ONGC plant Iran: Countering America’s Adversaries Through Sanctions Act (CAATSA), a US law created to hound world countries who do trade with a nation that is not in compliance with the American order. The CAATSA proposes to impose heavy economic and financial penalties on any country that has significant transactions with Iran, North Korea or Russia. Through the CAATSA act, they thought to stop countries like India from trading with Iran and Russia.
Initially, India absorbed the pressure to some extent as it didn’t stop buying S-400 from Russia but energy relations with Iran was halted. But the economic expansion and rise in global stature create a conducive environment for India to decline any ordinance of the US which proposes to undermine our national interest. It is for this reason that we not only defied the west’s sanctions but also increased energy imports from Russia. And, now we are reversing our decision on energy relations with Iran.
Iran’s 30 Percent Offer For 90 Days
According to recent reports, Iran has once again offered State-owned overseas public sector unit, Oil and Natural Gas Corporation (ONGC) Videsh, a 30% interest in development of the Farzad-B gas field in the Persian Gulf.
Citing the Exploration Service Contract, which provided for the discoverer to be part of the field development, Iran asked ONGC consortium to exercise its rights to participate in the development contract up to minimum 30% stake. Adding a time bound term, the officials of Iran asked the Indian consortium to exercise the right within 90 days, failing which it would be deemed as rejection of the offer.
Farzad-B Gas Field In The Persian Gulf
Iran’s offer is related to the Farzad-B Gas field in the Persian Gulf, which the Indian consortium discovered. On 25 December 2002, The Exploration Service Contract (ESC) was signed by ONGC Videsh Limited (OVL) and other partners. The OVL made a giant discovery in Farsi Offshore exploration block in the Persian Gulf Iran in 2008, which was later called Farzad-B.
In the exploration consortium, OVL held 40% stake, Indian Oil Corporation (IOC) 40% and the remaining 20% was held with Oil India Limited (OIL). Reports suggest that the explored field holds 23 trillion cubic feet of in-place gas reserves and 60% of the discovered gas is fully harnessable. The field also has condensates of about 5,000 barrels per billion cubic feet of gas.
Difficult Terms Of Iran Delayed The Project
After the discovery, the OVL, IOCL and OIL proposed a Master Development Plan (MDP) of the Farzad-B gas field in April 2011 to Iranian authorities. The Development Service Contract was negotiated till November 2012 but failed to capitalise as Iran was facing severe western sanctions. Reports suggest that the sanctions applied to any company which invests more than USD 20 million in Iran’s energy sector in any 12-month period. Due to this, Iran was forced to adopt difficult terms of the contract and the negotiation failed to capitalise.
In an effort to create pressure on India, Iran had put Farzad-B gas field on the list of auction in 2014. But it could not proceed further in auctioning direction as the country was not able to find any credible international oil company to invest until the western sanctions were eased.
That is why another round of negotiation started in April 2015. The new negotiation started under a new Iran Petroleum Contract (IPC), which provided to develop the field under an integrated contract covering upstream and downstream distribution of gas by the Indian and Iranian gas giants. It also provided for monetisation and marketing of the processed gas in an integrated manner. But the proposal remained inconclusive. In 2018, India offered a USD 6.2 billion development plan and a gas price of around USD 4 per million British thermal units.
CAATSA Withheld All The Progress
The talks were improving and 75% of the deal was finalised but the election of Trump in office completely changed the scenario. On November 4, 2018, the United States announced to fully re-impose sanctions on Iran that were lifted for some time under the Joint Comprehensive Plan of Action (JCPOA). This was the heaviest US sanctions ever imposed that targeted Iran’s energy, shipping, shipbuilding and financial sectors.
Although countries like India and China were given a six months cooling period to withdraw their energy relations with Iran, the ongoing deal was completely thrown off track.
Considering these international overhauls, Iran in February 2020 announced to conclude the contract for Farzad-B development with an Iranian company. In May 2021, the National Iranian Oil Company (NIOC) signed a contract worth USD 1.78 billion with the domestic oil company Petropars Group for the Farzad-B development.
But, all the plans for development of the gas field failed and since the last 10 years, the project is in doldrum. The American sanctions on Iran does not let other companies explore energy relations with the gulf country. As most of the countries have some kind of financial transactions with the American financiers, it would be very difficult for them to surpass the sanctions.
India May Resume Its Energy Relations With Iran
It is pertinent to note that due to the American sanctions, India was forced to substantially decrease its energy imports from Iran. Although the plan was made to trade under the rupee-rial mechanism, it remained unrealised. Although India was waived off to trade with Russia and buy the S-400 defence system, trade with Iran remained in cold storage.
Recently, another sanctions overpassing situation developed in the light of Russia-Ukraine war. As countless sanctions were imposed on almost every sector of Russia, leave the energy sector, trade in essential supplies was difficult. However, considering the energy inflation global market, India not only imported whatever it wanted, but also substantially improved energy relations with Russia.
A year earlier, when Russia was not even included in the top ten energy trading partners of India, it became the second biggest exporter of crude. This was possible due to India’s outright rejection of the west’s ordinance. India-Russia developed a smart rupee-rouble trade mechanism and expanded their trade base not only in the energy sector but also in other commodities.
On a similar pattern, Iran has asked India to develop a rupee-rial trade mechanism and resume all energy relations. In March 2022, Iranian ambassador to India, Ali Chegni, appealed to Indian authorities to establish rupee-rial trade for export of oil and gas. Speaking about the same he said, “a rupee-rial trade mechanism can help companies from both the countries deal with each other directly and avoid third-party intermediation costs.”
Last month, Indian foreign minister S. Jaishankar had held talks with Iranian counterparts and had given indications of resuming energy imports. As the International North South Transport Corridor becomes fully functional, Chahbahar port has once again become a key point in India’s trade.
This development of the Russia-Iran-India trade triangle would be significant in resuming energy relations. The de-dollarisation process started by India can be enlarged to Iran and energy imports can be resumed. This established mechanism would be instrumental in creating a conducive environment for India’s investment in the Farzad-B gas field.
Reports suggest that the Indian energy consortium has invested over USD 85 million in the gas field. As per the contract, the Indian consortium has to pay back the principal with a fixed rate of return. If the development does not progress further, it would be difficult for Iran to pay the exploration bill. So, it will be favourable for both Iran as well India that ONGC Videsh develop the gas field and monetise the energy.
As the assertive foreign policy of India is progressing, it will be true to say that ONGC will set up its gas plant in US sanctioned Iran in near future. Now, the US’s big-brother behaviour will no longer be tolerated. It’s time for India to break the monopoly of the US as well as its currency.
Support us to strengthen the ‘Right’ ideology of cultural nationalism by purchasing the best quality garments from TFI-STORE.COM