As the P5+1 group of nuclear powers resumed negotiations with Tehran in Vienna on Tuesday on restricting Iran’s arsenal of atomic weapons, India and other oil import-heavy economies are gearing up to take advantage of the expected Iranian ‘black-gold’ rush that could be unleashed if the talks are successful.
Sanctions imposed on Iran by the United Nations in 2006 in an attempt to force the country to shut down its nuclear programme have hurt many Asian countries that are heavily reliant on oil supplies from abroad. Cheap energy from the Gulf is crucial for India, which imports 83 per cent of its oil and gas requirements. Until the sanctions were imposed, Iran was India’s second-largest oil supplier to India, just behind Saudi Arabia.
India’s imported 21.81 million tonnes of oil from Iran in 2008-’09 but that volume fell to 17.44 million tonnes in 2011-12. As buying oil from Iran has become more difficult over the past few years, New Delhi has been applying creative methods to get around the sanctions, such as using Iranian shippers and insurers. India has even planned a $1.5 billion insurance pool so that ship operators do not have to rely on western companies that may be exposed under the obligation of sanctions against Tehran in the future.
New Delhi has managed to continue getting supplies by applying alternative methods of payments, including the age-old practice of the barter system, exchanging agricultural and industrial products for oil. India has also been depositing money into an Iranian UCO Bank account in Kolkata, which has now amassed more than $4 billion in payments even though the sanctions prevent Iran from accessing a large portion this money. Previously, India was paying Iran via a bank branch belonging to Halkbank in Turkey, but this route was also shut down as the US upped the ante against Tehran throughout 2013.
Due to these problems, many Asian countries shifted import capacity to neighbouring Iraq, which has come out in its post-war form as a major supplier of crude oil. Over the past two years Iraq has managed to become the second-biggest oil supplier to India, while Iran slipped to seventh place. Meanwhile, others such as China have not just increased imports from Iraq, they have also made heavy investments in the country’s energy industry.
India’s imports from Iraq rose from 14.32 million tonnes in 2008-09 to 24.51 million tonnes in 2011-12. The Iraqi government, seeing this sudden increase in exports to Asia, has also approached Indian refiners and exploration and production companies such as ONGC Videsh and Reliance Industries to invest in the country. RIL said that “every effort” will be made to secure the contract for the Al Nasiriya refinery project. The company hopes to build a capacity of refining up to three million barrels per day.
Iraq is already increasing oil production in preparation to counter Iran’s return as a formidable oil and gas exporter. Iran's Arab neighbours are also looking to match this added capacity in a market that may not require crude production at this scale. This may lead to volatile oil prices not just for Asia, but for the global economy.
As talks proceed in Vienna, Iran’s Foreign Minister Javad Zarif is slated to visit India later this month. Among matters of concern will be Iran's inability to access its funds currently blocked in India. A satisfactory conclusion to the P5+1 discussions would allow Tehran to repatriate its money, easing lingering tensions between the two countries over New Delhi’s apprehensions about finding alternative routes to transfer the money via “creative accounting”, as Iran had reportedly requested. If everything falls into place, India could return to its position as one of Iran’s top oil and gas export markets.
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Sanctions imposed on Iran by the United Nations in 2006 in an attempt to force the country to shut down its nuclear programme have hurt many Asian countries that are heavily reliant on oil supplies from abroad. Cheap energy from the Gulf is crucial for India, which imports 83 per cent of its oil and gas requirements. Until the sanctions were imposed, Iran was India’s second-largest oil supplier to India, just behind Saudi Arabia.
India’s imported 21.81 million tonnes of oil from Iran in 2008-’09 but that volume fell to 17.44 million tonnes in 2011-12. As buying oil from Iran has become more difficult over the past few years, New Delhi has been applying creative methods to get around the sanctions, such as using Iranian shippers and insurers. India has even planned a $1.5 billion insurance pool so that ship operators do not have to rely on western companies that may be exposed under the obligation of sanctions against Tehran in the future.
New Delhi has managed to continue getting supplies by applying alternative methods of payments, including the age-old practice of the barter system, exchanging agricultural and industrial products for oil. India has also been depositing money into an Iranian UCO Bank account in Kolkata, which has now amassed more than $4 billion in payments even though the sanctions prevent Iran from accessing a large portion this money. Previously, India was paying Iran via a bank branch belonging to Halkbank in Turkey, but this route was also shut down as the US upped the ante against Tehran throughout 2013.
Due to these problems, many Asian countries shifted import capacity to neighbouring Iraq, which has come out in its post-war form as a major supplier of crude oil. Over the past two years Iraq has managed to become the second-biggest oil supplier to India, while Iran slipped to seventh place. Meanwhile, others such as China have not just increased imports from Iraq, they have also made heavy investments in the country’s energy industry.
India’s imports from Iraq rose from 14.32 million tonnes in 2008-09 to 24.51 million tonnes in 2011-12. The Iraqi government, seeing this sudden increase in exports to Asia, has also approached Indian refiners and exploration and production companies such as ONGC Videsh and Reliance Industries to invest in the country. RIL said that “every effort” will be made to secure the contract for the Al Nasiriya refinery project. The company hopes to build a capacity of refining up to three million barrels per day.
Iraq is already increasing oil production in preparation to counter Iran’s return as a formidable oil and gas exporter. Iran's Arab neighbours are also looking to match this added capacity in a market that may not require crude production at this scale. This may lead to volatile oil prices not just for Asia, but for the global economy.
As talks proceed in Vienna, Iran’s Foreign Minister Javad Zarif is slated to visit India later this month. Among matters of concern will be Iran's inability to access its funds currently blocked in India. A satisfactory conclusion to the P5+1 discussions would allow Tehran to repatriate its money, easing lingering tensions between the two countries over New Delhi’s apprehensions about finding alternative routes to transfer the money via “creative accounting”, as Iran had reportedly requested. If everything falls into place, India could return to its position as one of Iran’s top oil and gas export markets.
