Global Insider: Iran-India Energy Relations

India and Iran are discussing a new underwater pipeline project that would circumvent a stalled pipeline project involving the two countries and Pakistan. In an e-mail interview, East West Institute Vice President of Programs Dr. W. Pal Singh Sidhu explains Iran-India energy relations.

WPR: What is the current energy relationship between Iran and India?

Pal Sidhu: India is the world’s fifth-largest consumer of energy resources and heavily dependent on imports. Its energy consumption is estimated to rise to 27.1 quadrillion BTUs by 2025 — the largest expected increase in energy use after China. Even with new domestic oil and gas finds, India’s dependence on imports will increase. Iran is OPEC’s second-largest oil producer and has the world’s second-largest natural gas reserves. Today Iran is the second-biggest supplier of crude oil to India, which accounts for 85 percent of all imports from Iran to India.

In addition, there has been an on-again, off-again multi-billion-dollar deal to construct a gas pipeline from Iran to India, through Pakistan. While a deal was signed by Iran and Pakistan on Nov. 11, 2007, India has still not signed on. Although India resumed discussions with Iranian President Mahmoud Ahmadinejad’s on the deal in April 2008, the agreement has still not been finalized. The U.S. opposition to this pipeline deal does not appear to be a factor in New Delhi’s reluctance to join the project.

Separately, Indian firms have won approval to take equity stakes in the Azadegan oil field project and South Pars gas field Phase 12.

WPR: How has that relationship been affected by U.N. Security Council sanctions targeting Iran?

Sidhu: At the moment the relationship is unaffected by the U.N. Security Council sanctions because the sanctions do not cover the export and import of oil and natural gas. Even the new round of sanctions is unlikely to cover the oil and gas sector. However, some private Indian companies which are supplying refined petroleum products to Iran might find themselves in the spotlight if future sanctions also target the oil and gas industry.

Since India is not a member of the U.N. Security Council, and does not have a say in the U.N. sanctions, its relations are unaffected by sanctions. However, the situation is likely to change from 2011 when India is likely to be elected onto the U.N. Security Council and will have to vote on future sanctions against Iran. India’s vote will directly impact on Indo-Iranian relations.

WPR: What is India’s broader relationship with Iran, and what will be the key drivers of their relationship moving forward?

Sidhu: India describes its relationship with Iran as a “civilizational” and “historical” one, dating back thousands of years. More realistically and in the present day, India’s relationship with Iran is complex. The key driver at present and for the future is likely to remain energy resources and economic relations. India will continue to import oil and gas from Iran and will also play an important role in developing Iran’s oil and gas infrastructure, as well as other infrastructure, such as the port at Chahbahar. There is also likely to be convergence of interests and some cooperation on and in Afghanistan. The biggest area of difference between Iran and India is likely to be Tehran’s nuclear weapons ambitions. India has categorically stated that a nuclear-armed Iran is not acceptable, although New Delhi has not made clear how exactly it will prevent Iran from acquiring this capability.