Iran is a major player in the world energy (hydrocarbon) market. It is estimated to hold 11.1% of the world oil reserves (132 billion barrels of oil), and 15.3% of the world’s natural gas reserves (970.8 trillion cubic feet).
This provides the country with a strategic leverage in defining world hydrocarbon regime. The Iranian state draws 42.5% of its revenues from oil resources, accounting in turn for 80% of its exports. Although Iran enjoys distinct status in the hierarchy of world hydrocarbon exporters, it remains critically dependent and vulnerable to the world hydrocarbon regime because of its rentier character.
Iran has not only become a net importer of petro products but it faces serious challenge to retain its export supplies as well. This clearly means that the country might loose its global energy leverage despite its huge energy resources. Iranian state thus needs a friendly global hydrocarbon regime to augment its energy power.
The emerging Asian energy market does have potential to contribute to the recovery of Iranian energy power. The Iranian state is looking proactively towards the Asian countries especially India. However, Iran’s energy relation with India has been influenced by the new orders that are ruled by the powers, particularly the United States.
With attention to the new world order, the present study is an attempt to analyse the implication of the new world politics on Iran-India energy relation.
Iran-India energy cooperation
As reflected in the “2001 Tehran Declaration” and the “2003 New Delhi Declaration,” Iran is interested in moving ahead on commercial and energy issues with India. Iran is anxious to get its hydrocarbons out of the ground and into new markets, thus India being energy-hungry can be the best market.
Following this policy, Iran’s crude oil export to India ranges between 100,000 and 150,000 barrels per day (bpd), accounting for about 7.5% of India’s total crude oil imports (around two million bpd) in 2005, which increased to 374 thousand bpd in 2007, and reached 426,360 bpd in 2009.
Moreover, Iran has tried to export gas to India, and to achieve its strategic aims, Iran has attempted to sign an agreement with India that has been known as the Iran-Pakistan-India gas pipeline. Clearly, Iran’s interest is reflected by India’s gas consumption, but this aspect can also be considered as a regional project and a multilateral agreement.
Although, “... In the rapidly intensifying international energy game, Iran holds a master key to the most staggering roadblock to India’s economic growth – energy insecurity,” there are some elements which have had an impact on Iran-India multilateral energy relations. For instance, there are two main challenges in bringing the Iran-Pakistan-India project to fruition.
“...The first challenge is the historic conflict between India and Pakistan, and the second and more important challenge was and still is the American perception, which most western states appear to agree upon – that Iran should not be allowed to make long-term commitments on its strategic resources with non-Western countries.”
Thus, many problems, such as India-US relations, US-Iran conflict, and India-Pakistan difference, have hindered the project and delayed it. Iran’s attempt for energy cooperation with India in Central Asia can be considered as another example. It seems that, due to the challenges faced by the massive pipeline (Iran-Pakistan-India), India needs to import gas from the central Asian countries. It is also due to its competition with China for oil and gas resources in another region. As China reached Myanmar before India and booked all the gas Myanmar had to offer, India’s energy demand from Central Asia has increased.
However, the question is: how could India have access to the central Asian oil and gas resources?
In response, it can be argued that the first way is the pipeline from Central Asia to India via Afghanistan and Pakistan. This route has faced two disadvantages. Each of these pipelines will cost $8bn dollars. In addition, Afghanistan is in a state of turmoil and will likely remain that way for a decade or so, the historical conflict between India and Pakistan still remains.
Thus, the possibility of the construction of a major pipeline seems unlikely. The second route is a Turkish route for oil from Central Asia to India via Ceyhan in Turkey, to Israel, and by tankers to India that is a non-starter. Transit fees and handling costs alone would make this deal expensive.
India is aware that the best way to access Central Asian oil through the Arabian Sea would be the Iranian port of Neka in the Caspian Sea. Kazakhstan delivers oil to the Neka terminal today to further blend and swap it with Iranian oil. From Neka to Tehran a pipeline already exists, and has been delivering oil to the Tehran refinery for a number of years.
This pipeline may be upgraded to carry Central Asian oil to the Arabian Sea. The Iranian route, therefore, may be the easiest and possibly the cheapest gateway for Central Asian oil and gas. Iran is the best way for India to have access to the Central Asian gas resource; it seems that India has replaced the Trans-Afghanistan Pipeline (TAPI). The pipeline will transport Caspian Sea natural gas from Turkmenistan through Afghanistan into Pakistan and then to India. This could be the end of India-US relations.
It seems that India-US partnership has stopped India from following multilateral energy relations with Iran as well as the Iran-Pakistan-India gas pipeline. According to Kaveh Afrasiabi: “US has suggested Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline instead of Iran-Pakistan-India pipeline.”
It is clear that the development of Iran-India energy relation faces many obstacles. It seems that Iran’s developing political relation with India, which is another aim of Iran, has also turned out to be a problem.
Iran-India political relations
The main political goal of Iran’s energy policy towards India is alleviating its international isolation and reduce pressure from the Western states, in relationship with the East and South East Asian countries. Iran has attempted to be closed to some countries including India in order to encourage them not to support US policy towards Iran.
In this policy, Iran is applying energy as the main tool. However, it seems that the Iranian attempt was not enough to gain India’s political support. India, voted three times against Tehran in its nuclear dispute with the international community during 2005, 2006 and,2009 at the International Atomic Energy Agency (IAEA), stood by the sanctions regime imposed by the UN Security Council, and openly proclaimed its opposition to an Iranian nuclear programme.
The Iranian plan to develop political relations with India failed when the new India-US relationship progressed. US-India “global partnership” has been established through increasing the cooperation in economic issues, on energy and the environment, on democracy and development, on non-proliferation and security, and on high-technology and space.
Meanwhile, the US as a new partner of India has made Iran a test case for the credibility of New Delhi’s commitment to building a long-term political partnership with Washington.” However, some Indian leaders still argue that “India’s current relations with the United States will not weaken their own ties with Tehran.”
India’s economic reform and energy security
India renewed its economy and foreign policy agenda in order to enter the era of interdependence with economic liberalisation in 1990. The liberalisation brought reforms to foreign investment, capital markets, deregulating domestic business, and the new trade regime.
The reforms made India attractive for the investors, and the flows of foreign investment to India increased. As a result, India has emerged as one of the perfect markets for foreign investors due to its vast market base. According to the reports, the rate of foreign direct investments rose from about $129mn in 1992 to about $2511mn in 1997. In addition, foreign investment during 1991-2000, in dollar terms, is about $67bn, at an average exchange rate of Rs40 to a dollar.
The rate of (FDI) has grown around 85.1% in 2009 to US$46.5bn from $25.1bn (2008). Moreover, liberalisation has greatly influenced the Indian economy and made it a huge consumer market. India is the world’s 12th largest economy in terms of market exchange rate and 4th largest in terms of the purchasing power parity. On the other hand, economic development increased Indian demand for energy, and India oil consumption increased from 1190.32mn bpd in 1991 to 2127.44mn bpd in 2000 and 2657.8 in 2006.
India sought long-term arrangement to ensure its energy security. The Indian government has followed some policies such as the policy of the diversification of energy imports and the acquisition of equity oil by India’s state-owned oil companies, building up a strategic petroleum reserve (SPR) in order to cope with sudden losses after a regional crisis in the Persian Gulf, the extension of the domestic exploration, and lastly, production and fuel diversification.
Although India has sought to provide energy security, the country’s dependence on the international energy market has increased and made India more vulnerable. This is due to its growing oil-demand. “India imports nearly 80% of its crude oil requirements in 2009, and the country spent almost $80bn to import about 160 million tonnes of crude oil. Domestic oil production has stagnated at below 35 million restment to India increased.
The rate of foreign direct investments rose from 9 million in 1992 to about $2511mn in 1997. In addition, restment during 1991-2000, in dollar terms, is about $67bn, at an exchange rate of Rs40 to a dollar. The rate of (FBI) has grown to $46.5bn from $25.1bn.
Meanwhile, the outgoing Indian Prime Minister, Manmohan Singh warned that “India’s energy demands would increase by 40% over the next 10 years, whereas the increase in domestic production is likely to be a mere 12%, leading to a huge demand-supply mismatch.”
India depends on oil import from oil exporting countries in the Middle East as possible long-term suppliers. This policy led India to import oil from Iran and as a result Iran became the second oil supplier to India in 2009. India is a huge consumer market because the relation with Iran is closely interlinked with Indian security and foreign policy issues.
Complex interdependence
In the new world politics after the Cold War, the new Indian policy needs to cast its net on international relations as wide as possible in order to become a regional and prospectively global power. India has to develop its relations with the great powers because, “... its new role in the international system is defined by its future economic, military, and technological capabilities that are regarded as the basis for great power status in the envisioned multi-polar system of the 21st century.”
Following this new policy, India has created a series of strategic partnerships with the United States, France, Great Britain, Russia, China, the European Union, Germany and other countries.
India has probably benefited from the new complex interdependence; relationship with the great powers. However, these relationships have increased India’s dependence on other powers, which has introduced new constraints on its foreign policy. This is because India is a rising and ambitious power, while it is not in the same position compared with the great powers such as Germany, France or even China in terms of various measures of “hard-power” military strength, economy, technology, and demographics.
For instance, “India has yet to acquire the kind of economic clout that China has already acquired. Furthermore, one of the criteria to be counted as “major power is to have the capacity to produce at home the major weapons systems needed for modern warfare-fighters and bomber aircrafts, long range artillery, tanks and so on.”
These demands have increased India’s dependence on foreign suppliers and affected its foreign policy. As it can be seen, India has avoided developing its multilateral and political relations with Iran. This is due to the conflict between the development of India-Iran relations and the US policy to isolate Iran, which is supported by the European countries.
India is aware of the Western policy and especially the sensitivity of the United States. The Western powers are following their policy towards Iran through diplomatic and economic channels, international pressure and cross-societal exchanges. India would damage its interest in relations with the West, if it develops its relations with Iran.
India’s vulnerability to complex interdependence can be seen in the Iran-Pakistan-India gas pipeline project. The pipeline issue implies further security and foreign policy considerations that touch India’s relations with the US and European countries.
The pipeline project became closely intertwined with the international debate about Iran’s nuclear programme and relations with the US as the former US Secretary of State Condoleezza Rice declared her country’s opposition to it, because back in 2005, it would have ostensibly strengthened Iran’s power and thus negatively affected the US politically.
It has to be considered that the United States offered alternative energy; sources to India if the country withdraws from the IPI project. As a matter of fact, “... the civilian nuclear deal can therefore be seen within the larger context of Indo-US relations and the endeavours of the US to support India’s energy needs whereas Iran touches relations with the US.”
Moreover, the US has tried to lead India to make relations with its partners, the Persian Gulf, instead of relations with Iran. This integration combined with the fact that the Arab states of the Persian Gulf will have to face most of the security consequences of rising Iran, opens up new possibilities for the India-US strategic cooperation in the Persian Gulf.
Some US analysts recognise the parallels in the US and Indian policies in the Persian Gulf. Meanwhile, political instability and even the threat of the US or Israeli military retaliation against Iranian provocation have made Iran a less than attractive partner for India. Indian leaders have learned that they can’t rely on Iran in their energy demand. This is reflected in Indian energy supplies.
Although, India provides less than 16% of its petroleum imports from Iran, Saudi Arabia is the largest supplier of hydrocarbons to it, while Kuwait, Iraq, and the United Arab Emirates (UAE) are also among India’s five largest trading partners. Some Indians still believe, “despite all these difficulties, Iran still remains important to India because it is one of the very few countries which is endowed with large quantities of oil and natural gas.”
It is obvious that Iran needs the huge Indian market and India wants to get the highest benefit possible from Iran’s rich energy resources. According to the Iranian perspective, economic partnership with India, as a key regional player and emerging global economic power, can help the Islamic state to win supporters in the face of the “policy of isolation” adopted against Iran by the United States and its European partners.
Moreover, Iran has tried to increase its bilateral relations with India, both economically and politically. India, due to its high energy consumption, can get the highest possible benefit from Iranian energy. But, India would not like to risk its growing relations with the US and the European countries to save its energy relations with Iran. India, is not in the position to provide space for Iran which is limited by the US power.
Thus, Iran’s bilateral relations with India in the energy field cannot push India to create a strategic relationship with Iran due to Iran’s conflict with the West. In this case, Iran-India energy relation can be explained based on the supply and demand system.
