Home Iran Nuclear Deal: A Mixed Blessing for India

Iran Nuclear Deal: A Mixed Blessing for India

The recent visit by Iranian foreign Minister Mohammad Javad Zarif to India was the first by a high ranking Iranian official after the nuclear deal indicating Iranian interests in renewing engagements with India. The signing of the nuclear deal opens a wide opportunity for New Delhi to enhance its bilateral relation with Tehran. The nuclear deal however can at best be classified as a deal with mixed blessings for India as India has to part with a host of highly lucrative sanction-era offers now.This article aims to highlight some of the advantages and disadvantages of the Iranian nuclear deal for India.

Impact of Iranian Sanctions on India

The multi-layered economic sanctions imposed by the US, EU and UN on Iran had tightened the noose on the latter as it targeted its chief source of revenue, the energy sector. Systematic sanctions were imposed on Iran’s shipping, banking and insurance, i.e. practically all the upstream, midstream and downstream projects, making it difficult for Tehran to sell the oil it produced. Under such extreme conditions Iran offered some of the most lucrative offers it had to offer over the years to its major customers, India being one of them.[1]

The Farzad B Gas field

Located in the Farsi Block in the south of Iran, it is considered to be one of the largest gas block in the region with an estimated 21.68 trillion cubic feet of gas of which 12.8 trillion cubic feet is recoverable.Iran for the first time offered a Production Sharing Contract (PSC) to a consortium comprising of Indian majors like ONGC, IOC and Oil India which signed an agreement with the Iranian giant the National Iranian Oil Company (NIOC) in 2002 to develop the Farzad B Gas field.[2]India planned to invest USD$ 4-5 Billion in the first phase to extract 1.1 billion cubic feet of natural gas from the field. The gas was to be liquefied and then shipped back to India, estimated at approximately another US$ 8-9 Billion.[3]The Indian offer however ran into troubled waters when Iran rejected the Indian master plan for the production in 2009 and also threatened to withdraw from the Production Sharing contract it has initially offered.[4]The lifting of sanctions and India’s failure to deliver due to technical, economic and diplomatic reasons has led the Iranians to threaten to withdraw the contract and put it up back on the auction list.With the lifting of sanctions global majors like Shell, Total and Eniare more likely to bag the contract pushing India out of the project. Thus in the post sanctions period the upper hand India enjoyed over Iran in this case will be lost.

Rupee Payment

The closure of the Asian clearing Union and other payment mechanisms forced Iran to accept a major chunk of its energy bills from India in Indian Rupee. This was beneficial for India as it saved a major portion of its foreign reserves considering the share from Iran in its energy imports. To an extent it also facilitated bringing down India’s balance of payment with Iran. India’s trade with Iran doubled to US$ 5 Billion. The lifting of sanctions and Iran’s re-entry into the global economy has ended the Rupee trade and India now owes Iran approximately US$8.8 Billion.[5]

Discounted Oil and Free Shipping of Crude

In a bid to revive the falling crude imports by India and to sweeten the deal further, Iran offered to ship its crude to India for free.[6]In addition to this a 90 days credit on crude sales and a discount of approximately 25 percent per barrel was also offered. All combined it facilitated India in managing its energy import bills from Iran as it also saved freight cost of up to 70 cents to a dollar per barrel. These lucrative offers cease to exist once the sanctions are lifted and all the major importers in Asia and Europe can have access to Iranian crude.

Rail Contract

India had inked a US$ 233 million contract to facilitate export of rail tracks to Iran by SAIL Limited and Jindal Steel and Power Ltd in October 2014.Following the nuclear agreement, Iran successfully managed to cut the value of the deal by 7% citing competitive rates offered by Turkey, marking new found assertiveness.

The author’s interaction with an Iranian Embassy official revealed that the Iranian traders preferred dealing with Europeans more than with Indian entrepreneurs. Under such circumstances in the post-sanction period, Iran will look to engage with the European block. Economically and diplomatically the European block holds more promise than India.

The brighter side of the deal

The brighter side to it is that lifting of sanctions has now enabled India to make sizable investments in the country. Despite the debate in the US Congress the deal has blessings from the EU and the UN making it relatively less uncertain to engage with Iran. India can invest in Iran’s petrochemical complexes, produce urea and other fertilizers in Iran and import it which is a much cheaper option than importing gas either through pipelines or in Liquefied form.[7]Plans are also floated to bring the Turkmen gas via Iran as the TAPI pipeline is increasingly running into trouble.

A sanction free Iran will be a huge boost in satiating India’s energy and oil requirements. The oil prices might continue to stay low after Iranian oil enters the market, which should help India in keeping its energy import bill low.It has already shipped 17 per cent more oil in April than a year before.[8]The talks on a pending gas pipeline from Iran to India either through Pakistan or an undersea pipeline now holds some chance to materialize.

It also provides India an opportunity to sell Iran gasoline, as it continued to do till 2009. India was a source of 40% of gasoline for Iran worth approximately US $1 Billion, a share that dropped significantly after additional sanctions were imposed on Iran. The low oil prices after the nuclear deal along with the possible resumption in refined petroleum might thus boost India’s energy market.

India has also shown some interest in investing in Iran’s transport sectors.[9]The progress made by signing an MoU with Iran will pave the way for the development of the Chabahar port after commercial bids are agreed upon. The scheduled International North- South Transport Corridor also may see some headway in the post sanctions period.

It is certain that India will have to bid harder for any project in Iran as all the major companies from Europe, Asia and probably even the US would like to exploit the breakthrough in diplomatic relations and exploit the newly opened market. Thus, keeping in mind the benefits gained and lost by India in its engagements with Iran, the nuclear deal at best can be termed as a mixed blessing.

The author is Research Assistant at CLAWS. Views expressed by the author are personal.




[1]Iran, India to continue talks on Farzad gas fieldhttp://www.tehrantimes.com/index_View.asp?code=199550(Accessed on 10th Aug 2015)

[2] ONGC Annual Report 2012-13 http://www.ongcindia.com/wps/wcm/OngcHTML/Annual_Report_2012_13/Annual_Report_2012_13.pdf pg 252. (Accessed on 10th Aug 2015)

[3]Indian Firms noncommittal on Iran gas field contract http://www.livemint.com/Industry/LRqpCp9A7FnrjQlx3Z6lmK/Indian-firms-noncommittal-on-Iran-gas-field-contract.html (Accessed on 10th Aug 2015)

[4] Iran withdraws offer to Indian firms on Farzad B Gas Field http://www.tasnimnews.com/English/Home/Single/154259(Accessed on 9th August 2015)

[5] India owes Iran $8.8 billion for oil: NirmalaSitharamanhttp://economictimes.indiatimes.com/news/economy/finance/india-owes-iran-8-8-billion-for-oil-nirmala-sitharaman/articleshow/46635525.cms (Accessed on 8th August 2015)

[6] Iran offers to ship crude to India for free to boost sales http://www.reuters.com/article/2013/11/07/us-india-iran-oil-idUSBRE9A60R920131107 (Accessed on 9th August 2015)

[7] Annual Report Ministry of Petroleum and Natural Gas, Government of India, http://petroleum.nic.in/docs/Annual_Report/AR13-14.pdf (Accessed on 8th August 2015)


[9] India’s missed Iran opportunity http://thediplomat.com/2015/05/indias-missed-iran-opportunity/ (Accessed on 7th July 2015)  

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