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India and Iran: Renewed
energy
By Hooman Peimani
Iran
and India quietly reached a major long-term gas
agreement last week under which Iran will supply its
strategic friend with 5 million tonnes of liquidified
gas (LNG) annually for 25 years and with 100,000 barrels
of oil per day for a trial period of one year. The
agreement reflected the two sides' continued cooperation
and, in particular, India's determination to expand its
relations with its strategic friend Iran despite its
also cozying up to the United States.
On May 13
in Tehran, Iran and India signed two separate agreements
for the oil sale and for the gas deal. M S Sreenivasan,
additional secretary in India's Ministry of Petroleum,
and Iranian deputy oil minister Hadi Nejad Hosainain
signed the gas agreement. Iranian first deputy managing
director of the National Iranian Oil Company,
Hojjatollah Ghanimifard, and his Indian counterpart
Subir Raha signed the oil agreement. Iranian oil
minister Bijan Namdar Zanganeh and his Indian
counterpart Ram Naik were present at the signing
ceremony.
According to Naik, the signatories
will work out the commercial terms for the LNG deal in
an unspecified time. As agreed, the initial purchase of
LNG would be in two segments of 2.5 million tonnes each.
Undoubtedly, the gas agreement is a major event
in the international energy industry with an obvious
economic significance both for Iran and India, while the
oil agreement has a short term importance, unless it is
renewed for a longer period. However, the May 13
agreements are also significant for their containing
other important energy contracts. If fully implemented,
they will surely expand Iranian-Indian economic
relations, while reflecting the growing strategic
relations between the countries.
Thus, the
agreements provided for "cooperation, exchange of
experience in the field of compressed natural gas [CNG]
production and reconstruction of refineries". As for the
latter, India will help Iran upgrade its oil refineries,
which Iran can only do partially on its own. For
addressing Iranian oil refinery requirements, the
American sanctions on Iran have made American companies
out of the question. Many European companies are
reluctant to help Iran in that regard for fear of an
American reprisal or they attach unacceptable political
conditions to their proposals.
The agreement on
CNG production is even more important for Iran than the
mentioned one as it has taken serious steps to replace
oil with natural gas for its domestic fuel consumption.
Iran's efforts to that end began about 40 years ago when
Tehran started the construction of a nationwide network
of gas pipelines. Various factors have since slowed down
the process, including the Iran-Iraq war (1980-88) and
financial difficulties. However, about 90 percent of
Iran's urban areas and close to 80 percent of its rural
areas have piped natural gas, while the entire country
has access to LNG distributed in cylinders.
Nevertheless, the existence of millions of
diesel and gasoline-fueled private and commercial
vehicles have contributed to a rapid depletion of
Iranian oil reserves at the time when Iran could export
its crude oil into more profitable petrochemical
products. Towards that objective, it has built major
petrochemical complexes that meet most of its domestic
consumption, while generating about $1 billion worth of
exported products. As well, the growing consumption of
oil in various refined forms has resulted in a
phenomenal increase in air pollution. The latter is a
major health and environmental hazard in all major
Iranian cities.
For all these reasons, Iran
needs to speed up its replacement of oil with natural
gas. For that matter, it particularly needs to upgrade
and expand its technological capability to turn natural
gas into the major fuel for all vehicles, requiring a
shift to gas-powered engines. This is the area in which
India can help as it has embarked on changing
non-environmentally friendly engines into more friendly
natural gas ones. The May 13 agreements provided for
India to offer its technical know-how to Iran for
setting up CNG centers and CNG systems for using
compressed natural gas as vehicle fuel.
Other
major areas of cooperation covered under the agreements
include the Iranian government's offering unspecified
"discovered and semi-discovered" gas fields to Indian
companies for investment. As well, it has agreed in
principle to award a discovered Iranian oil field to
ONGC Videsh Limited (OVL), the overseas arm of India's
Oil and Natural Gas Corporation (ONGC). Moreover, the
May 13 agreements provided for Gail India Limited and
the National Petrochemical Company of Iran to explore
jointly the feasibility of setting up petrochemical
projects in Iran and of exporting their products to
India and other countries.
Against a background
of political, economic and military/security cooperation
based on the commonality of views on various regional
and international issues, the conclusion of the
agreements between Iran and India was not a surprise in
itself. However, India's clear interest in expanding
relations with the United States, especially in the
economic field, runs contrary to its growing ties with
Iran, as evident in the agreements.
India's Naik
rejected claims that his country was forced by the
American government not to sign any accord with Iran in
the oil and gas sectors. Nevertheless, it is highly
unlikely that a government with a stated objective of
weakening the Iranian government remains aloof and does
not try to dissuade India, especially when it can easily
threaten to stop India's expanding computer software
exports to the US.
If Iran and India implement
fully all the agreements reached on May 13,
Iranian-Indian economic relations will expand
significantly in the near future. As Iran possesses the
world's fifth largest oil deposits and its second
largest gas reserves, India's presence in the Iranian
energy industry as secured and encouraged under those
agreements could potentially turn India into a major
global energy player.
Perhaps such prospect
encouraged New Delhi to sign on the dotted line despite
the apparent risk of damaging ties with Washington.
Dr Hooman Peimani works as an
independent consultant with international organizations
in Geneva and does research in international
relations.
(Copyright 2003 Asia Times Online
Co, Ltd. All rights reserved. Please contact content@atimes.com for
information on our sales and syndication policies.)
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