Changing equations

At a time when there are worries in the Middle East and beyond about Iran’s growing influence in Iraq, growing economic rivalry between the two is not attracting much attention. Baghdad and Tehran’s competitive outreach to India underscore that the two nations are likely to emerge as competitors as external actors like India and China make Middle East the focus of their energy diplomacy.

Last month, external affairs minister Salman Khurshid became the first to visit Iraq in 23 years and underscored India’s commitment “to participate in rebuilding the infrastructure in Iraq.” He went on to suggest that New Delhi wants “to look beyond all sectors” and that the priority India is giving to Iraq “will become more intense and stronger” in the coming years. Though Iraq remains mired in sectarian and terror violence, Baghdad was keen to attract India with the Iraqi foreign minister Hoshyar Zebari inviting Indian companies to invest in Iraq underlining that “there are many places in the country which are peaceful and stable.” Iraq is keen to revive bilateral ties with India and is seeking Indian investment to take the relationship beyond that of buyer and seller of oil.

With the world’s third largest proven oil reserves, Iraq has replaced Iran as India’s second largest crude oil supplier after Saudi Arabia. Iraq is working towards doubling its output of 3.15 million barrels a day of crude by 2020 and is planning to increase its oil exports to Asian economies from the present 50 per cent to around 80 per cent by 2030. During the last fiscal year (2012-13), Iraq accounted for about 13 per cent of India’s total crude oil imports.

Petroleum and natural gas minister M Veerappa Moily was in Iraq for the joint commission meeting earlier this month when Iraq reached out to India in a major way. In an attempt to cement its position as one of India’s main oil suppliers, Iraq has offered three newly discovered oil blocks in the Middle Furat oilfields to India and has agreed to consider investing in Indian Oil Corporation’s 15 million tonne Paradip refinery.

It has not only offered to extend 60 days’ credit for crude sales to India but has also agreed to restart negotiations with India’s ONGC Videsh Ltd to finalise the long-pending contract for oil block 8, an on-land exploration block in Western Desert in Iraq. Iraq has assured India that it is willing to provide as much crude as it could to fulfil the requirements of the growing Indian economy.

Since the 2003 US invasion of Iraq, New Delhi has been ignoring the country and refused to seriously engage with the democratic process in Baghdad. Even as Iraq needed external support to rebuild its war-ravaged economy, India remained reluctant for fear of getting entangled in Iraq’s domestic sectarian turmoil. Though India shares strong cultural and historical ties with Iraq and Indian businesses had a strong presence in the country in the 1990s, New Delhi’s recent hands-off approach has made it a marginal player in the country with the clout of China, in particular, rising significantly in recent years.

New willingness

But with the recent visit of Salman Khursid, India has signalled a new willingness to reach out to Baghdad and the warm reception that the minister received indicates that the Maliki government views India as a serious regional and global interlocutor. This is a time when there is turmoil in West Asia with issues in Syria, Egypt, Turkey and Palestine all needing regional and global attention. New Delhi and Baghdad are both keen to see stability return to this strategically crucial region.

This is happening at a time when India’s ties with Iran are facing difficulties despite the public pronouncements from New Delhi. Under pressure from the west, the Indian government was forced to ask its refiners to cut their imports from Iran by about 10 per cent to15% per cent even as Iran has tried to sell extra volumes to those refiners on long credit terms. India has also struggled to find ways to pay Iran after the United States made dollar transactions almost impossible under financial sanctions. Indian oil companies are finding it hard to get vessels to lift Iranian cargo because of western sanctions. And, Shipping Corporation of India, India’s largest domestic tanker-owner, has refused to provide its tankers to the Indian Oil Corporation for lifting Iranian oil.
As a consequence, Iran’s share in Indian oil imports is declining and Iraq has replaced Iran as the second largest crude oil supplier to India as the government has unofficially asked its top importers to cut shipments from Iran though the US has exempted India, along with eight other countries from financial sanctions for significantly reducing their dependence on Iranian oil. During 2012-13, India’s oil imports from Iran declined by more than 26 per cent. In contrast to 10.5 per cent last year, Iran supplies now account for 7.2 per cent of India’s oil imports.

To salvage its economic profile in India, Iran recently responded by offering India’s state-owned oil companies production sharing contracts in a departure from its usual practice of offering Indian companies 15 per cent fixed returns under a buy back contract with the national oil company of Iran. There have been reports that Tehran has offered to ship the gas to Oman in liquefied form from where it can be processed into LNG which can then be shipped to India. It’s not clear if this would be enough to make Iran an attractive energy partner for India at a time when Iraq is going all out to woo India. But what is clear is that this competition between Baghdad and Tehran will not stop in New Delhi but will be replicated elsewhere as well.

(The writer teaches at King’s College, London)