To cement their relationship India and Iran have just signed a $40b LNG deal. #msg-5049789
-Am
Israel wary about India’s growing naval strength
By Khalid Hasan
Washington: Israel is keeping a cautious eye on this budding relationship with India and will keep quiet as long as the connection does not become overtly military in nature, as it does not want an Iran with a strong naval and air presence capable of striking Israeli interests, according to an analysis put out by the Centre for Strategic and International Studies.
Writing in the current issue of South Asia Monitor’s the Centre’s monthly publication, Pramit Mitra argues that Pakistan that considered Iran a critically important ally during the time of the Shah, has had increasingly troubled relations with Tehran in the past decade. Iran has been seen backing Pakistan’s opponents on the Afghan political scene and has been mplicated in sectarian violence inside Pakistan. Good relations between India and Iran leave Pakistan feeling “isolated and surrounded,” he writes. Pakistan, he notes, has worked hard to expand its own trade with Iran to counteract India’s perceived efforts to outflank it.
Mitra writes that the “breakthrough” in India-Iran relations came in January 2003, when President Mohammed Khatami took the podium as the chief guest at India’s Republic Day parade, an honour reserved for New Delhi’s most trusted friends. Both countries signed the “New Delhi Declaration” promising to expand trade. Since then, bilateral relations have progressed gradually, driven by a mutual desire to expand trade links, especially in oil and natural gas, and a common strategic outlook in Afghanistan and Central Asia. There is also limited but growing cooperation in military and security affairs, much to the consternation of Pakistan. But the more interesting question is India’s role in the event the nuclear crisis in Iran reaches some kind of showdown. India’s growing ties with Israel and warm relations with the United States only add to the complication.
Mitra maintains that an overland gas pipeline from Iran through Pakistan to India is still problematic. The Islamic extremist groups that have been most troublesome for President Pervez Musharraf, including those implicated in the assassination attempts against him, are overwhelmingly Sunni. Provided the political risk issues could be resolved, a gas pipeline through Pakistan into India could assist both in stabilising Pakistan-Iran relations and in building constituencies for India-Pakistan peace.
The analysis notes that the United States has said relatively little about India-Iran relations. The growing economic ties are moving in the opposite direction from Washington’s continuing effort to isolate the Tehran regime but are not likely to draw much US response. India has not spoken out about other issues that trouble the United States in Iran, such as its policy in Iraq or trafficking of illicit goods and narcotics.
Iran’s nuclear program, however, Mitra believes, is another story. For the United States, preventing a nuclear Iran is likely to be a major foreign policy goal for the foreseeable future. India would undoubtedly prefer not to have additional nuclear powers in the region, but has until now not had to, and not wanted to, do anything about this issue.
India and the United States have been gradually identifying ways they can cooperate in preventing the further spread of nuclear technology as part of their next steps in strategic partnership. But India will be reluctant to participate publicly in nonproliferation efforts aimed at Iran, and these may become an increasingly important issue for the United States. Reconciling these different priorities between the United States and India will be a challenge, he predicts.
Has India’s LNG deal upstaged the overland pipeline?
Even as India and Pakistan were trying to smoothen differences on an overland oil and gas pipeline from Iran, New Delhi has gone ahead and cut a $40 billion deal with Iran over the next 25 years on LNG (liquefied natural gas). Is this the end of the Pakistan pipeline issue?
On the surface it does look like it. When Prime Minister Shaukat Aziz was in India in November last year, the Indians linked the overland pipeline with Pakistan granting them MFN status. Mr Aziz dismissed the linkage and noted that Pakistan needed the pipeline for its own domestic consumption and would go ahead with it regardless of India. However, he said that India must inform Pakistan of its decision because that would determine the technical parameters of the pipeline.
Now India has made clear that it will play hardball on the issue. There are reasons for it. The normalisation process aside, India is not prepared to let Pakistan go one-up on it. When its security experts rejected the overland pipeline option in the late nineties, it began work on LNG. By now, it has already spent a major chunk of the upfront cost of carrying the LNG and de-compressing it. Also, the deal just signed gives India 20 percent stake in upstream participation in the Yadavaran and Pars fields. Moreover, in the current deal, the price has been worked out over the entire period until 2036. This could help offset the cost of fluctuating prices that would attend an overland pipeline. Similarly, India has developed a fleet of its own ships to carry LNG. Given all these costs as well as working out security risks, it does seem like the LNG option may be good for India.
But there’s a catch. We do not know how India has worked out its rate of growth and the rate of consumption over this period. If those calculations go awry whether on the plus or minus side, the LNG option could prove far more expensive than an overland pipeline. Experts say India’s requirement is likely to increase more than it has determined at this moment. If that is correct then we could expect India to try and work two options: LNG as well as an overland pipeline. It has started with LNG because that gives it a better handle on negotiations with Pakistan over the pipeline. Since the LNG project would kick off in 2009, there is time still for India to drive a hard bargain with Pakistan. As for Iran, all the deals work to its advantage. It has signed the LNG deal with India and China and has signed one with Pakistan on the pipeline. If India involves itself in the pipeline deal at some point in the near future, Iran gets more, not less.
We do not know if the Pakistani government was alive to this possibility coming on the heels of Mr Aziz’s statement last November. We also do not know if Islamabad has formulated a viable response to this development. However, one thing is obvious: Pakistan took an ill-advised decision in the late nineties to not take the option seriously. If the transit pipeline does not work out, Pakistan would have enough gas for its domestic consumption, whether it is through Iran or Turkmenistan, but nothing to show in royalties. That India could work the LNG option should also have been clear from how Egypt used it to export gas to Turkey to avoid an overland pipeline through Israel. *
The trend puts paid to the Great Game theorists who have speculated on the inevitability of a Sino-Indian rivalry in the race for energy.
At a meeting with Indian Petroleum Minister Mani Shankar Aiyar in Delhi in October, the Chinese ambassador proposed cooperation between the two countries in the energy sector.
In my opinion it will be very difficult for the United States to break up the Russia/China/India alliance when energy binds the partners.
-Am
By M K Bhadrakumar
Jan 11, 2005
India's oil diplomacy took a giant leap forward on Friday when New Delhi unveiled a multibillion-dollar deal with Iran and Russia that will be crucial to India's long-term energy security, and took the initiative the same week to host the first-ever conference on regional cooperation among Asian oil-producing and consuming countries.
In its US$40 billion deal with the National Iranian Oil Co (NIOC), India committed to import natural gas from Iran over a 25-year period and to develop two Iranian oil fields and a gas field. Iran will sell the liquefied natural gas (LNG) to India at a price linked to Brent crude oil. According to the agreement, India will pay $1.2 plus 0.065 of Brent crude average, with an upper ceiling of $31 per barrel. Iran will ship 5 million tonnes of LNG to India annually, with a provision to increase the quantity to 7.5 million tonnes.
As part of the deal, India's ONGC Videsh Ltd (OVL) gets a 20% share in the development of Iran's biggest onshore oilfield, Yadavaran. The Indian company will also get 100% rights in the 300,000-barrel-per-day Jufeir oilfield. The stake in Yadavaran translates into 60,000 barrels per day of oil for India. Significantly, Chinese state oil company Sinopec (China National Petroleum and Chemical Corp) operates the Yadavaran field. With the deal signed in Delhi, India will now hold a 20% stake in Yadavaran, Iran 30%, while China retains its existing 50% share.
In March, Beijing and Tehran signed a deal worth $100 billion. Billed as the "deal of century", this agreement is likely to increase by another $50 billion to $100 billion, bringing the total close to $200 billion, when a similar oil agreement, currently being negotiated, is inked. The gas deal entails the annual export of some 10 million tonnes of Iranian LNG for a 25-year period, as well as the participation, by China's state oil company, in such projects as exploration and drilling, petrochemical and gas industries, pipelines, services and the like.
India also confirmed that it is talking to Russia for investing in crumbling oil major Yukos. Officials in New Delhi said ONGC was considering investing $2 billion for a stake in Yuganskneftegaz, the main production unit of Yukos, which was auctioned last month in Moscow in a cloak of mystery. Incidentally, Russia recently offered a 20% stake in Yuganskneftegaz to Sinopec. In the event of both India and China taking shares in Yuganskneftegaz, it would become a triangular Russian-Chinese-Indian collaboration - alongside the envisaged Chinese-Indian-Iranian cooperation in Yadavran.
The trend puts paid to the Great Game theorists who have speculated on the inevitability of a Sino-Indian rivalry in the race for energy. At a meeting with Indian Petroleum Minister Mani Shankar Aiyar in Delhi in October, the Chinese ambassador proposed cooperation between the two countries in the energy sector. A framework agreement on such cooperation could be signed during the visit of Chinese Prime Minister Wen Jiabao to India in March. China signed a similar agreement with Pakistan last month during the visit of the Pakistani prime minister to China.
It's evident now that India is working on a coherent, long-term energy plan. The country is making it clear that it views Iran and Russia as two pivotal partners in its quest for energy. An early sign of the Indian thinking was evident when Aiyar visited Moscow in October for discussions with the Russian government on energy cooperation. In a far-reaching statement, Aiyar compared the significance of India's cooperation with Russia in the energy sector in the coming years with Indo-Soviet cooperation in the security field. "In the first half-century of Indian independence, Russia has guaranteed our territorial integrity, and in the second half it may be able to guarantee our energy security. What I am talking about is the strategic alliance with Russia in energy security, which is becoming for India at least as important as national security," he had said.
During Russian President Vladimir Putin's visit to India, the two countries signed a memorandum of understanding for joint exploration and distribution of natural gas from the Caspian basin, as well as for building underground gas storage facilities in India and technology transfer from Russia. Much of the credit for formulating and steering India's new energy policy must go to Aiyar, who is emerging as one of India's outstanding political leaders. Aiyar is credited with his progressive outlook on diverse aspects of India's national policy - from dialogue with Pakistan to devolution of power to India's local bodies. Iran had first proposed the deal to the previous National Democratic Alliance in Delhi over a year ago. Aiyar relentlessly pushed the deal through India's leviathan bureaucracy and made it a reality.
Under Aiyar, India also hosted the first-ever round table of Asian oil ministers last Thursday. At the gathering, attended by oil ministers - including those of the Persian Gulf, China and Southeast Asia - Aiyar mooted the idea of a common platform for Asia's oil-consuming and oil-producing countries. He said the region ought to develop a sophisticated market for petroleum and petroleum products. The meeting endorsed India's proposal, and as a first step decided to create a benchmark crude for the Asian market. The conference also called for regional cooperation for investment in exploration and strategic storage of hydrocarbons for energy security.
India has found a strong partner in Iran in the pursuit of an Asian oil market. From the Iranian perspective, the Indian initiative on regional cooperation dovetails with its own policy of shifting its oil and gas trade to the Asian region so as to reduce its market dependence on the West. Speaking at the conference in Delhi, Iranian Oil Minister Bijan Namdar Zanghaneh proposed the creation of an Asian Bank for Energy Development to finance energy projects in Asia (like the proposed Iran-Pakistan-India gas pipeline). With particular reference to growing markets like China and India, the Iranian minister called for a lower price for energy supplies from Asian producers to Asian consumers.
The Iran gas deal also opens the door for the long-standing Iran-Pakistan-India gas-pipeline project. A day before the India-Iran deal, Aiyar announced in Delhi that he has invited Iranian officials to visit Delhi to discuss the pipeline. "A delegation from Iran will visit India on the eve of the Asian gas buyers' summit commencing on February 14 to initiate negotiations on a term-sheet for the delivery of Iranian natural gas by pipeline at the India-Pakistan border," he said. In a forceful acknowledgement of India's interest in the project, Aiyar said, "Our anticipated demand in 2025 for gas would be 400 million standard cubic meters per day. Our output today is less than 100 mscm per day. It is not possible to meet the incremental demand from domestic production and import of LNG, and natural gas through pipeline is needed to meet the demands of the growing economy."
Iran has also been quick to sense that the gas deal would turn the focus back on the decade-old pipeline project proposal. The Tehran Times, which reflects the Iranian government's views, commented, "The Iran-India agreement on LNG exports will pave the way for the implementation of the project to pipe Iranian gas to India via Pakistan and the dream of the peace pipeline could become a reality in the near future".
But Pakistan's willingness to address Indian concerns about the pipeline project remains unclear. After a meeting with the visiting Pakistani prime minister, Shaukat Aziz, in Delhi on November 24, Aiyar summed up the Indian position: "We did repeat what we have said earlier about using Pakistan as transit corridor [for sourcing gas from Iran] creating mutual dependency ... we need to replicate such mutual dependency in several other sectors so that we can conceptualize whatever cooperation we have in the hydrocarbon sector in the wider trade and economic relationship between the two countries."
A section of the Western press has reported that US pressure is building up on Islamabad not to enter into an energy deal with Iran at this juncture. An Iran-Pakistan-India gas-pipeline project flies in the face of American efforts to isolate Iran regionally. The project, if it materializes, would also foreclose whatever prospects remain of the revival of the trans-Afghan pipeline project, which many still see as a raison d'etre of the US intervention in Afghanistan.
M K Bhadrakumar is a former Indian career diplomat who has served in Islamabad, Kabul, Tashkent and Moscow.
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