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The article aims at exploring the diverse kind of relationship that Nepal shares with India-China and the impact it created in the trade and negotiations of Nepal, particularly regarding fuel and other petroleum products. An attempt is made to analyze the subsequent changes taken place in Nepal’s fuel sector as a result of its changing leadership. At present, a great challenge had stood before India with the coming of the new Nepal government as the winning leader Mr. Oli stated his rebound with China as one of his agenda if his party won. The overall research will be majorly studying the impact of the new government on India-Nepal relations, primarily focusing on fuel diplomacy.

The relationship between India and Nepal can be traced back since ancient history as they are known for sharing a common identity regarding language, culture, practices, etc. for ages. However, the formal ties between the nations officially got strengthened with the 1950 Treaty of Peace and Friendship and Treaty of Trade and Commerce. These two treaties allowed access to the two open border by the citizens to move freely across the borders. Nepal had got immense benefits from the alliance with India such as working with Indian services and businesses, imports of petroleum products, manufacturing items, etc. Nepalese are also seen serving in Indian army. However, being a landlocked country, Nepal can only depend on India and China for its economic survival since it has a closed economy. For this purpose, Nepal has also signed a Peace and Friendship treaty with China, similar to that of India. The only difference is that Chinese and Nepalese use a pass to cross-border whereas in case of India the movement is free. Even though it majorly depends on India for almost 80% of its imports, it also ensures friendly relation with China to reduce its complete dependence on India. Thus, to stabilize its government and external affairs, Nepal strives to maintain a balance in its bilateral relations with both the countries.

Nepal holds monopoly power over its petroleum sector with Nepal Oil Corporation (NOC) being the only oil company in the country. Though NOC doesn’t have any absolute power in determining the oil prices or any other decision, it can advise on any such issues. It should be noted that Nepal lacks in keeping any source of oil and other petroleum products for itself on a permanent basis, depending on other country’s export. In this context, India predominantly exports fuel, and with the signing of MoU of petroleum supply in 1974, the Indian Oil Corporation became the sole exporter of petroleum products to Nepal. Nepal has enjoyed notable benefits under the MoU. One such example is the export of petroleum products to Nepal without imposing any taxes . But, India seemed to show it’s over power by imposing certain rules on its supply by stating that Nepal should import only from IOC and not any other countries, not even from other oil companies within India. The acceptance of this rule made Nepal to excessively depend on India for its entire petroleum sector. Any downfall in India’s export would result in adverse effects for Nepal. As it is said that in 1990, Nepal imported around only 9 million Litres of petroleum products from India per year, whereas it imports nearly 100 million liters now. Thus, the consequences of changes in the level of import are more . 

India’s dominance was not welcomed by the Nepalese people, parties, and other organizations. They openly condemned its interference in Nepal’s internal politics and economy through news reports, cartoons, etc. Further, Nepal itself doesn’t have political stability due to the prevailing ideological differences between the right and the left wing. The Maoists claimed that India is more biased towards Nepalese Congress and the dominance nature of India is carried out only for its purpose and not for the betterment of Nepal .

India also delayed the formation of Nepal’s new constitution as, according to it, this would be a threat to the Indians residing over there. However, in 2015, the Left government adopted the New Constitution in 2015 much against the wish of Madhesis (they are said to be originated from India) and other ethnic groups in the Nepal border. According to the Madhesis, their concerns were not taken while framing the new constitution, thereby, making them feel insecure. The consequence was a sudden undeclared economic blockade from India which stopped its exports of petroleum products to Nepal. However, India denies of imposing any such blockade and points out the role of the border groups over its responsibility. This is said to be the second blockade by India after the 1989-90 one where the then Indian Prime Minister Rajiv Gandhi declared an economic blockade after Nepal's import of arms and weapons from China without the concern of India.

Being a least developed country, landlocked between China and India, Nepal had no other option but to constantly look for India’s support and thus, the then Nepal Prime Minister K. P. Oli repeatedly visited India and requested to withdraw its blockade. But, India seemed to show its least importance towards it by tending to show its so-called “Big Brother” attitude. This blockade resulted in a great crisis as most of the essentials like fuel, medicines, food grains, etc. were blocked. Nearly all the 28 million people were in trouble and a loss of 200 billion rupees was estimated in Nepal . This created more tension among the Nepalese people as it is stated that more than 80% of Nepal’s total products are imported from India.

China took this blockade as a great opportunity to strengthen its economic alliance with Nepal. The relation between the two countries are evolving at a gradual pace, and this stood as a time for China to provide a helping hand to Nepal. China welcomed the new constitution and gave support with regards to fuel trade. Likewise, the two countries signed a MoU for the first time which allowed Nepal to import fuel and petroleum products from China. It imported nearly 1000 metric tonnes of fuel and other products. They also discussed various other pacts to enhance their relations regarding infrastructure, etc. This impressed the Nepal government, and it started moving more closely to China as it reduced their absolute dependence over India.

However, there was a sudden stoppage in the continuation of their alliance due to the entry of the Nepalese Congress to power in 2016 and Nepal restored its ties with India. Several partnership agreements were signed between them on fields like infrastructure, exchange, sustainable development, etc. Nepal Congress continued to be in touch with China but in a regulatory manner. 

The recent Nepal elections held in December 2017 gave a robust come back of the Left Alliance with an impeccable majority. This result seems to be a great indication for China to rebuild its lost alliance with Nepal as Oli’s government will be more pro-china and anti-India. For India, it must be a shock as now it might take a step back regarding its entirety over Nepal. Mr. K. P. Oli stated that on coming to power, he would be more towards the pro-China strategy to ensure the development of Nepal’s infrastructure and other relatable sectors through its alliance with the Chinese government. The results gave a huge victory for the great left party which comprises of UML and Maoists. They were the ones who created a more anti-Indian mindset towards the people and wanted to drive the Nepalese citizens and organizations to be more self-dependent. Consequently, the comeback of Oli’s party is a clear sign of frustration of the people due to the five months blockade.

For India, the victory of the Left alliance is merely a shock due to the controversies that arose during the previous Oli government. The fragmented relation between India and Nepal, especially after the 5-months blockade, cannot be smoothly restored in the near past. With respect to fuel, Nepal is clear in reducing it’s absolute dependence on India. Roughly, around 90% of Nepal’s fuel is exported from India. This stands to be a massive source of income for India. Thus, restricting its fuel exports to Nepal will also affect India leading a loss in its balance of trade account.  India, thus, needs to take a more careful step while dealing with the strategies of Nepal.

For China, it is more of a welcoming result as the sudden conclusion of its bilateral policies in 2016 might now take a new turn with the coming of left party. Though China is not as dominating as India and the relationship between the two is in a starting phase, China will also be more concerned while taking any major step. Nepal is also looking forward to join China’s ‘One Belt, One Road’ Initiative which might lead to better infrastructure, thereby making fuel trade from China to Nepal easier. However, before coming up with any policy, China should also consider not affecting its relation with India as that may lead to certain restrains between the two countries whose ties are stronger than China-Nepal.

This is a cautious time for Nepal as it requires the support of both the countries for long-term benefit. K. P. Oli might go more pro-China if he craves to be out of the direct control of India. But at the same time, he cannot ignore India since Nepal is more landlocked by India than China and almost 90% of imports to Nepal come through India. 

However, if India continues to show interference in the internal affairs of Nepal beyond the limit, there would be constant tensions between the two countries, and it might lose its power. To maintain its control over fuel diplomacy, India might give certain concessions with regards to Nepal’s demand without affecting its internal policies. 

China too might go for creating more hormonal and communal balance with Nepal as it now requires a more liberalized policies in its recent ideologies. China paves a positive way in this aspect to support Nepal though it might have its own internal interested through it. 

India seems to be loosing its control over the neighboring countries since past few years. In the case of Nepal, the NDA government failed to implement effective policies to keep a hold on its external affairs. Its intrusion in Nepal’s internal politics has left the citizens over there to go against India and look out for a substitute. Accordingly, the planned move of China gave India a major setback. Thus, it is now important for India to facilitate Nepalese people with certain privileged schemes that could end their anti-Indian perception. However, the upcoming role of China will definitely bother India. Thus, it needs to work more on certain areas in order to maintain its control over Nepal, like: good coordination with the Left wings, a more deeper and liberalized external policies, better infrastructure facilities with special concerns to trade and transport, providing suggestions for effective utilization of budgets, etc. 

Nepal too, could not disregard India and the recent telephonic conversations between the Indian Prime Minister Narendra Modi and Nepal Prime Minister K. P. Oli proves that both the countries are likely to retain their ties. But, since Nepal is also looking forward to be a part of the ‘One Belt, One Road’ initiative, and hence, it might be more closer to China unless India provides with a better alternative. This initiative of China creates a flexible route for trading and for Nepal which is closed between these two countries might find China as a better source of trade than India. And, as it is evident that Oli’s ideology is to be pro-China, their convention might be easier. Thus, it is mandatory for India to come forward with facilities like providing oil storage facilities, exporting fuel with attractive prices, easy trade, etc. Furthermore, India must make sure that it supports and respects the sovereignty of Nepal. At least for now, it should regulate its ‘Big Brother’ attitude.

The unique relationship shared between India and Nepal served as the main reason for Nepal’s over dependence on India. Being landlocked between China and India, any policies in Nepal is implemented keeping in mind the bilateral relations with these two countries. However, in recent years, Nepal is more concerned on being a self dependent country, at least to restrict the over interference of its largest neighbor, India. India was predominantly exporting fuel and other petroleum products until the major blockade in 2015. The economic blockade has created a long term effect not only on Nepal’s economy but also on the age long relationship between the two nations. This made Nepal to go towards China for alternative trade solutions. The various schemes and agreements that China had promised made the country to go more towards China. However, it should be noted that the internal fragmentations in Nepal often affect the role of India and China in its policies. Nepalese Congress are pro-Indian whereas Left wings are pro-Chinese. 

Hence, the come back of Left Party in the recent elections marks to be important for both India and China. While for China it’s a welcome, India might be in a shock. It is evident from Oli’s victory that Nepal is more likely to go closer to China leaving back India especially in terms of trade. But, it must also bother about India which is relatively more significant for Nepal. Frequent meetings and summits is required to come up with a prime ideology that could focus on the interested of both, India and Nepal. China might also continuously strive to build up its alliance with Nepal. Though, the future is uncertain, it is important for India to implement a well built ideology in order to reduce the growing influence of China in Nepal’s trade practices. 



1. Dahiya Rumel and Behuria K. Ashok, ‘India’s Neighborhood- Challenges in the Next Two Decades,’ 2012, Published by Pentagon Security International 

2. Fact Finding Mission Report, ‘Nepal Blockade- A Humanitarian Crisis Amidst Diplomatic Kerfuffle,’ 2016, Published by South Asians for Human Rights (SAHR) (Srilanka)

3. Sharma M. Milan, Shrestha Sudeep, ‘Anti-Competitive Practices in Nepal’s Petroleum Sector, 2007, Published by SAWTEE

4. Patel Dharmesh, ‘The Entangled Triangle of Nepal, India, and China,’ Vol. 10 No. 2, 2013, Culture Mandala

5. Jagannath Adhikari, ‘Fuel and Freedom’- Kathmandu Post, Published on 11-10-2015, http://kathmandupost.ekantipur.com/ampnews/2015-10-11/fuel-and-freedom.html  

Image Credit: Olive green Institute: Nepal, a foxy neighbor of India


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Written By Umamageswari Maruthappan

An Economics graduate from Mumbai, with a passion in reading, writing, research, analyse and public speaking

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