What Does The Lifting Of Sanctions On Iran Mean For India?

NEW DELHI: The nuclear deal between Iran and six world powers to end sanctions on the Islamic Republic came into effect and it is expected to be a mixed blessing for India, which maintained trade relations with Tehran during the economic and financial restrictions. Officials in the Ministry of Petroleum, Economic Affairs and External Affairs are busy making calculations and chalking out policy frameworks and guidelines, as well as deliberating on modalities for making payments to Iran now directly, which were stuck over past many years.

“We want Iran to regain its share of India’s oil imports and we expect Iran to also make efforts to help promote participation of Indian companies,” said ministry of external affairs spokesperson Vikas Swarup. Officials here believe that lifting of sanctions on Iran, which means adding half a million barrels more oil per day, could help India to keep fuel prices and inflation low in the coming months in the run up to the budget-making exercise.

The deal will likely nudge up crude oil supplies from Tehran but have an adverse impact on India’s farm commodities, experts and industry officials say, as Iran now has a wider market in which to shop. Iran has reportedly asked Indian oil refiners such as Essar Oil and Mangalore Refinery and Petrochemicals Ltd (MRPL) to settle its oil dues worth $6 billion in Euros within six months.

Following the removal of sanctions by the US, Iran has informed Indian authorities that the three-year-old mechanism, which allowed the refiners to pay 45 percent of the oil import bill in rupees, leaving the remaining amount unpaid until a finalisation of payment channels, has expired. India had adopted a rupee-based payment mechanism with Iran to skirt Western sanctions that prohibited purchases from Iran made in dollars.

Under that, India purchased Iranian oil with rupees by depositing the payment in an Indian state-run bank account, funds from which Iran would use to buy Indian goods, including food, drugs, consumer products and auto parts.

The easing of sanctions will mean “India can now freely buy crude-oil” from Iran, said K. Ravichandran, senior vice-president at ratings agency ICRA Ltd.

In October, India’s state-run Oil and Natural Gas Corp. was in talks with Iranian state company Pars Oil and Gas Co. to return to a $10 billion gas project that it abandoned because of U.S. pressure.

ONGC discovered gas in the field in 2008, but left the project after 2010 as the U.S. pressured countries to quit doing business with Iran because of its nuclear program. But in October, ONGC approached the Iranians during an energy conference in Tehran to discuss the deal’s revival, according to a top official in Iran.

However, the easing of sanctions isn’t good news for everyone–including those exporting agricultural commodities including sugar, soy meal and barley to Tehran.

“Iran is shifting to other suppliers like South American countries who are selling at much lower prices compared to India. We cannot compete,” said B.V. Mehta, executive director at the Solvent Extractors’ Association of India, a soybean trade body.

The only gainers in the commodities sector look likely to be exporters of aromatic, high-quality basmati rice, of which sales to Iran are expected to rise to one million tons this year, according to the All India Rice Exporters Association.

Former Indian envoy to Tehran K P Fabian maintains that India was one of the few countries, which did business with Tehran even during sanction regime. The State Trading Corporation had obtained a contract for the supply of steel worth $2.5 billion – the largest export contract for India – and a certain quantity was sent to Iran. But, Iran delayed payment and a dispute arose which is yet to be resolved.

(The writer is a doctoral student at JNU, New Delhi)