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It was Argo - a real-life story of the great escape by six US diplomats from Tehran during the 1979 Iran hostage crisis - which garnered critical acclaim at the Oscars this year. According to an industry expert, India needs almost an "Argo-like act" now to rescue itself from the state of "sandwiched oil diplomacy" between a long-standing ally, Iran, and the United States.
Payment issues, insurance problems, uncertainty over capital expansion plans and a diplomatic jigsaw to be solved - the new set of US sanctions on Iran has caused more woes to oil-starved India than ever before. With no policy guidelines from the government, major importers like Mangalore Refinery and Petrochemicals Ltd (MRPL), Indian Oil Corporation, Essar Oil and Hindustan Petroleum Corporation Ltd (HPCL) are all in the dark on the issue of cutting down of imports.
On February 6, the US treasury department imposed fresh sanctions on Tehran under the Iran Threat Reduction and Syria Human Rights Act of 2012, which put a brake on foreign subsidiaries of US companies dealing with Iran and also allowed its financial institutions to freeze Iranian assets. The new sanctions - in addition to the European Union sanctions to force Iran to curb its nuclear programme - also meant that countries would have to go for payment on exchange of goods only and in local currency. That would crunch Iran's monetary system.
This has left India, which was routing 55 per cent of its payment for the National Iranian Oil Company (NIOC) through the Turkish Halk Bank and the rest through the Kolkata-based UCO Bank, with no option but to pay in local currency. "We haven't got any clear guidance or information in this regard from the government," says a top officer of UCO Bank.
After stopping its payments through the Asian Clearing Union in 2010, India had to depend on Germany's Europaeisch-Iranische Handelsbank for a brief period, but this was also halted due to US pressure. Following this, it was the Turkish Bank through which the country has been making its overdue payments. Now, even if Indian companies import, the biggest headache would be how to make the payments. According to Bloomberg, members of the Organisation of the Petroleum Exporting Countries, or OPEC, would lose more than $2.5 billion of revenue due to global sanctions.
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While countries like Japan and South Korea buckled under pressure, India, along with Russia, China and Turkey, was the major dissenting voice against US sanctions on Tehran. But since 2009-10, it has reduced imports from Iran by 21 per cent - from 22 million tonne to 17.4 MT in 2011-12 - making Iran the fourth largest exporter of crude oil to India. The country imported about 171 MT of crude oil during the previous financial year.
According to an officer in the oil ministry, it is difficult for these figures to touch even 14 MT this financial year, leading to another 20 per cent drop in Iran supplies. Companies like MRPL, an ONGC subsidiary, may get only about 3.8 MT - less than the contracted 5 MT this year. This is 39 per cent down from the 6.2 MT that MRPL, the country's largest buyer of crude oil from Iran, got last year mainly because of a drop in cargo. "For the next year, there is still no clarity on whether we will be able to import from Iran or not," says MRPL Managing Director P P Upadhya.
Making things worse, Iran slipped to the seventh position among India's crude suppliers during the first nine months of the current fiscal. Reports say that during this period, Saudi Arabia maintained its top spot at 24.8 MT. Venezuela at 15.1 MT, Kuwait at 13.2 MT, United Arab Emirates at 11.4 MT and Nigeria at 9.9 MT stood as the major suppliers. During April-December, the supply from Iran stood at 9.69 MT. Sources indicate that there were instructions from the Centre to cut down Iran imports by at least 15 per cent during the period. "It is more to do with the incompetency of the Iran company to supply. We are looking at alternative sources like Saudi Arabia and Latin America now," says an HPCL official.
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For domestic companies, the major concern is securing insurance cover for shipments and refineries using Iran crude. "Insurers have categorically said that they will not be able to provide re-insurance to refineries. We are yet to get any assurance from the government in this regard," Upadhya says.
State-run HPCL too said in February that it is gearing up to lift more crude from Iraq from June as its plants are finding it difficult to secure insurance. For insurance companies, the major roadblock is that they would not be able to reinsure in the European markets to hedge their risks. EU sanctions blocked any such involvements by European shipment insurers in this regard. In a recent interaction with the media, ONGC Chairman and Managing Director Sudhir Vasudeva expressed hope that the Centre would resolve the issue soon as there were similar glitches last year as well. An officer of New India Assurance, however, says that the Rs 250-crore cover is assured for shipments.
Another major sufferer is Chennai Petroleum Corporation (CPCL), whose Rs 8,000-crore capacity expansion plan may get hit as European majors are reluctant to give technology licencing. National Iranian Oil Company (NIOC) owns more than 15 per cent stake in Indian Oil Corporation's CPCL which was also struggling to get re-insured. European majors have already communicated to CPCL that if sanctions remain, it would be difficult for them to assure licencing. CPCL has a cover of Rs 150-200 crore on the refinery provided by four PSU general insurers and General Insurance Corporation.
Meanwhile, there were reports that New Delhi has already conveyed to Washington that it may not be able to cut down imports from Tehran further. There were some signs of relief last month when US, China, France, Russia, Britain and Germany offered some relief in sanctions in return for Iran curbing its sensitive nuclear work which its leader, Ayatollah Ali Khamenei, and President Mahmoud Ahmadinejad have refused to abide by.
It is believed that where New Delhi lags diplomatically, Islamabad scores. There were uncertainties over the future of the Iran-Pakistan-India gas pipeline project following India's strategy to "go slow" on it. Taking everybody by surprise and defying the US, Ahmadinejad and his Pakistani counterpart, Asif Ali Zardari, decided to go ahead with the Iran-Pakistan pipeline project, though it may invite further sanctions.
"The Westerners have no right to make any obstacles in the way of the project," Ahmadinejad said while announcing that Iran would go ahead with the project. Iran has already constructed 900 kilometres of this pipeline in the first phase.
Islamabad's decision comes at a time when India is looking for alternative options like the $7.6-billion Turkmenistan-Afghanistan-Pakistan-India gas pipeline. New Delhi's move might hurt in the long run as there were several projects - like a long-term annual supply of 5 MT of liquefied natural gas, development of the Farsi oil and gas blocks, South Pars gas field and LNG project, Chahbahar container terminal project and Chahbahar-Zaranj railway project - in which both the countries are involved. Apart from CPCL, Iran also has a stake in the Madras Fertilizer Company, while Essar and OVL have presence in Iran.
With many of these projects in the pipeline, it is tough for India to take a call on whether to go with EU and US or to stand by an international relationship that dates back centuries.
