Blessy Paul asked: How will the re-imposition of US sanctions on Iran affect India's energy ties with the latter?

Shebonti Ray Dadwal replies: Despite Iran being India’s third largest oil supplier, the termination of oil purchases from Iran will not affect supplies as other alternative sources are available, in fact eager to gain greater access to the lucrative Indian oil market. However, India will have to do without the concessional terms offered by Iran – such as the 60-day credit line as well as the insurance benefits.

Relations between the two countries including in the energy sector go beyond a transactional one, i.e. mere purchase and sale of oil. There is a strategic component to the relations and with many facets to it. An example is India's investment and engagement in the Chahbahar Port, which continues.

Further, Iran had offered India's ONGC Videsh Limited (OVL) a stake in its Farzad B gas field. Although India has been delaying its commitment to developing the field due to sanctions, and Iran has said that they may offer the field to the Iranian contractors if India backs out, it is believed that Tehran may be willing to wait. Indian officials have also said that once the sanctions are lifted, New Delhi would try and fast forward its investment in the project.

India is one of the few growing markets for oil and potentially gas, which are Iran's major exports. When the sanctions are lifted, Iran would want to retain its share of the Indian market. Hence, while energy trade has been terminated for the time being, as in the past, Iran is likely to once again become a major source of crude oil for India in future.

Posted on June 28, 2019

Views expressed are of the expert and do not necessarily reflect the views of the IDSA or of the Government of India.