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Press Release [FREE Access]
Petro Intelligence » Farzad B: Pawn In The Game Of Geo-Politics

By R. Sasankan

When Iran announced its decision to dump the Indian consortium of public sector companies from the development of Farzad B, the giant gas field in the country, it did not come as a big surprise. In many ways, the announcement had been anticipated -- reflecting another instance where geopolitical machinations on the diplomatic chequerboard decide commercial outcomes.

Farzad-B is an offshore natural gas field 20 kilometres off Farsi Island in Iran. The total in-place reserves of the gas field is around 21.68 trillion cubic foot of which around 60 per cent is recoverable.

The Indian consortium had been asserting its right to develop the gas field which it had discovered back in 2008. But it was always going to be extremely difficult to pull it off after the Indian government under then Prime Minister Manmohan Singh relentlessly pursued a Civil Nuclear Cooperation Agreement with President George W. Bush of the US at around the same time that the field was discovered.

President Bush had always characterised Iran as part of an evil triad that acted in a manner inimical to American interests. It was never going to be easy for India to bag the development rights for Farzad B after the UPA government decided to cosy up to Iran's greatest enemy. For India, the pursuit of the nuclear agreement with the US took primacy over everything else since the Manmohan Singh government wanted to finally put behind it the dark period of isolation that the nation faced after the nuclear test conducted in Pokhran in 1998.

In one sense, the fate of the Farzad B field was decided right then. India was more or less reconciled to the loss of the development rights to the Iranian gas field. In purely monetary considerations, it will not even qualify as a loss since the consortium only had a development Service Contract for Farzad B. The Indian companies are expected to be reimbursed the entire investment they had made till now in Farzad B. The Indian companies that were part of the consortium included ONGC Videsh Ltd, Indian Oil Corporation and Oil India Ltd.

The gas discovery in Iran underscored the solid credentials of the Indian consortium. The US obviously did not want India to move closer to Iran, a condition which could not be violated. Iran's fury over the deal, which had been simmering for all these years, eventually led to the May 17 announcement that snuffed out any hopes that the Indians might have had of bagging the Farzad B rights.

Iran eventually awarded the contract for developing the giant gas field to a local company. "The National Iranian Oil Company (NIOC) has signed a contract worth USD 1.78 billion with Petropars Group for the development of Farzad B Gas Field in the Persian Gulf," a terse statement said.

Iran has always viewed India as a strong friend. But even geo-political alignments can change very quickly when the two sides are no longer fully committed to preserving their historical equation. The Iranian leadership was always allergic to the George Bush administration. The situation only worsened after President Donald Trump re-imposed economic sanctions against Iran.

The drift between the two nations widened further when India chose to actively pursue a new geo-political alliance under Trump by drawing closer to Israel. Iran despises Israel and, therefore, India's perceived closeness to Tel Aviv meant that there was no way that the Farzad B deal could ever be resurrected.

President Joe Biden is considered to be soft on Iran and is widely expected to lift either totally or partially the sanctions against Iran in the not-too-distant a future. Suddenly, Iran and Saudi Arabia, the two rivals in the Middle East, have acknowledged that they are talking to each other in a bid to settle their own differences. There is speculation that the talks have been prompted by President Biden. This is a welcome development. But nothing dramatic can be expected from these talks. "I do not believe Iran and Saudi can realistically come together as friends. Israel would have to be part of any such arrangement in the Middle East and, from the looks of it, that is a far cry with or without Biden,” said an acknowledged expert on the Middle East. In his view, the best that Saudi Arabia and Iran can hope for is some kind of an agreement on Yemen.

The developments surrounding Farzad B is a huge setback for the relations between India and Iran but there is no reason to believe that the two nations would want to strain their relations any further. A close India-Iran relationship is meaningful to India as well as the West and Russia in the light of China's sway over Pakistan. China is keen to establish control over Gwadar, a port city on the south western coast of Balochistan. The city is located on the shores of the Arabian Sea opposite Oman. This becomes all the more critical on the global chessboard as US prepares to move out of Afghanistan.

For India which imports close to 84 per cent of its crude oil requirement, Iran will be an important source of crude supply once the sanctions are lifted. There is no shortage of crude in the market but the biggest attraction for Iranian crude is that it is relatively cheap given the country's geographical proximity to India and the lucrative credit terms that Iran offers.

Quite a few Indian refineries were designed to process Iranian crude. Faced with the negative implications of a sharp decline in gross refining margins (GRMs), Indian refineries have become only too keen to source Iranian crude once the sanctions are lifted. Iran has huge gas reserves that have yet to be tapped, and India needs gas to meet its energy needs. Be it crude or gas, India and Iran stand to benefit immensely from robust trade relations.

Iran is normally considered to be inflexible on certain issues and can at times become impetuous in its decision making. India-Iran relations can become strained in the future because of India's increasing closeness to Israel, Saudi Arabia and the UAE. For Iran, Israel is untouchable. But Israel is more pragmatic in the conduct of its trade relations with India. It will not in any way try to exert influence to scupper trade relations between India and Iran. This means that the Indian leadership will have to deal a little more imaginatively with Iran to ensure a continuum in its commercial relations with Tehran.



To download the latest issue 'Volume 28 Issue 8 - July 25, 2021', click here
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