Introduction

South Asia accounts for twenty-two per cent of the world's population, two per cent of the world's Gross National Product (GNP), and is home to about forty per cent of the world's poor. However, the region's seven countries contribute only about one per cent to world trade. Combining this low level of economic development with political and ethnic disparities makes this region economically and politically very sensitive. With the ratification of the South Asian Free Trade Agreement (SAFTA) in March 2006 by all member states, the process of liberalizing trade and investment was set in motion.

The process of regional integration has gone hand in hand with multilateralism for several decades. The European Union, North American Free Trade Agreement (NAFTA), ASEAN Free Trade Agreement (AFTA), and Southern Common Market (MERCOSUR) are examples of this process. Now, with the collapse of the Doha Round, developing countries have started pursuing regional and bilateral agreements with a new vigour.

South Asia has not been a forerunner in the movement of regional integration and remained untouched by the initial wind of regional integration that swept through different sub-regions of Africa and Latin America in the early 1960s. This was in part due to the fact that the region has been embroiled in geopolitical tensions leading to distrust, which has been reflected in the hurdles that it has faced with every step towards regional integration and its integration with the rest of the world.

This chapter puts forth the argument that even though the process of regional integration has been sluggish in the region, it has not died down. The chapter also provides an overview of the energy scenario in South Asia. In this era of globalization, if there is one important variable that can foster this process, it is energy cooperation. South Asian countries have the potential of pooling indigenous resources and ensuring energy security, and at the same time, reducing the dependence on external sources coming from areas such as the Middle East.