Bush achieved one of his top legislative priorities Wednesday, but the magnitude of the occasion may have been obscured by other news. What I’m referring to, of course, is the US-India civilian nuclear agreement.

The nuclear deal is the culmination of an initial joint statement between President Bush and Indian Prime Minister Manmohan Singh, which was signed in 2006. For the past two years President Bush and Prime Minister Singh have trudged through domestic opposition, international hurdles, and legal bureaucracy to produce a finalized agreement. The pact allows full nuclear cooperation between the United States and India, as well as opening up the Indian market to US nuclear technology suppliers. The necessity of the seal of approval by the Nuclear Suppliers Group also makes it a de facto recognition of India’s status as a legitimate nuclear power, despite their abstinence from the NPT.

Business groups from both nations have a strong interest in the deal. India is the world’s largest democracy, and one of the fastest growing economies. Energy is an especially pressing need, and with international investment nuclear power should help partially meet the growing demand.

But the nuclear deal isn’t the final solution to India’s energy crunch. One potential solution is an infant biofuel industry, which is blooming after a recent decision to mandate that 20% of India’s diesel supply should come from natural sources by 2017. Some say that the volatility inherent in agriculture and certain crops makes the goal infeasible, but BP and D1 (a British biofuels producer) have invested and are optimistic.

India is also interested in the construction of the Iran-Pakistan-India natural gas pipeline, but has been absent in negotiations between Iran and Pakistan, who seem to be pressing on with or without Indian participation. The pipeline has been hailed as a potential guarantor of stability in South Asia by economically linking rivals India and Pakistan. The US, however, opposes the pipeline because it could undercut economic and political isolation of Iran.

Regardless of where it comes from, India is maximizing every opportunity to meet growing demand in its domestic energy market. Of course, India has neighbors that also desperately need new energy sources, which necessarily complicates the situation.

Which energy commodity do you think will be most helpful in meeting Indian demand? Will the nuclear deal be a legitimate source of substantial trade and business cooperation, or does its significance lie primarily in the realm of geopolitics? Who is adopting the best strategy for meeting energy needs? What is the best strategy?