India finds a $40bn friend in IranIndia's oil diplomacy took a giant leap forward on Friday when New Delhi unveiled a multibillion-dollar deal with Iran and Russia that will be crucial to India's long-term energy security, and took the initiative the same week to host the first-ever conference on regional cooperation among Asian oil-producing and consuming countries.
In its US$40 billion deal with the National Iranian Oil Co (NIOC), India committed to import natural gas from Iran over a 25-year period and to develop two Iranian oil fields and a gas field. Iran will sell the liquefied natural gas (LNG) to India at a price linked to Brent crude oil. According to the agreement, India will pay $1.2 plus 0.065 of Brent crude average, with an upper ceiling of $31 per barrel. Iran will ship 5 million tonnes of LNG to India annually, with a provision to increase the quantity to 7.5 million tonnes.
As part of the deal, India's ONGC Videsh Ltd (OVL) gets a 20% share in the development of Iran's biggest onshore oilfield, Yadavaran. The Indian company will also get 100% rights in the 300,000-barrel-per-day Jufeir oilfield. The stake in Yadavaran translates into 60,000 barrels per day of oil for India. Significantly, Chinese state oil company Sinopec (China National Petroleum and Chemical Corp) operates the Yadavaran field. With the deal signed in Delhi, India will now hold a 20% stake in Yadavaran, Iran 30%, while China retains its existing 50% share.
In March, Beijing and Tehran signed a deal worth $100 billion. Billed as the "deal of century", this agreement is likely to increase by another $50 billion to $100 billion, bringing the total close to $200 billion, when a similar oil agreement, currently being negotiated, is inked. The gas deal entails the annual export of some 10 million tonnes of Iranian LNG for a 25-year period, as well as the participation, by China's state oil company, in such projects as exploration and drilling, petrochemical and gas industries, pipelines, services and the like.
India also confirmed that it is talking to Russia for investing in crumbling oil major Yukos. Officials in New Delhi said ONGC was considering investing $2 billion for a stake in Yuganskneftegaz, the main production unit of Yukos, which was auctioned last month in Moscow in a cloak of mystery. Incidentally, Russia recently offered a 20% stake in Yuganskneftegaz to Sinopec. In the event of both India and China taking shares in Yuganskneftegaz, it would become a triangular Russian-Chinese-Indian collaboration - alongside the envisaged Chinese-Indian-Iranian cooperation in Yadavran.
The trend puts paid to the Great Game theorists who have speculated on the inevitability of a Sino-Indian rivalry in the race for energy. At a meeting with Indian Petroleum Minister Mani Shankar Aiyar in Delhi in October, the Chinese ambassador proposed cooperation between the two countries in the energy sector. A framework agreement on such cooperation could be signed during the visit of Chinese Prime Minister Wen Jiabao to India in March. China signed a similar agreement with Pakistan last month during the visit of the Pakistani prime minister to China.
It's evident now that India is working on a coherent, long-term energy plan. The country is making it clear that it views Iran and Russia as two pivotal partners in its quest for energy. An early sign of the Indian thinking was evident when Aiyar visited Moscow in October for discussions with the Russian government on energy cooperation. In a far-reaching statement, Aiyar compared the significance of India's cooperation with Russia in the energy sector in the coming years with Indo-Soviet cooperation in the security field. "In the first half-century of Indian independence, Russia has guaranteed our territorial integrity, and in the second half it may be able to guarantee our energy security. What I am talking about is the strategic alliance with Russia in energy security, which is becoming for India at least as important as national security," he had said.
During Russian President Vladimir Putin's visit to India, the two countries signed a memorandum of understanding for joint exploration and distribution of natural gas from the Caspian basin, as well as for building underground gas storage facilities in India and technology transfer from Russia. Much of the credit for formulating and steering India's new energy policy must go to Aiyar, who is emerging as one of India's outstanding political leaders. Aiyar is credited with his progressive outlook on diverse aspects of India's national policy - from dialogue with Pakistan to devolution of power to India's local bodies. Iran had first proposed the deal to the previous National Democratic Alliance in Delhi over a year ago. Aiyar relentlessly pushed the deal through India's leviathan bureaucracy and made it a reality.
Under Aiyar, India also hosted the first-ever round table of Asian oil ministers last Thursday. At the gathering, attended by oil ministers - including those of the Persian Gulf, China and Southeast Asia - Aiyar mooted the idea of a common platform for Asia's oil-consuming and oil-producing countries. He said the region ought to develop a sophisticated market for petroleum and petroleum products. The meeting endorsed India's proposal, and as a first step decided to create a benchmark crude for the Asian market. The conference also called for regional cooperation for investment in exploration and strategic storage of hydrocarbons for energy security.
India has found a strong partner in Iran in the pursuit of an Asian oil market. From the Iranian perspective, the Indian initiative on regional cooperation dovetails with its own policy of shifting its oil and gas trade to the Asian region so as to reduce its market dependence on the West. Speaking at the conference in Delhi, Iranian Oil Minister Bijan Namdar Zanghaneh proposed the creation of an Asian Bank for Energy Development to finance energy projects in Asia (like the proposed Iran-Pakistan-India gas pipeline). With particular reference to growing markets like China and India, the Iranian minister called for a lower price for energy supplies from Asian producers to Asian consumers.
The Iran gas deal also opens the door for the long-standing Iran-Pakistan-India gas-pipeline project. A day before the India-Iran deal, Aiyar announced in Delhi that he has invited Iranian officials to visit Delhi to discuss the pipeline. "A delegation from Iran will visit India on the eve of the Asian gas buyers' summit commencing on February 14 to initiate negotiations on a term-sheet for the delivery of Iranian natural gas by pipeline at the India-Pakistan border," he said. In a forceful acknowledgement of India's interest in the project, Aiyar said, "Our anticipated demand in 2025 for gas would be 400 million standard cubic meters per day. Our output today is less than 100 mscm per day. It is not possible to meet the incremental demand from domestic production and import of LNG, and natural gas through pipeline is needed to meet the demands of the growing economy."
Iran has also been quick to sense that the gas deal would turn the focus back on the decade-old pipeline project proposal. The Tehran Times, which reflects the Iranian government's views, commented, "The Iran-India agreement on LNG exports will pave the way for the implementation of the project to pipe Iranian gas to India via Pakistan and the dream of the peace pipeline could become a reality in the near future".
But Pakistan's willingness to address Indian concerns about the pipeline project remains unclear. After a meeting with the visiting Pakistani prime minister, Shaukat Aziz, in Delhi on November 24, Aiyar summed up the Indian position: "We did repeat what we have said earlier about using Pakistan as transit corridor [for sourcing gas from Iran] creating mutual dependency ... we need to replicate such mutual dependency in several other sectors so that we can conceptualize whatever cooperation we have in the hydrocarbon sector in the wider trade and economic relationship between the two countries."
A section of the Western press has reported that US pressure is building up on Islamabad not to enter into an energy deal with Iran at this juncture. An Iran-Pakistan-India gas-pipeline project flies in the face of American efforts to isolate Iran regionally. The project, if it materializes, would also foreclose whatever prospects remain of the revival of the trans-Afghan pipeline project, which many still see as a raison d'etre of the US intervention in Afghanistan.
M K Bhadrakumar is a former Indian career diplomat who has served in Islamabad, Kabul, Tashkent and Moscow.