In June 2018, Mongolia launched the construction of its first oil refinery, costing $1.35 billion, to meet all its demands for LPG, diesel, gasoline and avian fuel. Funded largely by India, this project was under discussion since 1997 and is now scheduled for completion in late 2022. The financing of this refinery is part of a billion-dollar credit line agreement between the Export-Import Bank of India and Mongolia, established during PM Modi’s visit to Mongolia in 2015.
In 2017, Mongolia imported 1.5 million tonnes of oil products (comprising 18% of all of Mongolia’s imports), almost all of which were from Russia. While concerns over the economic viability of the domestic oil refinery due to the heavy regulation of fuel prices do exist, its strategic importance cannot be denied. The refinery has been designed to stabilize fuel and commodity prices and halt Mongolia’s dependence on Russia, by diversifying its sources of energy imports. The refinery will process Mongolia’s own crude oil at 1.5 million tonnes per year or about 30,000 barrels per day. A 10% boost in Mongolia’s GDP is also expected.
This development is relevant within the context of India-Mongolia relations. Mongolia has historically been India’s closest allies as a counterweight, spiritual and strategic partner, despite being a satellite Soviet state and India’s distant neighbour.
Diplomatic relations between the two countries was first established on December 24, 1955. India championed Mongolia’s UN (United Nations) and NAM (Non-Alignment Movement) membership in 1961 and 1991 respectively.
Significantly, in 1971, India had to indulge in a lot of diplomatic battles and lobbying for Bangladesh’s international recognition as an independent country. Only Mongolia and Bhutan co-sponsored New Delhi’s UN resolution in 1972, post which Pakistan cut off diplomatic ties with Mongolia. In February 1973, the Joint Indo-Mongol Declaration was signed as a unanimous promulgation of 8 basic principles guiding Indian-Mongolian relations.
Mongolia supports India’s desired permanent membership of the reformed and expanded UN’s Security Council. India and Mongolia have declared their support for each other for the non-permanent seats in the for 2021-22 and 2023-24 respectively. In 1961, the India-Mongolian Agreement on Cultural Cooperation was signed to facilitate cooperation in education. For example, 21 volumes of Indian classical literature were translated into Mongolian language. This has been consequently renewed for 3-year periods since 2003.
More recently, Narendra Modi was the first Indian PM to visit Mongolia, in May 2015, marking the 60th anniversary of diplomatic relations. A USD 20 million line of credit was announced for the setting up of a “Centre of Excellence for IT, Communication & Outsourcing”, named after former PM Atal Bihari Vajpayee in Ulaanbaatar. Its construction is likely to start this year. Moreover, a Working Group for cooperation has been set up between the Department of Atomic Energy and the Nuclear Energy Agency of Mongolia.
As External Affairs Minister Sushma Swaraj said, Mongolia is increasingly being recognized as an important ally in India’s growth story. Mutual agreement to remove any institutional and logistic impediments, in order to boost tourism, trade, connectivity, public-private partnership and defense networks, is reflected in the likelihood of direct flights between India and Mongolia, new scholarships for Mongolian students etc. Thus, collaboration between India and Mongolia is extending beyond literary exchanges and a shared cultural heritage based on Buddhism.
In the larger Asian context, China accounts for 70% of Mongolia’s trade, including sale of crude oil. In 2016, Mongolia faced an economic blockade on the supply of essential commodities by China for hosting Dalai Lama during a religious visit. In order to reduce its dependence on its neighbors, Mongolia is keen to attract investments in different sectors like mining to utilize its largely untapped resources and mineral reserves.
So, in addition to the economic and diplomatic partnership upon various ongoing 
development projects, renewed regional, bilateral and international collaboration between India and Mongolia will also help counter Russian and Chinese influence vis-à-vis multiple global challenges like insurgency/terrorism and issues of economic interest. The surge in India’s ties with Mongolia under PM Modi’s leadership is an integral part of India’s Act East policy and the recent developments reflect renewed strategic efforts to promote peace, stability and prosperity in the region.
source https://www.indiaoutbound.org/india-and-mongolias-strategic-alliances/
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