Iran’s Ambassador to India Gholam Reza Ansari, at an interview with PTI at the Iranian embassy, in New Delhi, July 22. (Subhav Shukla | PTI)
The landmark Iranian nuclear deal between Iran and six nations (P5, permanent members of the Security Council, plus Germany) marks a fresh start in Iran’s international relations. It also means big gains for India, writes Priyanka Bhardwaj.
The landmark nuclear deal between Iran and six nations opens economic doors for Tehran, enabling it to sell oil once again, reunite it with the global financial system and reclaim its overseas assets worth about $100 billion to $150 billion that were frozen in global accounts.
The Vienna accord never came easy.
It took 20 months of intense negotiations, relentless efforts by Iranian President Hassan Rouhani and Iran renegotiating its intractable nuclear ambitions.
In lieu of Tehran’s acceptance of long-term restrictions on its nuclear program it has been awarded a gradual easing of sanctions by the West, United Nations, United States and European nations.
Relief would be in stages and would be applicable only when Tehran meets all commitments, including dismantling of the Arak nuclear reactor core, surrender of 98% of its enriched uranium, mothballing of centrifuges, and provision of a fact-sheet of past activities and opening all Iranian works and systems to an IAEA scrutiny as demanded by it at any point of time.
President Barack Obama, aptly states that the deal has been “not built on trust, it is built on verification.”
Lifting of embargoes on conventional arms and ballistic missiles would be subject to an IAEA clearance and most significantly the accord guarantees supreme authority to the Western powers by allowing for a clause where they can veto for reinstatement of sanctions if any one of them doubts Iran to be cheating on its obligations.
Coming to the immediate implications of the deal it would not be presumptuous to say that the world will witness an oil glut and fall in oil prices as Iran begins to export at its full capacity in the next six months with a spurt in its production, to about 0.5 million barrels per day.
For the Indian economy, this would usher in good times as even a dollar fall in oil prices would translate into a cut in the country’s net import bill by $0.9-billion per annum as per the 2014-15 Economic Survey estimate.
Commodity experts state that current Brent crude prices have dipped $1.07 to $56.78 per barrel and as demand remains muted and supply some analysts also talk of a fall of $3-4 per barrel.
India’s crude imports are close to 80% of its requirement and in 2014-15 it ranked as the fourth largest consumer of oil in the world, second only to China in terms of purchase of Iranian crude.
In the last two fiscals, despite the sanctions weighing down heavily upon Iranian trade, India imported about 11 million tons of the Iranian crude.
In any case, it is highly likely that the Indian government would inflate its import of Iranian crude as it has been sourcing crude from nations located at a larger geographical distance.
India’s oil companies to benefit from lowering of subsidy would most notably be Bharat Petroleum Corporation Ltd, Indian Oil Corporation, Hindustan Petroleum Corporation Ltd, Oil and Natural Gas Corporation and Oil India.
Other possible consequences of slide in oil prices would most surely be easing of inflationary pressures.
For aviation firms it would be more savings as 45% of their operational cost depends on fuel price.
Similarly paint manufacturers, automobile industries, tire manufacturers, and a variety of consumer product makers rely on the hydrocarbon raw materials and hence are expected to realize gains as raw materials get dearer and bolster sales.
Talking of India’s presence in the Iranian domain, it already enjoys a significant role in construction of the Chabahar port.
The primacy of this initiative is that it would kick-start an undersea pipeline to bring hydrocarbons into India by penetrating landlocked Afghanistan, Turkmenistan, Iranian energy fields and also Oman by bypassing Pakistan.
There is still vagueness around the viability of the Iran-Pakistan gas pipeline that passes through war torn north-western territories of Pakistan.
Another infrastructure project that could see a possible resumption are the 21.68 trillion cubic feet of gas reserves of Farzad-B field that was discovered by Indian energy explorer ONGC Videsh Ltd.
For the benefit of the Indian companies the Associated Chamber of Commerce and Industry of India (ASSOCHAM) is considering opening an office in Teheran as soon as global trade with Iran returns to normalcy.
The trade forum is the third biggest industry forum in the country.
“The deal not only opens doors of further trade and investments with Iran which forms an important strategic and economic component of the West Asian region but also improves its chances of improving the geo-politics of the wider region,” said industrialist Sandeep Jajodia, vice president of ASSOCHAM.
Jyotsna Suri, president of FICCI, another Indian industry body, stated, “We will, in time, see an increase in exports of Iranian crude oil to India and the world, and India-Iran trade scaling newer heights. This nuclear agreement also has the potential to revive the long-pending gas pipeline projects from Iran to India. We hope Iran is able to expedite the recovery of its crude export capacity following the easing of sanctions and continue its valuable contribution to the fulfillment of India’s energy needs.”
However it would not be hunky-dory times for all sectors as Iran would have more options to make friends with.
Due to the U.S. blockade on payment channels, Indian refiners could only pay 45% of the oil bill in Rupees via UCO Bank and the rest, amounting to $6 billion is still unpaid. If Iran were to ask fuel-refiners, MRPL and Indian Oil Corporation, to pay in a short span it could place pressure on them as well as the value of Indian rupee.
Furthermore, the deal could spell an end to an era of discount pricing, long drawn credit periods or payment in rupees.
As it is the OPEC members, especially Saudi Arabia, are already trying to out-price U.S. shale and Australian renewables.
Coupled with the scaling back of investments in production of U.S. shale or OPEC oil, for reasons of sustainability, there might not be any further dips in oil prices.
Yet what is also central to this deal and therefore would negate the negatives is the high possibility of growing formidability of an enlightened and Shia-dominated Iran in checking the advancements of Sunni militancy that is terribly violating human rights and common freedoms.
Thus the success of the deal would lie in Iran spearheading a restoration of order in its geopolitical vicinity.