India has been caught unawares by an earlier-than-expected lifting of sanctions on Iran by the US, say government officials who fear that Tehran might turn hawkish on negotiations with New Delhi on economic collaborations inordinately delayed by India.
The only advantage to India would be the freedom to buy “as much crude oil that Iran is willing to sell to us”. The extra oil that Iran would now pump into the global market would be positive for India’s budget as it would exert further pressure on the abysmally-low crude prices. Every dollar decline would reduce India’s import bill by about Rs 6,500 crore and subsidies by Rs 900 crore.
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However, officials feel that this gain would be cyclical, temporary and insufficient when compared to the longer term opportunity lost by India to get a foothold into the country when the chips were down for Iran.
At several meetings, including the Joint Commission Meeting on December 28, 2015 Iran had urged India to urgently conclude bilateral cooperation, saying that sanctions could be lifted as early as January 2016. A quick resolution would have provided New Delhi with the first-mover advantage, the Iranians argued.
Prime among its demands was settling all outstanding crude dues — $6.5 billion equaling 55 per cent of oil purchases — in Indian rupees deposited in National Iranian Oil Co account with Indian banks. It offered to use these monies to buy non-oil Indian products.
However, New Delhi floundered, delaying an amendment to the Withholding Tax, exempting payments to Iran from a hefty 40 per cent tax if Tehran were to receive the entire payment for oil in in rupees.
Now that sanctions have been lifted, officials said, the proposed amendment has become infructuous as instructions have already been sent to crude buyers to ready themselves to pay in dollars once the US provides SWIFT codes to Iranian banks before end of this month. “Once the dollars are in, Tehran would be free to source imports from whichever country it pleases,” said one official.
This would definitely be a big blow for India’s farm produce — basmati rice, sugar, soyameal and barley and buffalo meat — as well as pharmaceuticals that are already floundering on account of standards acceptability. Now, they would face competition. There could be competition also in auto components, steel and textiles and the depreciation of the Euro could work against India.
The NDA government’s procrastination over Iran’s request for a loan to develop a rail link from Chabahar port could also spoil the nation’s chances of being the front-runner for port handling. The shipping ministry’s Cabinet proposal to loan $150 million for steel/rail projects was stalled with the Finance Ministry claiming “lack of clarity”.
“The exact amount of financing required for the projects is not known. If it can be showed that these projects are strategically important and normal lending channels are not possible, then only Export Development Fund route can be used,” said the Department of Financial Services.
Despite the Ministry of External Affairs’ warning that “Iranians were running out of patience”, DFS and Ministry of Railways ensured that the JCM statement was confined to India “will offer” Iran a credit line. Iranian officials at the JCM expressed frustration with the delay and suggested that India mobilize funds from the “private sector”.
New Delhi has already delayed concluding the commercial contract for the port — considered both a strategic and an economic asset — set for November 5 last year as both governments signed an MoU last May setting a deadline for signing the detailed contract within six months.
Chabahar is central to India’s efforts to circumvent Pakistan and open up a route to landlocked Afghanistan where it has developed close security ties and strong economic interests. It has become essential to India since China assumed control over Pakistan’s Gwadar Port in February 2013.
A lot hinges on the port development including a slew of gas-based projects like urea, petrochemicals and steel in the Chabahar free trade zone. “Talks between RCF (Rashtriya Chemicals and Fertilisers) and PEDC (Pasargad Energy
Development Co) for urea plant are on but now it could be purely commercial,” said an official.
ONGC Videsh Ltd too admitted that negotiations with National Iranian Oil Co for the development of Farzad-B gas field would get tougher with the sanctions being lifted. “We are sure to get the field but the terms and conditions could be stiffer,” said an OVL official. The field has gas reserves of 12.8 trillion cubic feet.
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