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Energy could turn into backbone of Iran-India relations

Oil&Gas Materials 16 February 2018 11:39 (UTC +04:00)
In the post sanctions era, energy holds a potential to turn into the backbone of Iran-India relations.
Energy could turn into backbone of Iran-India relations

Baku, Azerbaijan, Feb.16

By Leman Zeynalova – Trend:

In the post sanctions era, energy holds a potential to turn into the backbone of Iran-India relations, Omid Shokri Kalehsar, Senior Energy Security Analyst, Washington told Trend.

He pointed out that according to the International Energy Agency (IEA), India and China are most likely to become major energy consumers, and India, for her part, needs to import oil and gas from reliable resources.

“Abundant with huge oil and gas reserves, Iran is considered to be one of the possible sources of energy supply for India, which is Iran’s second largest oil market after China. It bears noting that even at the height of the US sanctions on Iranian energy sector, India continued to import oil from Iran,” said Kalehsar.

The expert believes that one of the sticking points between India and Iran, however, was how to pay Iran for crude oil, primarily because the EU and US sanctions proscribed doing business with Iranian entities. Hence, Iran at present cannot receive the oil money from India, he noted.

“During Iranian President Hassan Rouhani’s visit to India, it is very likely that the Iranian president and the Indian officials would seek to reach a solution to the issue of trade (oil) payments to Iran. The conventional view is that in the post sanctions era, energy holds a potential to turn into the backbone of Iran-India relations. However, following Trump’s speech in mid-October, when he announced the US new Iran strategy, there are good reasons to believe that any new sanctions on Iran will potentially pose a formidable challenge to Iran’s energy sector,” said Kalehsar.

He believes that in this setting, Trump’s remarks about JCPOA are expected to affect, directly and/or indirectly, foreign investment in Iran’s energy sector. If Congress imposes new sanctions on Iran’s energy sector, Iran may encounter difficulties in marketing of its oil and other energy products, added the expert.

“Seen in this light, one can argue that Indian companies would make their final decision about doing business with Iran only after the US administration finally decides on whether or not to levy new sanctions on Iran,” noted Kalehsar.

He recalled that the Indian consortium - comprising ONGC Videsh, Indian Oil Corporation, and Oil India -discovered gas reserves in the field under an exploration contract signed in 2002.

“India is interested in investing in Farzad B oil field. By 2017, the ONGC Videsh Limited (OVL) made its 'best' offer to spend $11 billion in developing the Farzad-B field as well as in building the infrastructure to export the gas. But the two sides were disputing over setting a clear mechanism to determine pricing of the fuel. Like China, India is also being planning to invest in energy sector of countries which supplying oil and gas for India, India could invest in all energy sector in Iran (Oil, Natural Gas Petrochemical, Renewable energy),” said the expert.

Further, Kalehsar said that since India is interested in sending goods to Afghanistan and Central Asia without using Pakistan infrastructure, Chabahar port gives this opportunity to India to conduct its export of goods to Central Asia states with low transit fees while gaining relatively more from exporting goods.

“Iran and India also cooperate in North–South Transport Corridor project (INSTC). Initiated in 2000 by Russia, India and Iran, INSTC is a multi-modal transportation route linking the Indian Ocean and the Persian Gulf to the Caspian Sea via Iran, and onward to northern Europe via St Petersburg in Russia. India’s investments in Chabahar port could help Iran materialize INSTC project sooner,” he added.

From Iran perspective, India investment in multiple sectors of Iranian market, especially infrastructure and energy, is tantamount to securing political insurance, he said, adding that India’s investments in Chabahar port is thus a clear case in point.

“India’s private companies have good experience and enough financial resources to attract the Iran market. The problem is that to attract foreign investment you need a legal framework, an efficient and fast decision process and political stability (especially in the international context). These variables are far from being achieved as we speak,” noted the expert.

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