Delhi treads cautiously on ties with Tehran

US steps up efforts to impose sanctions

Though India’s economic relations with Iran have come under focus with External Affairs Minister S M Krishna’s visit to Tehran, New Delhi is also closely watching the US-sponsored move to impose sanctions on Iran. “Our (India and Iran) cooperation is underpinned by growing economic linkages in energy, industry, transit, trade, investment, regional cooperation and cultural and educational exchanges,” said Krishna, who met Speaker of Iranian Parliament Ali Ardashir Larijani in Tehran on Sunday.

Iran is the world’s fourth largest oil producer and holds the second largest gas reserve. India is the third largest market of crude oil from Iran. It imported 22 million tonnes of crude oil – valued at about US $ 10 billion – from Iran last year. The total volume of bilateral trade between the two countries amounted to Rs 67348.92 crore in 2008-09, registering a rise of 30.04 per cent over 2007-08.  “We believe that our continued and closer engagement (with Iran) will be of mutual benefit and contribute towards economic growth and peaceful development,” said Krishna, who is here to attend the G15 summit.

Taxation, investment pacts

Apart from a proposed deal for a long-term annual supply of five million tonnes of LNG, India and Iran are negotiating a Bilateral Investment Promotion and Protection Agreement and a Double Taxation Avoidance Agreement.

An Indian consortium led by the ONGC Videsh Limited (OVL) had in 2002 won the bid to develop Farzad B gas block in Iran’s Farsi oil field. It will require an estimated investment of US $ 8-9 billion to develop the block along with an LNG (Liquefied Natural Gas) terminal to transport the gas. The OVL and Hinduja Group also signed agreements to take 40 per cent interest in Phase 12 of Iran’s gigantic South Pars gas field in Persian Gulf last year. The ONGC, OVL, ALPS and Petronet LNG are expected to take 20 per cent equity in liquefication facilities of Iran LNG too.

But the US-backed move to impose sanctions on Iran made New Delhi as well as Indian hydrocarbon majors worried. The US Government Accountability Office listed ONGC, OVL, IOC, OIL and Petronet among the 41 companies having investments in Iran.
Though the ONGC, OVL and other hydrocarbon majors are still on the right side of the US law, they are worried about long-term implications. “If the US can make the UN Security Council impose sanctions on Iran next month, the overall investment atmosphere would be vitiated and economic viability of the projects would diminish,” an Indian official told Deccan Herald.

New Delhi maintains that it has security and pricing concerns over the proposed Iran-India-Pakistan gas pipeline project. India, however, is also discussing with Iran other projects like building a container terminal at Chabahar Free Port on the coast of Gulf of Oman and Chabahar-Faraz-Bam railway project to get access to Afghanistan and Central Asian countries.

But, as buzz in the diplomatic circle goes, New Delhi will tread cautiously – assessing the impact of impending sanctions on Iran and striking a balance between its ties with Tehran and with Washington.