Iranian Foreign Minister to meet Sushma Swaraj, likely to offer gas bloc

Crucial visit expected to see Iran offer easier terms for Farzad-B gas bloc in return for more crude imports

Iran is expected to offer the Farzad-B gas bloc to India when its foreign minister, Javed Zarif, meets External Affairs Minister Sushma Swaraj in New Delhi on Tuesday.

Zarif may ask Swaraj not to reduce oil imports from his country, urging it to take a tough stance against the United States’ refusal to give India an extension on sourcing crude from Iran.

India–the world’s third largest oil importer–had in November 2018 managed to get a six-month waiver from the United States on buying Iranian oil. The Trump administration in April 2019 refused to extend the waiver, disabling New Delhi from buying anymore Iranian crude than the nine million barrels already shipped.

After European Union and Russia failed to ease America’s clampdown on Tehran, the Hassan Rouhani administration has turned to India, diplomatic sources said.

“Indians have had the opportunity of getting into Farzad-B (gas field) earlier, and they still have it,” Gholam Reza Ansari, deputy minister for Economic Affairs at Iran’s Foreign Affairs Ministry, told Business Standard in January, hinting that Iran was willing to provide easier terms for India once negotiations progress.

Tehran’s position in discussions with India has only gotten weaker since then, with US all hopes of overturning the US sanctions dashed, Petroleum Ministry officials said.

Long time coming

But Iran’s plans may come to naught, as Indian officials consider the bloc to be unviable. Senior officials of Oil and Natural Gas Corporation Videsh Limited (OVL)–the overseas investment arm of state-run ONGC–have said it may reduce its investment outlay, and agreed to Iran taking delivery of all gas already produced in the field.

According to sources, a deal on the bloc was expected to be signed on September 15 last year but was postponed after an European and an Australian consultant company withdrew their contracts. A similar concern was raised by State Bank of India (SBI) that had an exposure to several projects of OVL.

“OVL’s investments in Brazil and Sudan were run from our Amsterdam office and SBI has major exposure to it. We were told those investments might also get affected if we go ahead with the Farzad deal at a time when the US has imposed sanctions,” said an official.

Farzad-B’s gas reserve is estimated at 21.6 trillion cubic ft. The major point of contention between India and Iran was regarding the setting up of two pipelines and also the money for the development plan, the source said, adding the Indian company wanted only one pipeline.

Payment mechanism

Tehran also remains hopeful of initiating a Rupee trade mechanism with India, and later expanding it to include Russia as well, Commerce Department officials said. New Delhi had also been hopeful of using the domestic currency to pay for Iranian crude.

While experts and traders have suggested the mechanism as the best possible way to cut India’s dollar exposure as well as shore up the value of the rupee – which has continued to plummet – the recent sanctions have also put off optimism from India.

While Indian exports of man-made textiles are slowly increasing, Indian companies have been unable to use market access in pharmaceuticals, according to the Federation of Indian Exports Organizations. Official statistics showed Indian exports have reduced by more than 50 per cent over the past three years to $2.37 billion.

Cutting off the flow of Iranian crude to India may also affect the export of Indian commodities such as basmati rice, as the Middle-Eastern nation accounts to 32 per cent of the country’s shipments of this variety. For the first 11 months of financial year 2018-19 alone, Iran imported basmati worth Rs 9,204 crore (1.27 million MT), significantly higher than Rs 5,830 crore (880,000 MT) the previous year.