August 15, 2017
Gas Field Contract Dispute Threatens Iran-India Ties
These charges resurfaced on July 26 on Iran state media in the context of growing tensions between the Islamic Republic and its long standing South Asian ally.
Despite a good deal of optimism expressed by Indian Prime Minister Narendra Modi and Iranian President Hassan Rouhani during Modi’s visit to Tehran in May 2016 – and India’s expressed willingness to invest up to $11 billion in Iran – Iran has indicated that it is under no obligation to award to India a contract to develop the Farzad B gas field.
India bases its claims on the fact that a consortium of Indian state-run companies discovered the field in 2008. However, Iran signed in May an agreement in principle with the Russian behemoth Gazprom to develop Farzad B. This move was seen as retaliation against a perceived threat from India to cut its purchases of Iranian oil if the commercial contract for the field was not awarded to the Indian consortium.
India’s overall demand for crude is about 4.6 million barrels per day, placing it behind only the United States and China in terms of its appetite for oil. India was also among a small number of countries that continued economic engagement with Iran even when it was under international sanctions because of its nuclear advances. However, following the lifting of those sanctions in January 2016 under the Joint Comprehensive Plan of Action (JCPOA), Iran awarded several contracts to develop infrastructure not to India but to European firms due to their relatively higher technological and managerial expertise.
Iran has approached its re-engagement with the international community in transactional terms. In the Farzad B case, Asadollah Quarekhani, the spokesperson for the Iranian Parliament’s Energy Commission, notably said, “The Oil Ministry has issued a public notice to contract out exploration and development work on the field. Different countries, including Russia, have expressed their readiness to run the project.”
Iran has also awarded major contracts to Western firms, including the French giant, Total, to develop phase 11 of the massive South Pars field Iran shares with Qatar.
Iranian officials have suggested that they no longer feel the need to cater to Indian interests in the petroleum field. Bijan Zangeneh, the Iranian Minister of Petroleum, said in April 2017 that, “If there is a cut in our exports to India, we will have no troubles as there are many other customers” for Iranian oil.
India could say the same about alternative suppliers. A plethora of other countries could supplant Iran, principally Iraq, from which India imported 31.5 percent of its crude in July 2017 making Iraq the top oil supplier to India for a fourth straight month. Indeed, according to new figures, India’s purchases of Iranian crude fell 16.3 percent in July to 414,900 barrels per day.
Given the disappointments India has experienced recently with Iran on this and other matters, it is crucial that the Asian economic powerhouse begin to take this paradigm shift in Iranian perceptions into serious consideration as it goes forth in its relationship with the Islamic Republic.
The implications of the dispute are particularly significant for Indian development of the Iranian deep-water port of Chabahar.
Seen as a rejoinder to Chinese-assisted construction of Gwadar port in Pakistan, Chabahar is a key element of India’s strategic foray into Central Asia and Afghanistan. The Indian government has time and again underlined the importance of establishing an unhindered flow of commerce between India and Central Asia. Continued development of Chabahar would cement India’s role in Central Asian economics and geopolitics.
However, Iran has complained recently that India has slowed work on three jetties allotted to India in Chabahar despite $500 million committed to the project by Modi.
This present disagreement withstanding, Tehran and New Delhi have long seen each other as partners in bridging the Indian subcontinent with West and Central Asia. This reality could change if Iran puts other commercial interests above its ties to India, whose heft at the international table continues to grow.
Aditya Ramachandran is a Project Assistant at the Atlantic Council’s South Asia Center.