South Asia – India, Pakistan, Afghanistan, Bangladesh, Sri Lanka, Nepal, Bhutan, and the Maldives – remains one of the most strategically critical yet least integrated regions in the world, both politically and economically. With one-quarter of the world’s population, abundant natural resources, and large consumer markets, South Asian countries have significant economic potential. However, intraregional trade amounted to just $23 billion in 2025, far below the projected $67 billion threshold and a miniscule fraction of India’s over $130 billion annual bilateral trade with China.

South Asia occupies the strategic land bridge between the booming economies of East Asia and the energy-rich Gulf Cooperation Council countries. These regions are connected by the Indian Ocean and separated only by the Arabian Sea, making the subregion a vital transit hub for trade and energy flows. Nevertheless, despite this strategic location, regional trade blocs do not reflect strong trade figures for the subregion.

While India is one of the largest trading partners for the GCC countries, with trade surpassing $184 billion in 2022, India’s trade with its neighbors in the South Asian Free Trade Area was much lower, totaling just $37 billion that year. This disparity underscores a paradox: Despite close geographical proximity and shared economic interests, trade within South Asia itself remains significantly limited, revealing the region’s fragmented economic integration.

Moreover, analysts have predicted the demise of the region, considering uneven growth rates and economic divides, climate stress, enduring conflicts, declining democratic standards, terrorism threats, and divisive nationalist sentiments, all of which drive uncertainty and insecurity. Most critically, the enduring rivalry between India and Pakistan – two nuclear-armed neighbors – further hamstrings economic integration and hinders the region’s ability to strengthen strategic ties with other regions, particularly the GCC countries.

Aggregate subregional gross domestic product in South Asia is forecast to expand by 6.3% in 2024 and 6.5% in 2025; however, this is largely driven by India – which constitutes nearly 80% of the subregional economy. At the same time, countries such as Bangladesh, Pakistan, and Sri Lanka struggle under the weight of political instability, corruption, and high external debt, limiting their growth potential and ability to strengthen ties with the Gulf. South Asia’s total long-term public and publicly guaranteed external debt nearly doubled from $221.3 billion in 2012 to $418.6 billion in 2022, pushing countries such as Pakistan and Sri Lanka to the brink of economic crisis.

South Asia Going South: Protests Sweep Sri Lanka, Bangladesh, and Pakistan

Once envisioned as a subregion poised to benefit from the emergence of the “Asian Century” – driven largely by the growth of India and China since the early 2000s – South Asia today is deeply fragmented. Its aspirations for regional integration and growth have become increasingly threatened by the “Arab Spring moment,” with public discontent, political upheaval, and demands for profound governmental reforms mirroring the uprisings that transformed the Middle East and North Africa a decade ago. Very real problems of poverty, unemployment, inflation, lack of development, and mismanagement have been driving protests in Sri Lanka, Bangladesh, and Pakistan since March 2022.

In Sri Lanka in 2022, widespread protests led to the removal of President Gotabaya Rajapaksa, who ruled the country at a time when foreign debt levels were rising and food and fuel costs were soaring uncontrollably. His successor, Ranil Wickremesinghe, resolved the immediate financial crisis by negotiating a $3 billion bailout package with the International Monetary Fund in 2023. Nonetheless, by late 2024, 25.9% of the population was living below the poverty line, and the country’s youth were taking to the streets, demanding systemic reforms and accountability from the government. In November 2024, elections brought to power President Anura Kumara Dissanayake, a leader from outside the traditional family dynasties, with commitments to implement much-needed economic and constitutional reforms.

In early July 2024, anti-regime protests, decades in the making, erupted in Bangladesh. The protests, organized by students, the opposition Bangladesh Nationalist Party, and others, were triggered by former Prime Minister Sheikh Hasina’s unpopular decision to allocate 30% of public sector jobs to descendants of freedom fighters from the 1971 Bangladesh War of Independence. In the face of a harsh police crackdown, the protests spiraled out of control, resulting in numerous deaths and injuries, and ultimately leading to Hasina fleeing to India. In August, Nobel laureate and microfinance pioneer Muhammad Yunus established an interim administration. Yunis promised a bold agenda to implement much-needed political, economic, and electoral reforms. While the interim administration enjoys widespread public support, implementing these desired reforms – particularly with general elections expected by December – remains a significant challenge

Pakistan’s economic crisis has been exacerbated by a combination of internal and external factors. The coronavirus pandemic and the Russia-Ukraine conflict disrupted the global supply chain and worsened food security, exacerbated by devastating floods in 2022. Meanwhile, civil-military tensions, sectarian conflicts, corruption, and political instability have severely impacted Pakistan’s economy. Although Pakistan secured the final approval from the IMF late September 2024 to start a $7 billion loan program, it came with stringent calls for reforms, actionable policies, and assurances from the government across party lines to strengthen macroeconomic stability and resilient growth. In November 2024, the high court granted bail to former Prime Minister Imran Khan, who was imprisoned on corruption charges in May 2023, prompting violent countrywide protests demanding his freedom, triggering a political crisis and further hindering economic growth.

South Asia’s Pivot to the Gulf

While there are limitations on regional cooperation, intraregional trade, and integration for South Asian countries, they are alternatively strengthening their ties with the GCC bloc through bilateral strategic partnerships. These strategic partnerships – spanning economic, military, and other strategic fields – are fluid and nonbinding, responsive to regional dynamics and local contexts in a multipolar Asia.

The GCC states are home to over 17 million South Asian expatriate workers, primarily from India, Pakistan, Bangladesh, and Sri Lanka, whose remittances – around $190 billion in 2024 – contribute substantially to their home countries’ GDPs. Furthermore, South Asia is heavily dependent on oil and gas imports from the Gulf states, with nearly 80% of total liquified natural gas volumes from the United Arab Emirates and Qatar exported to the Asian market, including India, Pakistan, and Bangladesh. Gulf states import nearly 85% of their food items from abroad. South Asian countries, such as India, the world’s second-largest food producer, and Pakistan and Sri Lanka, both of which have an abundant capacity to address food security problems in the Gulf states, play a crucial role in this trade. Meanwhile, the GCC countries are an important source of investment for many countries in South Asia, including India, Bangladesh, and Pakistan.

Despite rivalries and enduring competition for strategic partners in South Asia and the GCC, bilateral engagements between individual countries have grown both in number and scope, covering areas such as trade, investment, and energy cooperation. As South Asia’s leading economic power with a knowledge-based economy and the region’s largest population, India is integral to the Gulf states’ “Look East” policies.

India is the largest trading partner for Gulf states in South Asia, with bilateral trade reaching $161.82 billion in 2023-24, accounting for 14.22% of the GCC’s total trade. India’s trade with the UAE in 2023-24 reached $83.6 billion, while it stood at $42.9 billion with Saudi Arabia and $14 billion with Qatar. Additionally, the GCC states are crucial to India’s energy security, meeting 55.3% of its oil demand in 2022-23. India is working to establish strategic partnerships with the Gulf states, particularly the UAE, Saudi Arabia, and Qatar, on climate, energy, and renewables; defense and maritime cooperation; food and cybersecurity; and space.

Comparatively, Pakistan’s influence in the Gulf has diminished considerably due to its deteriorating economic situation, with foreign exchange reserves only recently improving to approximately $16 billion, up from a low of $3.09 billion in February 2023. This decline is compounded by ongoing domestic political instability and unrest. Nonetheless, the GCC finalized a preliminary free trade agreement with Pakistan in September 2023, as part of the GCC’s broader economic diversification strategy, and highlighted its intent to “level the playing field” in South Asia, especially amid transformative GCC-India relations under Prime Minister Narendra Modi. Moreover, Saudi Arabia’s Aramco signed a memorandum of understanding in 2023 investing $10 billion toward building Pakistan’s largest oil refinery in Gwadar, while the UAE’s AD Ports Group signed a memorandum of understanding with Pakistan in November 2024 agreeing to invest nearly $400 million over the next 15 years. This comes as the UAE-Pakistan trade volume rose to $7.9 billion in 2023, up 12% from 2022, while the UAE’s foreign investment in Pakistan amounted to nearly $10 billion over the last 20 years.

Meanwhile, Sri Lanka and Bangladesh each contribute up to 1.5 million skilled and semiskilled workers to the Gulf’s growing sectors, including construction, transportation, manufacturing, fishing, and domestic services. The Gulf economies are vital for their remittance inflows, which contribute approximately $4 billion and $5.5 billion, respectively, to their GDPs. With the aim of boosting its domestic tourism market, Sri Lanka announced visa-free travel for the UAE, Saudi Arabia, and 33 other countries in August 20224. The Yunus-led interim government has requested that Saudi Arabia and Kuwait help Bangladesh with skills development, following the announcement of a series of robust domestic economic reforms.

Bangladesh, despite taking steps to reduce its dependence on petroleum products for electricity generation, still plans to import 1.5 million metric tons of crude oil from Saudi Arabia’s Aramco and the UAE’s Abu Dhabi National Oil Company, out of a total 6.5 million metric tons of various petroleum fuels imported annually. Similarly, Sri Lanka remains deeply dependent on imported oil to sustain its economy, sourcing over 90% of its crude oil and about 40% of its refined petroleum from Middle Eastern countries, primarily Saudi Arabia, the UAE, and Kuwait, in 2023.

The evolving dynamics between South Asia and the Gulf underscore a significant shift toward bilateral strategic partnerships, as the South Asian regional bloc grapples with internal integration challenges. Economic and political instability in key South Asian countries, coupled with varying levels of development and cooperation within the region, have hindered collective progress. This has led individual countries to seek direct engagement with GCC states, leveraging these partnerships for economic stability and growth. India stands out as a leader in the trend toward bilateralism, forging multifaceted ties with the Gulf states. Similarly, Pakistan, Bangladesh, and Sri Lanka are heavily reliant on the Gulf for labor exportation opportunities and oil imports, further emphasizing the region’s strategic importance. As South Asia strives to overcome domestic and regional challenges and chart a path toward sustained growth, its pivot toward the Gulf is both a necessity and an opportunity.