Sticky situation in India-Iran oil ties


India is in a sticky situation: How to conserve energy and cut on oil imports whose annual bill is ballooning, thanks to rising middle class...

India is in a sticky situation: How to conserve energy and cut on oil imports whose annual bill is ballooning, thanks to rising middle class prosperity. Until recently, none had bothered about the oil and its steady climb upwards in price, due to the volatile situation in the Middle East created by Syria. Our domestic economic woes, largely blamed on policy paralysis and the plunging rupee value, have literally added fuel to the zooming prices of petrol and diesel. With international crude price crossing $100 a barrel – there is no sign of it coming down in the coming days -- the huge oil import bill can prove to be the proverbial straw that breaks the camel’s back. India’s annual oil imports account for the lion’s share of our forex outflows since we are dependent on other countries to meet more than 70 per cent of our energy needs.

Saudi Arabia and Iran were our major suppliers; but in recent years Iraq has replaced the later as the US tightened sanctions against Teheran over its nuclear programme, and the worst hit sector is oil exports. However, the West has given concessions to a few countries like India to import a limited quantity of Iranian oil. Our imports from that country last year were about 13 million tonnes; but so far, India has imported only 2 million tonnes and if the country can maintain the same level as that of last year, another 11 million tonnes of oil could be made available to domestic refineries.

But the question is whether Delhi can get it in view of the curbs, inviting the US wrath, though India gains a lot since the Iranian oil is cheaper than others and can be paid for in rupees. This double advantage was weighing heavily on the mind of Union Petroleum Minister Veerappa Moily when he suggested to Prime Minister Manmohan Singh and Finance Minister P Chidambaram that India should keep Iranian oil imports at last year’s level. By doing so, India can save $8.5 billion at $105-a-barrel price. That is about Rs 57,000 crores, which, by any means, is not a small amount in the current economic crunch. The saving can even be more if the oil price goes up further. The biggest advantage for India, of course, is the imports won’t drain out our foreign exchange reserves to that extent.

On the face of it, Moily’s suggestion is sagacious. But, if he can recall our previous record of relations with the Islamic Republic, it is uncharitable to approach it when we are in dire straits. India had voted against Iran in the UN over that country’s nuclear plans and the tri-nation gas pipeline project through Afghanistan and Pakistan has not made much headway. Periodically, we are reminded of our oil ties with Iran by the US, and our Teheran policy is mostly driven by American diktats.
In such circumstances, can India approach it for largesse? In fact, there is an ugly diplomatic stand-off between India and Iran over detention of ships. Last month, an oil tanker, Desh Shanti, carrying Iraqi crude was detained alleging she was polluting Iranian waters. It is seen as a tit-for-tat to India arresting an Iranian vessel Diyanat about 18 months ago over an unspecified commercial dispute. Apparently, Iran wants the cargo ship released before setting the Indian vessel free. Unless and until both sides resolve their dispute over the merchant vessels, diplomatically, it is futile to think that Iran will bail India out of its fly in the oil situation.
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