According to a recent CII analysis, the lifting of US-EU sanctions on Iran is likely to have a huge beneficial impact on India’s economy especially its Current Account Deficit (CAD) and inflation situation.

According to the US Energy Information Administration, if Iran boosts output by at least 700,000 bpd by the end of 2016, it can cause a reduction in global oil prices by USD 5 - 15 per barrel. India currently imports around 80 per cent of its domestic requirement of crude oil. It is estimated that every dollar drop in oil prices reduces the Government's subsidy burden by USD 1 billion. 

The removal of the sanctions would allow India to freely buy crude oil from Iran, resulting in lower shipping costs from reduced transportation times, said the CII analysis. At present, most of India’s crude oil import is being routed through the Gulf countries. With the re-entry of Iran in the market, the official selling price of Gulf producers would remain competitive, which will help Indian refiners boost their margins. 

Iran was until 2006 India’s second-largest supplier of crude oil. But it dropped to number seven by the end of 2013-14. However, India continues to be Iran’s second-largest buyer, next only to China. 

The CII analysis observes that some Indian companies may benefit directly as well. Mangalore Refinery and Petrochemicals Ltd (MRPL) may recover its pending crude liability to Iran, which today stands at Rs 14,000 crore. Aban Offshore’s working capital could improve if five of its rigs (of total 18) deployed in Iran with the capacity to contribute nearly 35 per cent revenue could restart. ONGC could also make headway in pushing for its development rights in Iran’s Farzad B gas field, which they bid for in 2012. Other Indian companies will also get a new avenue for Exploration & Production (E&P) activities, especially as part of joint ventures with larger players. 

The CII press release added that Indian refinery companies can also explore investment opportunities for building refineries in Iran and help upgrade Iran’s lagging refinery sector. The country currently lacks refining capacity due to which it imports large quantities of gasoline to meet its domestic requirements. In addition, India can also look at exploring opportunities in Iran’s petrochemical sector as Iran is looking at ramping up investments in this sector. Also, companies like Essar and Reliance which were exporting petroleum products to Iran can now look at reviving the trade. 

Another interesting development could be the revival of the decade-old discussions around an Iran-Pakistan-India (IPI) gas pipeline. 

As the world’s third-largest holder of oil and gas, Iran has over 250 billion barrels of oil equivalent and about 34 trillion cubic meters of natural gas reserves, accounting for 18 percent of the total global natural gas reserves. Iran has, however, been unable to capitalise on its reserves due to sanctions imposed by various multinational entities and countries including the United States (US) and member states of the European Union (EU) after 1979’s Iranian Revolution. The US sanctions targeted investments in oil, gas and petrochemicals, exports of refined petro-products, and related business transactions, essentially crippling Iran’s international petro trade. 

But the stage is now set for the next act. In a key development, discussions among Iran and the P5+1 group (China, Germany, France, Russia, the United Kingdom and the US) have been initiated to scale down Tehran's nuclear programme. If the deal is finalised and the complex sanctions against Iran’s oil and gas industry are lifted, it would be a game changer not only for Iran, but the global petro market as a whole. 

In addition to cooperation in the oil and gas sector, another major initiative is the development of Chabahar port in Iran. This port is seen as key to India’s “connectivity” plans with Iran, Afghanistan as well as to Central Asia.  Recently, the Union Cabinet approved the framework for India’s participation in developing Iran’s Chabahar port with an investment of $85.21million.  Earlier, in May 2015, India and Iran signed an $85 million deal for India to lease two existing berths at the port and use them as multi-purpose cargo terminals. Under the new proposal India could help build second and third terminals at the port, as well as railway connections into the rest of Iran.  

New Delhi