Diplomatic Enclave: Energy Corridors
While the US will have no objection to India developing Chabahar port as an access point for Afghanistan trade, Washington looks askance at any major energy deals with Iran

Two significant events took place in close proximity in the past couple of weeks. A consignment of Indian wheat was sent through Iran’s Chabahar port to Afghanistan. It was the first official consignment from India using the Chabahar route after the signing of the trilateral Iran-India-Afghanistan transport corridor agreement in May 2016. The second event was the delivery of the first shipment load of shale oil from the United States to the Indian port of Paradip in Orissa. Both events have a linkage of sorts.

The shipment of wheat was described as a “landmark moment” that paved the way for operationalisation of the Chabahar port as an alternate, reliable and robust connectivity for Afghanistan by the Ministry of External Affairs. Some commentators have somewhat fancifully compared the Chabahar route as a counter to the multi-billion dollar China-Pakistan Economic Corridor, which is a lynchpin of China’s Belt-Road Initiative. It is a trade and energy corridor that links China’s Xinjiang province to Pakistan’s Gwadar port in its Baluchistan province. India is to build two cargo terminals for the Chabahar port. Chabahar provides a sea and land route from India to Afghanistan to access its market. Six more shipments of wheat are to take place in the next few weeks.

The shipment of American oil to India is part of new cooperation in energy sector. India has been making efforts to diversify its source of oil and gas to reduce the dependency on West Asian oil. Importing American crude is said to be cost effective for Indian refiners even after taking into account the higher shipping costs from the US. The Indian Oil Corp deal was concluded shortly after Prime Minister Narendra Modi’s visit to the US in late June. During the visit Trump, who has criticised the large US trade deficit with India, had talked of increasing the export of energy products to India. The official event that took place at Paradip port to mark the arrival of the crude oil from the US was an ample indicator of the importance that the government attached to the event.

In October US President Donald Trump held that he could not approve the mandatory certification of Iran’s compliance with the joint comprehensive action plan of action that was part of the six-party nuclear deal signed with Iran in 2015. Trump had strongly opposed the nuclear deal and had promised to withdraw from the agreement once elected. He has now asked the US Congress to devise guidelines on imposing sanctions on Iran.  President Trump’s fulminations against Iran and the threat of reimposing sanctions have a direct effect on India and its trade and economic ties with Iran if Washington keeps up the pressure on Iran.  

At Chabahar, India is constructing container terminals, but the slow pace at which work has progressed has upset the Iranians. The certainty over Trump’s policies on Iran had its effect on Indian companies involved in the Chabahar project. Some have experienced difficulties in accessing banking and credit facilities, as Indian banks had faced problems over dealing with Iranian entities under the earlier sanctions regime.  

India has begun importing crude oil from the US, even as it has reduced its oil purchases from Iran. Indian purchases have been declining since 2016, which has had an impact on ties with Iran. While the US will have no objection to India developing the Chabahar port as an access point for its Afghanistan trade, Washington looks askance at any major energy deals with Iran.

India had continued to buy oil from Iran during the period of the western sanctions despite US pressure, though it was mainly the state run oil companies that bought Iranian oil. As Indian oil companies cut down the quantity of Iranian oil purchased by them, Iran reacted with sharply reducing the number of days of credit offered to Indian companies from 90 days to 60 days.

 At the same time there has been a hardening of the Iranian stance in the negotiations for the Farzad-B gas contract. An Indian consortium led by ONGC Videsh had discovered the gas reserves under an exploration contract. The consortium has been in negotiations for an oil development contract with the Iranian party for several years.

Early negotiations had been hampered by the international sanctions against Iran, but the talks picked up after some sanctions were lifted. Both sides have revised their terms on pricing and other details during the discussions, but both have charged the other side with inflexibility in unofficial comments. Some of these comments may be negotiating tactics, but there have been some media reports that the contract is likely to be awarded to the Russian energy giant, Gazprom. As India opens up the long-awaited Chabahar route for trade purpose, it has to take steps to speed up its projects with Iran.