ISLAMABAD/NEW DELHI (Reuters) - India is looking to export fuel to Pakistan and the issue is likely to be discussed this week by their top commerce ministry officials as the two nuclear-armed rivals seek to revive a broad peace process that was derailed after the 2008 Mumbai attack.
Like much of their commerce, fuel trade between the two neighbours has been held hostage by their years of hostility, with Pakistan intermittently lifting a ban on imports of Indian petroleum products when relations have improved.
Pakistan currently bans imports of Indian petrol. It allowed diesel imports from India in 2009, but no Indian supplies were sent in the face of preferential prices offered by Pakistan's allies such as Kuwait.
If imports are allowed by Pakistan then it could bring a new market for Indian refiners such as Reliance Industries (RELI.NS) and Essar Oil.
Efforts at full-fledged fuel trade comes as the two nations, which have fought three wars since independence from Britain in 1947, said in February they were reviving a peace process that was broken off after the Mumbai attack killed 166 people.
In March, the prime ministers of the two countries watched their cricket teams play in a World Cup semi-final match, raising hopes of further improvement in ties that affect security across South Asia.
As part of the broader peace process that involves resolving their border disputes, the commerce secretaries of the two countries will meet in Islamabad on April 27-28, the first bilateral talk since the two prime minister watched the cricket match in India.
"It's a possibility that is being looked at with a positive frame of mind from our side," an Indian government official said on condition of anonymity given the sensitive state of relations between the two nations.
Pakistan's Commerce Ministry spokesman Najib Khawar Awan said it was likely that India would raise the issue of fuel trade, though he denied the matter was on the meeting's agenda.
"At the moment, there is no such thing that Pakistan expressed willingness to import fuel products from India but they (Indian side) may bring that proposal on table during the upcoming talks," Awan told Reuters.
On Monday, India's largest refiner Indian Oil Corp said it was willing to supply petrol and diesel if Pakistan lifts its ban on imports of these fuels.
IOC's head of refineries, B.N. Bankapur, said if Pakistan lifts the import ban it would provide an opportunity to expand IOC's 300,000 barrels per day (bpd) refinery in the northern Indian town of Panipat.
Private refiners such as Reliance and Essar could also benefit, but not everybody is optimistic.
While volatile relations raise the odds on smooth trade between the two countries, a ban by Pakistan on movement of fuel from India by road means geographical advantages do not translate into lower transport costs.
The biggest hurdle for Indian exporters appears to be the preferential price at which Middle East countries sell fuel to Pakistan.
"India can supply fuel to Pakistan if it is willing to pay the price. The only catch here is that Pakistan gets fuel supplies from some Middle East countries at favourable prices," said an Asian oil product traders.
"This may deter Indian exports to Pakistan."
(Additional reporting by Kamran Haidar in ISLAMABAD; writing by Krittivas Mukherjee; editing by Jason Neely)