Iran and Saudi Arabia Compete for India’s Energy Market

India now has the highest oil and natural gas consumption in the world and will for the foreseeable future. With exorbitant and ever-increasing energy demands, India is under pressure to diversify its energy supply. Iran and Saudi Arabia are now in a race to meet India’s demand in the international oil and gas market.

 

India is the second largest Asian oil consumer after China. In 2017, India was buying 577,000 barrels per day (bpd) of oil from Iran, accounting for 27 percent of Iran’s total crude oil exports. From January to October 2018, India imported 789,000 bpd of oil from Iran, an increase of 36 percent. Iranian officials have offered significant price discounts to India as a strategy to maintain Iran’s share of India’s oil market, and Iran has insured tankers which transport its oil.

 

Saudi Arabia is one of India’s largest oil suppliers, and the second largest supplier of crude oil and liquefied petroleum gas (LPG). In 2016-17, India’s crude oil imports from Saudi Arabia amounted to 18.5 percent of its total imports or 39.5 million tons out of a total of 214 million. From January to October 2018, India imported 697,000 bpd of oil from Saudi Arabia.From Iran’s perspective, India’s investment in multiple sectors of its own domestic market, especially infrastructure and energy, equates to political insurance. India’s investment in Chabahar port is a case in point.

 

In February 2018, during a visit by Hassan Rouhani to New Delhi, India, Iran signed 15 mutual cooperation documents, the majority of which related to oil and gas fields cooperation. After this visit, it was announced that Iran had eliminated the cost of transporting oil to India for the rest of the fiscal year. The decision was made as a response to India reducing its oil imports from Iran between April 2017 and January 2018. The move marked a success for Iranian policy makers, and it was subsequently stated that India would increase its oil imports from Iran.

 

Saudi Investment in India’s Energy Sector

 

Saudi Arabia plays an active role in energy diplomacy in India. Investment in energy infrastructure is an effective way for Saudi Arabia to infiltrate and influence India’s foreign policy decision-making process. Aramco, the world’s largest oil producer, is looking to invest in foreign refineries to meet demand for oil and increase its share of global markets. This is a strategy that will allow Saudi Arabia to expand its share of Asian markets and essentially leave its rivals in the dust. Saudi Arabia is not only competing with Iran politically but aiming to gain an edge over even-more-productive Iraq to become India’s largest oil importer. Last year, Iraq was India’s largest oil importer.

 

In April 2018, Saudi Aramco and India’s Ratnagiri Refinery & Petrochemicals—a joint venture of Indian Oil Corp (IOC.NS), Hindustan Petroleum Corp (HPCL.NS) and Bharat Petroleum Corp (BPCL.NS)—signed a contract worth $44 billion to build a refinery in the state of Maharashtra in western India. The two sides are contributing 50 percent to this project. Saudi Aramco has said the refinery will have a production capacity of 1,200,000 bpd upon completion. Aramco also said the project would be one of the largest refineries of petrochemicals in the world. According to Saudi Energy Minister, Khalid Al-Falih, refining capacity of 60 million tons of crude oil is said to be Saudi Arabia’s only major investment in India. Aramco is also interested in investing in fuel and petrochemical sales as well as oil reserves in India.

 

Saudi Arabia does have the potential to act on this investment promise. Aramco has shipped three million barrels of crude from three refineries in India, and another Indian refinery is currently negotiating with Saudi officials to sign a contract for one million barrels of oil. Political tensions between Iran and Saudi Arabia, especially over the Yemen crisis, but also enflamed by the US’s withdrawal from the Joint Comprehensive Plan of Action, and new sanctions against the Iranian energy sector, have meant that Saudi Arabia is more than capable of seizing the current momentum in its favor to decrease Iran’s role in regional energy markets, especially that of India.

 

Saudi Investment in TAPI Project

 

Afghanistan, Turkmenistan, Pakistan, and India have recently signed multi-billion-dollar investments in the TAPI gas pipeline project. Saudi Arabia has announced it will invest in the construction of a gas pipeline that will transfer Turkmen gas to Pakistan and India through Afghanistan.

 

With the participation of Saudi Arabia in the TAPI energy transfer project, Riyadh, on the one hand, could draw the US’s support for reducing Russian domination of Central Asian energy resources (through increasing export routes around Russia). On the other hand, with this increase in engagement in the Central Asian energy region, it may be possible for Riyadh to gain concessions in future energy talks, especially in the context of global oil policy, to control the global price of energy carriers.

Security concerns and financial resources pose the main obstacles to realizing the TAPI project, yet Saudi Arabia’s support for the project is merely another instrument to circumvent Iranian power and influence. Saudi Arabia is directly investing in India’s energy infrastructure, as well as offering political and economic support for transportation projects which allow access to the Indian market by side-stepping Iran.

 

For India, the American market is thus more attractive. With the US-imposed sanctions in place, Saudi Arabia is likely to become India’s largest oil supplier. At the same time, however, India will greatly increase its imports from Iraq. Even Nigeria has gained access, so insatiable for fuel is India’s current phase of development. Most oil producing countries have increased their exports to India across the board.

 

As expected, the U.S. has granted waivers to major buyers of Iranian oil in India and allowed them to continue imports beyond the U.S. sanctions deadline. It will not be easy for India to find an alternative to Iranian oil, but it does not mean that in the mid-term or long-term it will be impossible for India to figure out some long-standing arrangement. Saudi Arabia and Iraq are poised to make up the bulk of India’s oil needs. Saudi Arabia is more interested in exporting oil to India in order to weakening Iran’s position in its oil market, with the added bonus of making a dent in the Iranian economy.

 

India and China are interested in establishing an “Oil Buyer’s Club,” to increase their bargaining power and reduce the power of the U.S. oil market by also importing crude from the U.S. China and India had previously proposed to buy Iranian oil in exchange for being paid in Yuan and Rupees.

 

Iran’s main issue (among many) is to be available to attract foreign investment when it does have the chance to bypass sanctions, and this requires an accommodating legal framework, an efficient and fast decision process, and political stability (especially in the international context). These variables are far from being achieved, and the country has a long road ahead.

 

Iran and Saudi Arabia Compete for India’s Energy Market

 

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U.S. Sanctions Threaten India’s Importation of Iranian Oil

Washington has said that to achieve significant reductions in Iranian oil exports it needs India to observe the sanctions.

 

by Rauf Mammadov Follow @RaufNMammadov and   Omid Shokri Kalehsar Follow @ushukrik

When the United States pulled out of the Iran nuclear deal in May, it told countries trading with Iran that they would have to stop soon or face American sanctions.

As the first ninety-day wind-down period for ceasing trading with Iran comes to an end, Washington is ratcheting up the pressure on the main importers of Iranian crude oil.

However, most of the other countries that signed the nuclear deal —including many in Europe—continue to support it. But companies, not governments, import oil—and they are likely to buckle under the U.S. pressure.

A key exception is Chinese companies, which collectively amount to the world’s largest buyer of Iranian oil. They remain defiant against the U.S. sanctions threat, a stance which their government obviously supports. The defiance comes as tension with America already increasing due to a trade war that Washington started.

 

The European Union is also embroiled in a trade war with the United States. This is increasing the pressure on European companies to comply with Washington’s no-trade-with-Iran order. Most have said they will comply with it.

Another important player in the Iran sanctions game is India. In fact, the United States has said that to achieve significant reductions in Iranian oil exports it needs India to observe the sanctions.

Iran’s geographical proximity to India, coupled with India’s growing demand for petroleum, made an oil trading partnership between the two almost inevitable.

In 2017, India imported almost 40 percent of its oil from Iran, making it the second-largest importer of Iranian crude, behind China. India bought $13 billion worth of petroleum products from Iran that year, with crude accounting for the vast majority

The energy cooperation between Tehran and Delhi has not been limited to oil and gas trading, however.

After the Iran nuclear deal was signed in the summer of 2015, India began making major investments in Iran’s oil industry, including building petrochemical and fertilizer plants.

India has also wanted to invest in the Farzad B gas field. An Indian consortium led by the state-owned Oil and Gas Corporation discovered the field in 2012, and it began producing in 2013. A dispute over the terms of India’s participation in the field’s production has prevented a deal from being reached, however.

Meanwhile, Iran’s plan to build a gas pipeline through Afghanistan and Pakistan to India has been stalled due to disagreements over the terms of the deal.

Furthermore, after Iranian President Hassan Rouhani visited India in February, the countries expressed optimism that their trade would double.

Two events undermined that optimism, however. One was the United States increasing its threats to pull out of the Iran nuclear deal —which it ended up making good on in May. The other was Saudi Arabia, Iran’s main political rival in the Middle East, stepping up its energy diplomacy toward India.

In April, Saudi Aramco signed a deal with a consortium of Indian companies led by the state-owned Indian Oil Corporation to take a 50 percent stake in a $44 billion mega-refinery and petrochemicals complex that will be built in the port city of Ratnagiri. The Saudis calculated that helping India create one of the world’s largest refining and petrochemical complexes would not only help tilt it away from Iran but also guarantee long-term Saudi crude sales to India

Meanwhile, the United States has been increasing its diplomacy toward India, with the key goal of persuading India to embrace sanctions against Iran.

 

In addition, America’s ambassador to the United Nations, Nikki Haley, who is of Indian descent, visited New Delhi last month to ask that India reduce its Iranian oil imports.

 

A U.S. Treasury Department delegation followed. It was led by Marshall Billingslea, the department’s assistant secretary for anti-terrorism financing. Given Billingslea’s background, one topic was likely to be a scheme that Iran and India used to avoid previous U.S. sanctions against Iran.

The two visits are already yielding results for Washington.

 

Indian refineries have begun canceling oil import contracts with Iran. Hindustan Petroleum, which owns India’s third-largest refinery, canceled an Iranian oil shipment in July when its insurance company refused to cover the sale because of impending U.S. sanctions.

In addition, news surfaced that Indian conglomerate Reliance Industries , which owns the largest refining complex in the world, also planned to halt Iranian oil imports.

Fearing aggressive Trump administration policies towards Iran, India is also expected to scrap the rupee-based trade agreement it concluded with Iran three years ago, Iranian sources say.

India had used the rupee-rial arrangement to buy Iranian oil before U.S. sanctions were lifted against Iran in 2016. The two sides used Turkey’s Halk Bank as an intermediary in their trading.

 

In May, a federal judge in New York sentenced a top Halk Bank executive to three years in prison for designing and carrying out the scheme. U.S. prosecutors had contended that the deal was used to evade U.S. sanctions against Iran that the Obama administration imposed before the nuclear deal.

Before he became assistant Treasury secretary for anti-terrorism financing, Billingslea was managing director of business intelligence services for Deloitte, where he focused on illicit finance. In the wake of the prison sentence against the Halk Bank executive for the rupee-rial scheme, it was significant that after Billingslea left India, his next destination was Turkey .

 

India did obtain one sanctions-related victory from the United States, however. Washington agreed to allow it to invest in the expansion of Iran’s port of Chabahar if it complies with U.S. import sanctions against Iran.

Chabahar is key to an Indian policy of offsetting Pakistan’s and China’s use of Pakistan’s port of Gwadar to project more power in the region. China has made renovation and expansion of the port of Gwadar an integral part of its $62 billion China-Pakistan Economic Corridor project. The project includes a naval base.

Chabahar is only 107 miles from Gwadar. Iran has asked India to help it build steel and petrochemical plants in the port to boost its economy and increase development along the Makrān coast. It also plans to create a free trade zone in the port to try to spur economic growth.

 

With so many countries trying to flex their muscle in the region —the United States, Saudi Arabia, Iran, China and Pakistan—India is likely to find it harder to strike a balance between competing interests in the Middle East and Southwest Asia.

It will continue to accommodate Iran by supporting the nuclear deal and by participating in mutually beneficial projects such as the expansion of the port of Chabahar.

But it will be increasingly difficult and dangerous for Indian refining and petrochemical companies to find wiggle room that allows them to avoid U.S. sanctions, as they once did.

Rauf Mammadov is a resident scholar at Middle East Institute and Senior Advi

sor at Gulf State Analytics.

Omid Shokri Kalehsar is a Washington-based senior energy security analyst, and Ph.D. Candidate in International Relations at Yalova University, Turkey.

https://nationalinterest.org/blog/middle-east-watch/us-sanctions-threaten-indias-importation-iranian-oil-28252?page=0%2C1

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