Economy

Will India gain from Iran nuclear deal?

Stanly Johny Chennai | Updated on January 23, 2018 Published on April 07, 2015

Agreement offers opportunity for enhancing political, economic engagement with the resource-rich West Asian country



The framework nuclear agreement reached between Iran and six world powers last week offers India a fresh opportunity for enhancing political and economic engagement with the resource-rich West Asian nation, say experts.

Iran was India’s second largest crude oil supplier till 2006, which dropped to number seven in 2013-14. India is also building a port on the coast of Gulf of Oman in South-east Iranian city of Chabahar that would give New Delhi an alternative access to Afghanistan bypassing Pakistan.

Deal deadline

The framework agreement reached on April 2 seeks to curtail Iran’s nuclear programme in return for lifting international sanctions. Both Iran and the world powers have set a June 30 deadline for signing the final comprehensive deal that will let Iran enter the world economy.

“The deal does remove a perceived roadblock that made India circumspect in openly courting Iran. We must use this window of opportunity to evolve a consistent Iran policy,” says Atul Bharadwaj, a Senior Fellow and strategic analyst at the Indian Council of Social Science Research, New Delhi.

Quick on the heels of the deal, India has sent a trade delegation to Tehran, led by Commerce Secretary Rajeev Kher.

During his two-day stay in Tehran starting Monday, Kher will meet Iranian officials, including his counterpart Mohammad Reza Nematzadeh to discuss trade issues. “The visit seems to be a significant move as India is one of the largest importers of Iran crude oil and exporters of basmati rice to the country,” Iran’s FARS news agency reported on Sunday. Diplomatic sources say Prime Minister Narendra Modi has accepted an invitation from the Iranian Government to visit the country, though the dates are not firmed up yet.

India has already benefited from the easing of sanction following the interim agreement signed between Iran and world powers in November 2013. Last year, India imported 2,76,800 barrels per day (bpd) of oil and condensate from Iran, up 41 per cent from 1,95,600 bpd in 2013. The country remains Iran’s second largest crude oil buyer after China. A comprehensive solution to the Iranian nuclear standoff and the eventual lifting of all sanctions “would inject fresh warmth into India-Iran relations”, says M Mahtab Alam Rizvi, Associate Fellow at the Institute for Defence Studies and Analyses, a New Delhi-based think tank.

India imports 77 per cent of its energy needs, and has maintained good ties with Iran despite the sanctions. India’s energy import bill of around $150 billion is expected to double by 2030. Once the sanctions are lifted, Iran is likely to open up its hydrocarbon resources, which will help global energy giants. An Indian consortium comprising ONGC Videsh, IndianOil Corportation and Oil India has won a bid for the Farsi block in 2002 from National Iranian Oil Company. The consortium is now waiting for development rights.

Payment hurdle

However, PR Kumaraswamy, Director of Gulf Studies Programme and Professor of international relations at Jawaharlal Nehru University, Delhi, feels it’s “premature to view (Iran) as a partner in India's energy security” as the final deal on the nuclear programme is yet to be reached. “While India is yet to find a long-term arrangement to settle its payment dues to Iran, seeking additional supplies would be foolhardy. India will have to cautiously wait for the July 1 agreement,” he says.

One of the major bottlenecks in bilateral trade was to find a sustainable payment method as the sanctions have cut Iran’s access to the global banking system. As of now, India has evolved a mechanism through UCO Bank under which Iran makes rupee payments to India for its purchases, which are set off against what India owes to Iran for crude oil.

But India’s dues to Iran are huge compared to its exports to the country (mainly low value products such as rice and drugs) which limits the scope of this payment method. At present, India owes $8.8 billion to Iran.

But Kumaraswamy also believes the draft agreement “gives India an opportunity for political engagement with Iran and the possibility of Prime Minister Modi visiting Tehran should be seen in that context.”

Published on April 07, 2015
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