India is unlikely to resume Iranian crude oil purchases, which stopped when exemptions to US sanctions expired on May 2, four government officials have said. This is impacting energy security because India hasn’t been able to find an alternative source that matches the quality, quantity and lucrative commercial terms of Iranian crude, the officials added on condition of anonymity.
American sanctions against Tehran have also hit India’s plans to develop Iran’s Farzad-B gas block and indirectly impeded operations at Chabahar port even though it is exempted from the restrictions, they said.
New Delhi is expected to raise the economic losses due to US sanctions when secretary of state Mike Pompeo visits India on June 24, the officials said. The government is looking to Pompeo’s visit to gain clarity on a range of trade-related issues that have become irritants in India-US ties.
“It appears the resumption of oil imports from Iran won’t be possible now. That door seems to be closed,” one of the officials cited above said.
Iran’s foreign minister Javad Zarif had raised the issue of oil imports with former external affairs minister Sushma Swaraj during a visit to India on May 14 and she had said a decision would be made after the elections.
“India is interested to develop the Farzad-B block. It is, however, taking legal opinion on whether such investments are possible amid the US sanctions,” a second official said.
Both investments in development and production from the field and transportation of gas to India are unlikely at this stage because of the sanctions, a third official said.
Farsi Block or Farzad-B was awarded by Iran to an Indian consortium comprising ONGC Videsh Ltd (OVL), Indian Oil Corporation (IOC) and OIL India (OIL) for exploration in 2002. OVL, the operator, has a 40% stake, IOC holds a 40% share and 20% is held by OIL.
The consortium discovered gas in 2008 and needs to sign a fresh contract with Iran to develop the field. The consortium has submitted a development plan but ongoing negotiations do not preclude the possibility of Iran discussing Farzad-B with other countries, the third official said.
The Iranian side has expressed its frustration at the imbroglio, with petroleum minister Bijan Zangeneh saying Tehran was considering the development of the field by an Iranian contractor. Iran had shown the “highest level of historical flexibility” but “the Indians had so far refrained from developing” Farzad-B, state-run news agency SHANA quoted him as saying.
“We gave them great concessions… but it seems that the Indians have not signed any contracts for developing the field because of the sanctions,” Zangeneh said.
“If they do not indicate their readiness to develop the field after a certain period of time, we will have to prepare the licensing round for having the field developed by an Iranian contractor… and have the project bankrolled by dipping into the National Development Fund of Iran,” he added.
India, the world’s third largest energy importer after the US and China, imports more than 80% of the crude it processes. Iran met 10% of its total crude needs, and offered the best commercial terms, including longer credit period, almost free transportation and insurance, and other discounts, officials said.
Indian officials and Central Asian diplomats said the US sanctions had also impeded operations and investments in Chabahar port, even though it was exempted from sanctions last November. A state-run Indian firm had taken over operations at Shahid Beheshti terminal in Chabahar in December.
Indian banks are reluctant to provide letters of credit for shipments through Chabahar, the officials said.
A 10-year contract for equipping and operating Chabahar was signed in May 2016 during Prime Minister Narendra Modi’s visit to Tehran. At the same time, India agreed to construct the Chabahar-Zahedan rail link.