Factors shaping India's renewed interest in Mongolia And why China is sure to notice

The recent four-day state visit of Mongolia’s President Khurelsukh Ukhnaa to India signaled a deeper phase of cooperation between India’s expanding energy ambitions and Mongolia’s growing resource potential, hinting at the emergence of a new strategic axis in Asia.

For India, Mongolia has become a natural strategic partner—its “Third-Neighbor” foreign-policy doctrine aligns seamlessly with New Delhi’s efforts to build new bridges across Eurasia. For Mongolia, India offers not only technological and financial support but also a crucial means of diversifying away from longstanding dependencies, as reported by The Diplomat publication.

At the center of this evolving partnership is India’s largest foreign-development commitment to date: a $1.7 billion line of credit extended to Mongolia in 2018 to build the country’s first oil refinery.

Designed to process 1.5 million tons of crude annually—about 30,000 barrels per day—the refinery is expected to meet between 50 and 66 percent of Mongolia’s demand for refined petroleum products. For a nation heavily reliant on Russian fuel imports, the project is widely viewed as transformative.

Yet beyond the refinery lies a far broader agenda encompassing resource diversification, critical-minerals supply chains, energy-transition cooperation, and new regional connectivity routes—areas that hold both significant opportunity and inherent risk.

During the October visit, the two governments signed 10 memoranda of understanding spanning digital collaboration, cultural exchange, geology, and minerals cooperation. A standout agreement was the MoU on geology and mineral resources, which positions Mongolia as a future export hub for India’s needs in coking coal, copper, and other critical inputs essential to its steel and technology industries.

India’s interest in Mongolian coking coal is unsurprising: as one of the world’s largest steel producers, it depends heavily on imported metallurgical coal. Reducing reliance on Australia and lowering supply-chain vulnerability has become strategically important. Mongolia, whose coal accounts for more than half its exports by volume, is eager to diversify its markets beyond China. The alignment is clear—but the land-locked geography remains a major hurdle, with routes passing through either Russia or China, both of which introduce cost, regulatory complications, and geopolitical sensitivities.

The refinery represents only the first stage of possible cooperation. Future steps could include downstream integration—supplying refined products to Mongolia’s market, exporting surplus fuels to Central Asia or northern China, and eventually expanding to petrochemical manufacturing. For India, exporting engineering expertise, project-execution capabilities, and technical training to Mongolia strengthens its long-term strategic foothold in Eurasia.

As India seeks to secure stable supplies of coal, metals, and rare-earth minerals amid global uncertainty, Mongolia offers a significant—though logistically challenging—alternative. Should India and Mongolia, working with Russia as a transit partner, establish cost-effective transport corridors, analysts suggest the possibility of a “Mongolia-India Raw Materials Bridge.”

Energy transition is another emerging front. Mongolia possesses vast solar and wind potential and recently joined the International Solar Alliance. India brings advanced technical capabilities, strong manufacturing capacity, and an increasingly influential role in global green-energy diplomacy. A partnership in renewables could eventually position Mongolia not only as a domestic clean-energy producer but also as an exporter of green electricity or hydrogen derivatives, with India acting as investor, technology partner, or buyer.

Still, major constraints temper expectations. Mongolia’s challenging geography, severe climate, and dependence on transit through larger powers raise both logistical costs and political risks.

The refinery, while important domestically, is modest in global terms and unlikely to transform the regional energy map alone. Economic data also highlight the scale of the challenge: Mongolia’s trade with India remains minimal—less than 0.5 percent of its total turnover in 2024—while China accounts for 69.7 percent, underscoring just how much ground New Delhi must still cover.

By Nazrin Sadigova