Indo-Iran energy diplomacy moving forward

India is upbeat about renewed interest in Iranian natural gas flowing to India. Over last several months high-ranking Indian officials continue to keep Tehran interested in New Delhi. Iran’s rejection to India’s offer in 2015 to develop ofIran’s Farzad-B offshore natural gas block was considered a short term set back. However, since then New Dehli has made significant inroads into building stronger bilateral relationship and bonding in many fronts. Visit of high level committees, officials, and top leaders are constantly happening regularly to strengthen bilateral relationships for long term mutual gains.

Indo-Iran renewed mutual interest revolves around energy, especially oil and gas diplomacy. In the past India’s interest has suffered from many reasons beyond bilateral relationship with Iran. Chinese support for reviving Iran-Pakistan (IP) pipeline after India’s reduced interest in the earlier planned Iran-Pakistan-India pipeline makes Tehran as the hottest place for energy diplomacy. India’s strategic interest in Iran is quite evident from Prime Minister Mr. Narendra Modi’s visit in May 2016. Further, International North-South Transit Corridor (INSTC) initiative starting with construction of Iran’s first deep-water port to meet modern shipping standards at Chabahar, 72 km west of Gwadar is a demonstration of Indo-Iran relationship. This could be a strategic response to China’s masterstroke of One Belt, One Road (OBOR) initiative.

The Chabahar port is expected to reduce trade cost by 40%. Further, the port would serve as the origination point to proposed 1300 Km long Iran-Oman-India pipeline to transport natural gas. India’s green economy needs optimal fuel mix and natural gas poised to play the biggest role in the next couple of decades. Currently, 59% share of coal in primary energy consumption need to be brought down to the global average of 29% or below. Further, industries should switch to natural gas and transport sector may use natural gas as a transit fuel before migrating to electricity or fuel cell. Considering India’s limited natural reserves (1,484 billion cubic meter) and high import dependency on natural gas subject to fluctuating prices, access to Iranian natural gas at a competitive price through long-term contracts could be very important to improve natural gas supply security in India.

As of 2015, Iran with 33500 billion cubic meters of proven natural gas reserves holds 16.6% share behind Russia with a share of 24.5%. Iran’s vast natural gas reserves could play very important role in improving supply security in the Asia. In 2015, Iran produced 6% of the global marketed natural gas compared to 5% by Qatar. Due to geopolitical issues, lack of liquefaction infrastructure, and absence of trans-national pipelines Iranian natural gas couldn’t be tapped by India. India relied on Qatar and still it remains as the most preferred LNG sourcing destination for India. However, under construction LNG plant on the west coast of Iran, at Tombak once ready would provide an opportunity for India to import LNG from IRAN, which could enable India to import LNG from Iran.

According to Petroleum Planning & Analysis Cell, India imported 16.08 million metric tonnes (MMT) of LNG in 2015-16 and during April-July 2016, LNG import reached 6.1 MMT. India’s petroleum import dependency has been increasing owing to falling natural gas production and lack of new discovery.

Iran is considered one of the best potential destinations to produce oil & gas. Cost of producing a barrel of crude in Iran estimated to be the second cheapest at around US$ 12 compared to an average of around US$ 9 in Saudi Arabia, around US$ 36 in the USA and around US$ 52 in the UK. This offers excellent opportunity for International Oil Companies to acquire oil & assets or participating stakes in Iran. The new Iranian Petroleum Contract (NIPC) suggests 50 oil & gas projects estimated to attract over $150 billion investment by 2021. Iranian Government is inviting international companies to maximize the opportunity offered under new IPC. The new IPC offers investors the opportunity to participate in operation and production for 20 years that can be extended to 25 years. Companies are allowed a share of the oil they produce, enabling them to sell it abroad. This is an excellent opportunity for Indian companies to participate in the Iranian exploration and production activities. Equity oil by Indian companies could help to improve supply security in India.

Oil & gas multinational companies from France, Russia, and Malaysia have shown significant interest to develop liquefied natural gas (LNG) infrastructure in Iran. Indian oil & gas companies should proactively look for investing in the entire oil & gas value chain in Iran. Acquiring participating stakes in hydrocarbon blocks, LNG infrastructure, and petrochemical plants would provide much need access to petroleum & derivatives which could significantly address energy supply security in India. Mr. Dharmendra Pradhan, the Minister of Petroleum & Natural Gas, New Delhi during his Iran visit earlier in April 2016 clearly shown intent to be an important stakeholder in oil, gas, petrochemical, and fertilizer industry development in Iran. New Delhi’s increasing involvement and inclination for investment depends on Tehran’s appreciation and reciprocation of the initiatives taken by New Delhi.  Historically India’s closeness to Iran has not been appreciated by many powerful nations, especially during the sanction era. The post-sanctions era could see more bilateral investment and free trade.

India’s interest to build LNG terminal, fertilizer plant, and petrochemical facilities in the Chahabar SEZ augurs well for Iran’s economic development. In recent times like other OPEC countries Iran has suffered due to free fall of petroleum prices. As a result, value of Iranian petroleum exports fallen by 76% from $114,751 million in 2011 to $27308 million in 2015. During the same period balance of trade has fallen from $67,069 to $10,689. Further, the current account surplus is dwindling. Under the emerging economic scenario Iran is committed to attract foreign investment and embrace India’s involvement in placing Iran as the most top destination for oil & gas investment.

On the other hand, India is actively looking for foreign investors to invest in oil & gas sector. So, New Delhi would gleefully accept Tehran’s collaboration or strategic participation in developing refineries, petrochemical complex, and LNG receiving facilities in India.

Indo-Iran relationship is getting stronger and stronger. Jawahar Lal Nehru rightly said “few people have been more closely related in origin and throughout history than the people of India and the people of Iran“. Even both civilizations had stronger trade linkage which needs revival in the modern age of global trade for socio-economic growth, development, safety, and energy security.


This article was written by Sanjay Kumar Kar for Iran Review. Sanjay Kumar Kar is Ph.D., Department of Management Studies, Rajiv Gandhi Institute of Petroleum Technology, India.