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India banks on smart diplomacy to re-enter Iranian hydrocarbon sector

16th July 2015

By: Ajoy K Das

Creamer Media Correspondent

  

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KOLKATA (miningweekly.com) - Indian oil and gas exploration and production (E&P) majors were banking on some “smart diplomacy” and a “consortium approach” to re-enter Iran in the face of increased global competition, post a nuclear deal and the lifting of sanctions.

According to an official associated with Indian E&P major ONGC Limited, Indian companies in the hydrocarbon sector would face significant competition from US and European counterparts, outfitted with far stronger technological and financial muscle, which would be rushing into Iran.

He said Indian E&P companies had been forced to drastically reduce business exposure in Iran under pressure from Washington, particularly in the interest of signing the India-US nuclear deal ten years ago.

But increased competition from companies in developed economies would make it difficult for Indian companies to once again make a mark in the Iranian hydrocarbon sector and success would largely depend on the Indian government initiating ‘active diplomacy’ with the Iranian government, leveraging the historical ties between the two countries even during the days of sanctions against the West Asian nation.

It was pointed out that despite a sharp reduction in oil imports from Iran, India continued to maintain strong diplomatic engagements with Iran even during sanctions, with India’s official stance being opposition to the “imposition of unilateral sanctions”.

At least two government officials said that India-Iran diplomatic engagements were maintained at the highest level and stepped up in recent times, pointing out visits to Iran by the Indian national security adviser and foreign secretary earlier this year.

This diplomacy, along with the fact that India signed a memorandum of understanding with Iran for the development of the Chabahar port at the height of sanctions, despite warnings from Washington, and the fact that Indian refineries would have to settle $6.5-billion of pending dues to Iran, would be the nuances of renewed diplomatic engagements to back Indian oil companies, the officials added.

Post imposition of sanctions on Iran, Indian refineries had made part payment for purchases of crude in Indian rupees while the balance had accumulated as outstanding in the face of restrictions on hard currency payment channels.

Soon after the Iranian nuclear deal, the Indian External Affairs Ministry had started examining the possibility of re-establishing the rights to develop the Farzad-B oil and gas reserves, committing an investment of about $7-billion.

Some preliminary talks between India and Iran had already been held on Farzad-B, but Indian officials conceded that with sanctions easing, India was willing to fast-track the investments without fears of negative diplomatic fall-out with western countries, the official added.

In fact, Farzad–B would be the test case for such diplomacy and Indian oil companies and ONGC and Indian Oil Corporation Limited (IOC), through the administering Oil and Natural Gas Ministry, had already been in touch with the External Affairs Ministry seeking latter’s support and intervention in settling the Farzad-B imbroglio.

Farzad-B, with estimated oil and gas reserves of 12.8-trillion cubic feet in the Persian Gulf, had been a prized catch for a consortium of ONGC and IOC  in 2010. 

But even after spending $90-million on exploratory investments the Indian consortium had to withdraw from the block, ostensibly under US pressures. The Iranian government has once again put Farzad-B up for bidding.

Government officials said that with easing of sanctions against Iran, the number of global E&P majors interested in Farzad-B would be far greater and Indian oil and gas majors’ chances of getting it back would be much less than in 2010, unless there was India and Iran government-to-government support.

Edited by Esmarie Iannucci
Creamer Media Senior Deputy Editor: Australasia

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