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Iran Nuclear Deal and India – Economic Opportunities and Threats


July 14, after marathon negotiations, the world finally welcomed the nuclear deal between the Islamic Republic of Iran and the six world powers. The Joint Comprehensive Plan of Action is set to tear down the walls of almost a decade old sanctions on Iran, in a graded manner. Although there were multiple voices expressing their skepticism and viability of the Lausanne framework finalised in April, the negotiators proved them wrong (thankfully so). Apart from the jubilating international nuclear non-proliferation regime, there are many other winners and indeed some losers too.

So what is in it for India ?

Firstly, India’s energy sector has numerous reasons to smile. The removal of restrictions on the Iranian crude oil would imply greater flow of oil into the global oil market, thus decreasing international oil prices. A drop of each dollar in the international crude oil matters greatly to the Indian economy. According to the Indian Ministry of Petroleum & Natural Gas, a plunge of one dollar reduces India’s subsidy bill by approximately Rs. 4,000 crore. As a matter of fact, decreased import and subsidy bill means less pressure on the government’s finances and gains for the Indian economy at large.

Specific to the Indo-Iranian oil ties, Iran has been a crucial energy supplier for India. However, this equation had been hampered due to international pressure on India to cut down on Iranian oil imports. Global opprobrium of Tehran meant that most international companies were unwilling to insure any Indian firms using Iranian oil. With this changing, it will be relatively easier for Indian companies to raise more capital and conduct business with greater flexibility. In general, all players in the oil and gas supply chain will benefit from the Iranian nuclear deal minus the upstream firms, which are involved in the exploration and production of crude oil.

Secondly, there is a high possibility that Indo-Iranian trade will go beyond the usual oil-related trade equation. Economically, New Delhi will be able to refresh its relations with Tehran. Finally, it would be possible for India to solve the issues of balance of trade with Iran that resulted from multiple restrictions on payments and sanctions on good and services. The removal of sanctions will also lead to lower shipping costs, which would boost Indian import and export to/from Iran. India’s proximity to Iran will clearly prove advantageous in terms of time and expenses in the long run.

An Open Iran means more Competition for India

However, the flip side is that Indian businesses will now have to face a more competitive environment in light of European and American dealers pouring in with latest technologies and promising deals. With more companies willing to do business with Tehran, Indian companies (especially machinery and non-agriculture firms) will find it difficult to negotiate favourable deals with their Iranian counterparts.

Thirdly, the two countries will most likely work on instilling life into the stalled projects such as the 2005 Liquefied Natural Gas (LNG) deal between National Iranian Gas Export Co. (NIGEC) and Indian companies GAIL (India) Ltd, Indian Oil Corp. Ltd and Bharat Petroleum Corp. Ltd. Other significant deals include the 1400 kilometers Iran-Oman-India pipeline that is envisioned to transport gas from the Persian Gulf to India.

Although the nuclear deal would imply minimum pressure against the major projects; the situation is unlikely to be extremely positive. India will have to be very fast in consolidating its gains in the ‘new’ Iran lest it should be overshadowed by international competition. New Delhi is already struggling with hurdles regarding the Farsi block deal. Originally, India’s Oil and Natural Gas Corporation Videsh Ltd (OVL) discovered the Farzad-B gas field in the Farsi block in 2008. Even though the firm submitted a Master Development Plan for producing 60 percent of the gas reserves, there was limited progress. The retardation factors were largely related to India’s reluctance to offend the United States. In view of India’s periodic delays, Iran set the Farsi block in the list of fields to be auctioned in the coming time. Although OVL’s exploration license has not been cancelled, India cannot be lackadaisical about the dealing.

Geopolitics of Iran Deal in our extended neighborhood

Politically, the deal comes at an opportune time, wherein India will find it easier to fortify its strategic and political equation with Iran. New Delhi and Tehran’s shared understanding on Afghanistan will facilitate a better working relationship at the regional level. India’s investment and involvement in the Chabahar port project and Chabahar-Milak-Zaranj-Dilaram land route will ensure greater access to Afghanistan. Additionally, the lifting of UN Security Council sanctions would make it possible for the SCO to grant Iran a membership. This coincides with the announcement of India’s full membership in SCO. By dint of their membership in the SCO, Iran and India will be able to cooperate more effectively and offer political support to each other on this regional forum.

Iran also plays a crucial role in the Indian vision of the International North-South transport corridor (INSTC), a trade transport network envisioned to stretch from Mumbai (India) via Bandar Abbas (Iran) to Moscow (Russia). The INSTC hopes to economically integrate India with Central Asia and Eurasia. India’s Prime Minister Narendra Modi’s interaction with the Iran’s President Hassan Rouhani (on the sidelines of the recent Shanghai Cooperation Organisation (SCO) summit) on establishing greater connectivity and Iran’s role in the INSTC illustrates the significance Tehran holds for India’s future vision. In light of the nuclear deal, there will be greater room for cooperation between the two countries and lesser possibilities of Western pressure opposing the same.

As evident, the historic deal bodes well for India in many sectors but also brings along a set of challenges, which can only be met if India is pro-active and engages Iran more effectively before it is too late.

(Author Aditi Malhotra)

Source: Niti Central

About Surabhi K

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