Iran for dummies

Energy is the common bind between Delhi and Tehran.

As an Indian delegation of businessmen being organised by the Federation of India Chambers of Commerce and Industry (FICCI) was getting ready to leave for Iran to boost currently cold economic ties, Tehran suddenly decided that the delegates need to get tests for HIV, Tuberculosis and Hepatitis C before entering the country. A miffed New Delhi has taken up the issue via diplomatic channels with Iran.


This sudden curve-ball by Iran highlights the ongoing stress being observed between Delhi and Tehran. Since the ouster of former President Mahmoud Ahmadinejad, the new regime under President Rouhani seems to have taken a tough stand with India over issues such as falling trade, delayed Indian investment projects, unpaid oil payments of nearly $5 billion and possibly a rekindled grudge towards India for voting against Iran at the United Nations over its nuclear programme.

Since the breakthrough in negotiations between Iran and the P5+1, the energy landscape of the region has already started to change. With America relying less and less on crude sourced from the Gulf, alternate providers such as Canada and central Asian countries gaining stronger foothold and possibility of sanctions being raised on Iran have started to put pressure on many members of OPEC, the cartel of major oil producing nations which, till now, has been instrumental in setting global oil prices.

As global oil demand remains at a stagnant position, OPEC members are concerned over member Iran regaining its exploration and production capacity and also being accessible as a regional competitor for foreign investment in the sector. Iran’s oil minister has already made it clear that his priority is to develop Iran’s capacity again and not thinking about its effects on fellow OPEC comrades. According to latest OPEC data, countries such as Saudi Arabia may have to decrease production in 2014 and both the Iran and even a rising Iraq factor can upset the balance within OPEC itself. Nonetheless, this availability of extra resource will not get the prices of Brent crude below the elusive $100 per barrel mark, keeping the cost of importing fuel high yet relatively controlled to what it was just a year or so ago. Prices are still susceptible to wild speculative trading due to regional factors such as Syria and the ever-increasing sectarian divides in the region.

However, ease of sanctions on Iran will make it much easier for India to re-start its energy relations with the country, which in turn, will also ease diplomatic strain between the two governments. Iran has around $5 billion in oil payments lying inaccessible to it in a UCO Bank branch in Kolkata. The previous method to route the money via Halkbank in Turkey was also shut down by increased sanctions by the United States and the European Union. Any other way would, for India, constitute going against the multitude of international economic treaties it is signatory to.

Washington did give some leverage to Delhi during the peak of the tensions between the West and Iran, which allowed India to bypass certain sanctions to continue to import oil from Iran. Now, India has restarted consultations with Iran in order to resolve the payments issue and boost trade activities. The United States is also sending a team to Delhi to discuss easing sanctions on Iran and allowing it to access frozen oil payments worth billions of dollars, including in India.

Iran has already shown signs of inviting major global energy companies to invest in the country as soon as the sanctions are eased. India’s ONGC Videsh committed over $1 billion to the Farzad B field development last year after the Iranians virtually threatened to give away the project to others such as China. However the field development is still far from becoming a reality. Along with this the development of Chabahar Port on the southern Iranian coast has also been lagging in its development. The port is vital for both India and Iran as a major trade point and as a gateway into strategically important Afghanistan.

India’s National Security Advisor recently pulled up the Ministry of External Affairs for dragging its feet on projects in Iran. This rap on South Block’s knuckles came as Iranian officials started to meet CEOs of major oil and gas companies such as France’s Total, Italy’s ENI, Austria’s OMV and so on. The lagging projects given by Tehran to Asian companies is already making sure that the likes of ONGC Videsh loose out to their Western counterparts to tap into Iran’s massive reserves. And as a country, which imports 83 percent of its oil requirements, the question arises whether India can really afford this mismanagement of relations between such strategic partners.

In fact, only a few months back when the India – Iran dynamic was at its lowest point, sections of the Indian government reportedly looked towards cutting energy ties with Iran completely till the sanctions were removed. The Indian oil and gas sector had to move against these notions and make sure that energy ties remain intact. Some oil men said that they had to play both the parts, that of a businessman and a diplomat.

But this is not to say that Iran is an easy customer. Previously Iran has abandoned overnight a $25 billion LNG deal with India after it realised the prices of LNG were set to rise. This left a very sour taste with the Indian government, as backing out of a sovereign deal is unacceptable in most cases. Yet, Iran did get away with it.

India’s policy with Iran, its ally, has been that of missed opportunities and over-cautious tiptoeing around Tehran in order to not upset Washington. Otherwise, in a wiser world, New Delhi would have taken the opportunity of Iran’s isolation over the past 12 months and promoted its companies to fill in the gap being left by Western companies, which tradionally, Iran has preferred.

On the other hand, questions can also be raised as to why New Delhi did not take the above-mentioned opportunity to act as a buffer between Iran and the US itself, offering Delhi as a venue to hold talks between the two states. A small state such as Oman had managed to have more of an impact in making talks between the P5+1 and Iran possible and there was no reason for India, a trillion dollar economy, not to have the vision to have done the same.

Nonetheless, amongst all the challenges and diplomatic ball room dances, there have been some silver linings which showcase the importance of the two countries. After breakthroughs in talks were reached between the P5+1 and Iran, the Iranian deputy Foreign Minister for Asia Pacific Ebrahim Rahimpour visited New Delhi to update his counterpart here and discuss the wider repercussions for the region post-implementation of the deal.

It still remains to be seen how the opening of Iran from sanctions will affect India. Even though Iran was more than happy to build strong business ties with India during its time of crises, New Delhi balked. It was India’s energy and strategic security’s lost opportunity.

Photo: Orlygur Hnefill