Iranian Sanctions Easing to Benefit India
Image Credit: Beluchistan via Flickr

Iranian Sanctions Easing to Benefit India


Seizing on the potential opening of Iran’s economy and energy sector in light of the easing of international sanctions, on November 26 Indian national security adviser Shivshankar Menon chaired a strategy session with finance, shipping and petroleum ministry senior officials, who focused on India-Iran issues where New Delhi could try to improve relations with Iran. First out the starting gate, India is the first of Iran’s four main buyers to say it is looking to buy more oil from Iran after the agreement in Geneva.

India will investigate purchasing additional oil from Iran over the coming six months covering the Geneva agreement, as well as explore the possibility of joint ventures in Iran’s oil sector. Although the agreement does not allow Iran to increase its oil sales for six months, India has room to ramp up its imports after they fell roughly 40 percent this year to below even what was permitted by sanctions. As a result, earlier this year Iran slipped to third position behind Saudi Arabia and Iraq as India’s supplier of oil imports. Despite this, India and China have remained the top two destinations for Iran’s oil.

While some officials underlined the difficulties in working with the Iranians, Menon reproached them for failing to exploit opportunities with Iran that could be exploited instead by the U.S. and the West once they returned to that country. Underwriting New Delhi’s rising interest in Iran’s energy sector, India is now the world’s fourth largest energy consumer after the United States, China, and Russian Federation. The U.S. government’s Energy Information Administration projects that India and China will account for the biggest share of Asian energy demand growth through 2035. Accordingly, the primary focus of India’s energy policy is securing energy sources to meet the needs of its growing economy, as India’s primary energy consumption more than doubled between 1990 and 2011.

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What is not in doubt is that Iran is eager to boost its oil sales to India, which pays 45 percent of its oil payments to Iran in rupees, a valuable source of foreign revenue in light of the increasing pressure from sanctions. The sanctions have increasingly hobbled Iran’s economy. Iran, a member of the Organization of the Petroleum Exporting Countries, ranks among the world’s top four holders of both proven oil and natural gas reserves, but last year Iran saw unprecedented drops in its oil exports as U.S. and European Union sanctions were tightened, targeting Iranian oil export revenues. Preliminary data compiled by the EIA placed Iran in fifth rank in terms of crude oil and condensate exports, which was in contrast to its third position in 2011.

The sanctions have also precluded the substantial development of Iran’s natural gas reserves, the world’s second largest. As the sector is unable under sanctions to raise substantial foreign investment, the country’s natural gas reserves remain largely underdeveloped and output is used mostly to meet domestic demand, with natural gas accounting for about 59 percent of Iran’s total domestic energy consumption in 2010.

On November 27, Indian Petroleum Secretary Vivek Rae said that India would buy up to an average 220,000 barrels per day of Iranian oil for the Iranian calendar year ending  March 31. Rae added that India would also then be looking to increase imports in the 2014/15 financial year, depending on any further easing of the sanctions, commenting, “Iran is a great source of oil… and once the problems that have been faced by Iran are resolved then we will have more oil available in the market.” Three days later the U.S. State Department extended six-month Iran sanctions waivers to India, China, South Korea and other countries in exchange for their reducing purchases of Iranian crude oil earlier this year.

As a corollary of Indian interest in Iranian oil, New Delhi is also seeking to help Iran develop its Persian Gulf port of Chabahar for oil exports, which for India would have the added benefit of outflanking Pakistan’s Gwadar port, which they are currently developing with Chinese assistance. Chabahar would also benefit the post-Soviet Central Asian states by giving them a port outlet once railways in Iran are expanded and upgraded.

The fact that the Western sanctions have stymied Iran’s economy is now being acknowledged by Tehran. Analysts estimated that the sanctions have slashed Iran’s oil exports by more than half to about one million bpd and cost it as much as $80 billion in lost revenue since the beginning of 2012. While considerable Western skepticism remains over Iran’s nuclear transparency, there is no doubt that Tehran intends to force open the sanctions door as wide as possible, and that the first foreign customer waiting on the other side is already India.

This article was originally published at It is reprinted with permission.

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