Tag Archives | oil & gas

Up Persian creek without a strategy

India must get its act together on Iran…quickly

The apparent lack of policy co-ordination within the Indian government over Iran is really worrying.

We are referring to the RBI’s decisions in recent days closing the Asian Clearing Union (ACU) mechanism to imports—beginning with oil and extending to other goods and services—from Iran. The move not only caught the industry by surprise. And it looks like it caught the relevant government ministries by surprise as well. Given that Iran is India’s second largest supplier of crude oil accounting for around 13 percent ($12 billion) of oil imports and the risk of a short-term supply shock sending oil prices higher, the lack of policy coordination amounts to dereliction of duty.

The lack of coordination reflects a deeper malaise—the UPA government’s inability to evolve a coherent policy on Iran, with the result that New Delhi is forever in reactive mode. [See: Will the Ayatollah step behind the line?] The overall failure of Prime Minister Manmohan Singh and his government to communicate with the public—witness how they botched up the India-US nuclear deal—means that no political leader explains why the government is doing whatever it is doing, and why difficult decisions have to be made. The latter would still be acceptable if the government executed in a competent fashion—like in the case of the nuclear deal—but intolerable where execution is poor.

In this case, there is no evidence that the relevant cabinet committees ever discussed the implications of RBI’s move and took the necessary measures to manage the fallout. The RBI’s independence doesn’t preclude coordination in matters like this. A competent government would have reassured the markets and the public that although RBI’s measures against imports from Iran would put 13% of India’s supply of crude at risk, it has alternative plans to protect the Indian economy. Instead we were left working out the implications of terse press releases issued by the central bank.

What might those alternative plans be? These could involve arrangements to import Iranian oil through other currencies (or the Indian rupee), assurances from other suppliers (read Saudi Arabia) that they will make up the shortfall or both. Given Saudi interests in keeping the lid on Iran’s nuclear programme, New Delhi could have extracted the latter as the price of tightening the financial screws on Iran. Indeed, not extracting such a price is a good opportunity squandered.

India must get its act together on Iran. First, it is in India’s interests to ensure that Iranian oil and gas continue to provide the economy with the supply diversity that an oil-importing country needs. If this objective is inconsistent with playing responsible global citizen then so be it.

Second, given that Iran shares an interest in preventing Afghanistan from falling under the sway of a Saudi-Pakistani-Taliban nexus, India needs to continue to engage Iran.

Third, while a nuclear-armed Iran may or may not be entirely in India’s interests, it is far better to manage the consequences thereof than to countenance the use of military force in a futile attempt to stop it.

Finally, while international sanctions are unlikely to prevent a determined Iran from developing a nuclear weapon, it is geopolitically costly to stay out of the Western consensus. Unless sanctions prohibit India from purchasing Iranian oil and gas, it is better for India to be part of the sanctions regime.

Reconciling these objectives is not easy, but not impossible either. The big prize in foreign policy, however, is for India to assiduously work to bridge the divide between the United States and Iran. This—more than securing a permanent seat at the UN Security Council—is a project that is worthy of a rising global power. This task of international statesmanship requires a real leadership at South Block and the PMO. Till that time we can have day-to-day issue management, not strategy.

The new year begins with a question mark on oil imports from Iran. The larger question mark though is whether the UPA government will now realise that it finds itself in a jam over Iran because it has no ideas of its own.

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Turkish delight

India should welcome the proposal to secure Central Asian gas through Turkey and Israel

Indrani Bagchi reports on an exciting new development. Ali Babacan, Turkey’s foreign minister, has proposed a plan to deliver Central Asian oil and gas through a combination of supertankers and overland pipelines in Turkey and Israel.

(Oil) from Central Asian countries like Kazakhstan, Azerbaijan and even Georgia be transported through Turkey’s massive pipeline infrastructure to Ceyhan port. Traveling through the Mediterranean Sea in super tankers, the oil will then be fed into Israel’s Ashkelon-Eilat pipeline, while super tankers pick it off from the Gulf of Aqaba port of Eilat and back again on super tankers to India.

Turkish officials pointed out that none of the pipelines will have to be built. They are already in existence. The Ashkelon-Eilat pipeline is a functioning one, as is the Baku-Tbilisi-Ceyhan pipeline which started work in 2006. Tel Aviv and Ankara have announced plans to carry water, electricity, natural gas and oil to Israel by way of a proposed Ceyhan-Ashkelon-Eilat passage. So, its not difficult to imagine gas coming through this passage, though this will need liquefaction and gasification terminals, which are a longer term investment. [TOI]

The supply chain involves multiple links, but is likely to be less risky compared to overland pipelines through Afghanistan and Pakistan. (The headline writers at the Times have been a little too excited—this project need not be an ‘alternative’ to buying gas from Iran. And a pipeline is not the only way to buy Iranian gas.)

Now, promoters of this Central Asia-Turkey-Israel project are bound to claim that it will lead to cheaper supplies—be that as it may, what is important is that having access to fuel supplies via this route is consistent with a strategy of diversification of supply sources. As advocated by this blog, India’s energy security lies in competitive markets.

India should take up Turkey’s offer and commence exploratory negotiations forthwith. And while this deal is worked out, the central government should lose no time in announcing a policy of investing in several oil & gas processing terminals along its seaboards. For Turkey’s proposal shows that there are more such projects in the pipeline.

Related Links: On Israel’s Eilat-Ashkelon project; and the Baku-Tbilisi-Ceyhan pipeline

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