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9 April 2015, Gateway House

How the Iran deal impacts India

If the sanctions against Iran are eased following the April 2 agreement with the P5+1 on the country’s nuclear programme, it will increase global oil and gas supplies, bringing stability to energy markets. It could also resolve the issue of the Farsi Block in Iran, where further exploration of gas by Indian companies has been held back

Senior Fellow, Energy, Investment and Connectivity

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Following the April 2 agreement between Iran and the P5+1countries on Iran’s nuclear programmes, economic sanctions against Iran may be phased out. An easing of sanctions will stabilise and deepen global energy markets in the short term as well as long term, which will be favourable for India.

With India’s huge dependence on imports—4 million barrels per day of oil from various sources and a growing quantum of natural gas imports—any improvements in  global energy supply and stable prices, will benefit India.

India has historically been among the largest importers of Iranian crude oil, though it had to cut down imports in the last 3-4 years in the wake of tougher U.S.-backed sanctions. The sanctions had forced Iran to curtail its petroleum production, though production was partly revived after an interim deal with the P5+1 in November 2013.

But Iran’s oil production, at 2.84 million barrels per day (bpd), is still an estimated 760,000 bpd lower than the existing potential of 3.6 million barrels. If more of this oil comes into the world market, it will create a barrier against any short term spike in petroleum prices.

Iran’s return to the world energy market will also have a long term impact on the supply of oil as well as natural gas. During the 1970s, Iran was among the top oil producers globally, with annual production ranging from 5-6 million barrels a day—twice of what it currently produces. But as a result of the revolution in Iran, its war with Iraq, and the sanctions imposed by the U.S., the Iranian oil industry has been starved of investment and technology. Increased investment and access to technology and markets can help to substantially increase Iran’s production—which will also be a long-term stabilising factor for the world oil market.

Iran also has huge reserves of natural gas—by some accounts, the largest in the world. It has more natural gas than either Russia or Qatar, the dominant players in the international gas market. But due to the sanctions, this gas too has remained untapped in the ground. Taking it to customers via pipelines or as liquefied natural gas (LNG) has not been possible.

India is among the largest emerging markets for LNG. If Iranian gas reaches India and other demand centres, it will weaken the hold of producers and deepen the global gas market—which will be good for consuming nations such as India.

If Iran returns to the mainstream, it can benefit ONGC, Indian Oil, and Oil India, which were jointly exploring for oil and gas in Iran. These companies had stuck natural gas in the Farsi Block, with estimated reserves of 22 trillion cubic feet. These reserves could not be developed because of the sanctions against Iran.

Iran has tried to interest other partners such as China in this gas field, but with little luck. If the sanctions are rolled back, it may be possible for Indian companies to revive the exploration.

Amit Bhandari is Fellow, Energy & Environment Studies, Gateway House.

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