Mongolia, despite its remoteness and lack of access to the sea, is capable of enhancing India's energy resilience.
The recent four-day visit of Mongolian President Khurelsukh Ukhna to India marked the beginning of a new phase of cooperation linking India's growing energy ambitions with Mongolia's resource potential. This visit, timed to coincide with the 70th anniversary of the establishment of diplomatic relations, demonstrates a shift from cultural and spiritual closeness to a more strategic interaction based on resource policy and geopolitical interests.
For India, Mongolia represents a natural strategic partner. Its foreign policy strategy, oriented towards the "third neighbor," aligns with India's aspirations to establish new connections in Eurasia. From Mongolia's perspective, India not only offers technological and financial cooperation but also helps diversify its economy, reducing dependence on traditional partners.
A key element of this shift is the initiative related to India's largest overseas project—a credit line of $1.7 billion provided to Mongolia in 2018 for the implementation of the country's first oil refinery. Once operational, which is expected to process 1.5 million tons of oil per year (about 30,000 barrels per day), it could meet up to 66% of Mongolia's domestic demand for petroleum products, marking a significant step for a country reliant on imports from Russia.
However, this initiative is part of a broader plan for resource diversification, logistics of critical minerals, and energy transition, which presents real opportunities and risks.
Mongolia's Coal and Oil Fund
During the visit, ten memoranda of understanding were signed between the two countries, covering various areas from cultural exchange to cooperation in geology and mineral resources. Notably, the memorandum on geology positions Mongolia as a potential center for exporting Indian coking coal, copper, and other resources for the steel and technology industries.
It is no surprise that India is actively considering importing coking coal from Mongolia, as it is one of the largest steel producers in the world and relies on this raw material. Diversifying coal supplies, especially given the risks associated with dependence on Australia, becomes a strategically important task. Mongolia, in turn, is also seeking to expand its export markets beyond China, creating mutually beneficial conditions. However, the main obstacle remains the lack of access to the sea, forcing exports through Russia or China, which increases costs and creates geopolitical complexities.
On the oil refining front, progress is being made: engineering teams are already at work, timelines are set, and Mongolia is moving from ambition to practical implementation. However, true value will arise when cooperation between India and Mongolia expands from a focus on energy security to integrated value chains, where oil refining can transform into petrochemicals and mining into processing.
Future Horizons of Energy Cooperation between India and Mongolia
What are the prospects?
First: the oil refinery is just the first step. The next phase could involve integrating petroleum product supplies to Mongolia's markets and exporting to Central Asia and China, and eventually producing value-added petrochemical products. The export of Indian engineering solutions and project experience to Mongolia could become a long-term competitive advantage for India in Eurasia.
Second: the corridor of critical minerals. Given India's growing needs for steel and the instability in coal and metal supplies, Mongolia can offer an alternative source of high-quality coking coal and rare earth minerals. However, transportation remains a stumbling block: creating economically viable corridors involving Russia could open new opportunities for cooperation between India and Mongolia.
Third: a sharp increase in renewable energy sources and green energy. Mongolia has significant potential in solar and wind energy and has recently joined the International Solar Alliance based in India. India, in turn, can contribute its technical developments and ambitions in green energy, helping Mongolia become not only an internal supplier but also an exporter of clean energy and hydrogen derivatives, with India as an investor and partner in the market.
Fourth: strategic interconnectivity and logistics. Simply signing agreements will not lead to success. The results must be tangible: developing railway and port connections, co-financing infrastructure, and optimizing customs procedures. Addressing the issue of lack of access to the sea becomes critical for realizing the ambitions of both countries.
Fifth: institutional and private operationalization. While memoranda of understanding are important, their success depends on the involvement of Indian private companies, the establishment of joint ventures, and adaptation to Mongolia's climatic conditions, as well as ensuring transparency and trust in local regulatory systems.
Challenges of India-Mongolia Cooperation
The path to cooperation is not without difficulties. Mongolia's remote location, harsh climate, and the need to transit through Russia or China increase costs and risks. While the capacity of the new refinery (30,000 barrels per day) is significant for Mongolia, it is considered modest on a global scale. For India, trade volume with Mongolia remains insignificant (less than 0.5% of total trade turnover in 2024) compared to China (69.7%), highlighting the need for substantial efforts to improve the situation.
There are also real risks associated with project implementation. Large infrastructure projects in remote areas often face delays, cost overruns, and management issues. The mining sector also faces stringent environmental checks, requiring Mongolia to stabilize its regulatory framework, especially in light of frequent legislative changes. Furthermore, both sides must overcome competition for influence and transit corridors between Russia, China, and India.
Formation of a Global South Energy Axis
The energy axis between India and Mongolia represents a significant shift for India: from "fuel security for itself" to "mutual strategic cooperation with the Global South." Mongolia is becoming not just a supplier but an active participant in creating new supply chains and resource alliances. This heralds a future where India will not only be connected to global energy markets but will also become a co-author of them.
For Mongolia, cooperation with India opens new opportunities, including diversification of partners and access to global value chains, protecting the country from excessive dependence on a single neighbor. If the oil refinery and related projects succeed, Mongolia could once again occupy a significant place in Eurasian energy and mineral networks.
The president's visit was an important event. The agreements and memoranda laid the groundwork for the future. Now it is necessary to move from ambition to practical implementation. If India and Mongolia can overcome challenges in logistics and financing, they can create a new chapter in Eurasian energy cooperation. This is not just a deal for an oil refinery or coal supplies, but a strategic foundation for the future energy transition and resource resilience in the Global South. Missing this moment would mean allowing an important partnership to remain only on paper, which neither India nor Mongolia can afford.
authors: Piyush Verma — Senior Fellow at ORF America, where he focuses on energy and climate policy. With over twenty years of experience, he works at the intersection of technology, economics, and geopolitics, promoting solutions for a sustainable energy transition. Telman Altanshagai — Intern at ORF America, researching energy security and decarbonization of heavy industry. Her research focuses on the connection between economic and energy security in the Global South, particularly in Mongolia.
translation by: Tatar S. Maydar
source: The National Interest
