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Time is ripe for India-Iran-Russia energy tie-up

By M K Bhadrakumar | Indian Punchline | December 15, 2016

A major development in Russia-Iran relations, which merits close attention in New Delhi, has been that a preliminary agreement has been reached in Tehran two days ago to replace the US dollar with local currencies in the bilateral trade. The symbolism here is important against the backdrop of the recurring speculation that the new US president Donald Trump may tighten sanctions against Iran. A reasonable explanation for the decision to use the local currencies by Moscow and Tehran is that the two sides  are insulating the dynamics of their strategic partnership from being buffeted by US’ unfriendly policies toward Iran.

Put differently, any improvement of ties for Moscow with the US in the coming period will be sequestered from the dynamics of the Russian-Iran partnership, no matter the Trump Administration’s policies toward Iran. Broadly speaking, albeit with some caveats, Beijing also has signaled a similar approach to Sino-Iranian ties.

Clearly, therefore, the revival of a containment strategy against Iran by Washington on the pattern of what the Obama administration managed to put together may never again be possible to resurrect so long as Tehran remains committed to the implementation of the nuclear deal of July last year. New Delhi should draw appropriate conclusions in regard of the future projection of India-Iran economic cooperation. This is one thing.

Secondly, again on Tuesday, Russia and Iran also took a great leap forward in energy cooperation. Several major tie-ups have been announced, signifying that the Russian energy companies are re-entering the Iranian oil sector in a big way ahead of western competitors, following the announcement of new policies by Tehran to encourage foreign collaboration.

An interesting dimension to this, from the Indian perspective, will be that Russia’s Gazprom has shown renewed interest in getting involved in the Iran-India subsea gas pipeline project. Gazprom’s deputy chairman Alexander Medvedev has been quoted as saying that “we (Russia) can develop Iran’s liquefied gas projects, get involved in Iran-India subsea gas pipeline as well as some upstream sectors like exploration, gas production”. Indeed, the National Iranian Gas Export Company has been negotiating to lay a $4.5-billion worth undersea gas pipeline from the Iranian coast via the Oman Sea to Gujarat.

India is a key market for Iran as it plans to increase gas exports from the current level of 10 billion cubic meters per year (bcm/y) to 60-80 bcm/y by 2021. Turkey is at present Iran’s only customer. Iran also has a half-finished liquefied natural gas (LNG) plant, which needs a $8-11 billion investment to produce 10.4 million tons per year (14 bcm/y) of LNG. This is apart from building a string of several mini-LNG plants with about 150,000 tons per year of capacity. Gazprom is the most likely foreign partner in this field.

Besides, Gazprom is also interested in developing Iran’s underground gas storage (UGS) facilities, which is important for Iran to realise its plans to emerge as a major gas exporter in the future. Iran plans to increase its gas output from the current 750 mcm/d to 1,250 mcm/d by 2021. Gazprom has very good experience in this sphere, owning 22 UGS facilities at 26 gas storages in Russia itself, apart from having such facilities in Europe.

Another area of interest to India will be that Iran and Russia also inked a $1.6 billion agreement on Tuesday to build a 1,400 megawatt gas-fired power plant in the southern Hormozgan Province close to the giant South Pars gas field, which shares 60 percent of Iran’s gas production. Of course, India’s ONGC Videsh has been negotiating partnership in the development of Farzad-B as field in the South Pars.

Without doubt, Russia’s looming presence in Iran’s energy sector has profound implications for India’s energy security. The prospects are definitely there for India-Iran-Russia collaboration in the oil and gas sector and affiliated activities whereby Russian technology and collaboration become useful for India to tap Iran’s vast energy resources. Given the excellent ties India enjoys with Iran and Russia being a time-tested friend, New Delhi should optimize the window of opportunity here. It is important to note as well that Russia is keen to induct Iran as a full member of the Shanghai Cooperation Organization. Read a Bloomberg dispatch on Russia’s burgeoning Iran ties in the energy sector – Gazprom signs oil deals with Iran as Russians return in force.

December 15, 2016 - Posted by aletho | Economics, Timeless or most popular, Wars for Israel | India, Iran, Russia, Sanctions against Iran, United States