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Sixty-six Americans, 444 days of captivity, followed by a tale of animosity and mistrust for more than three decades. This was the summary of the bilateral relationship between the United States and Iran since the Iranian revolution of 1979 and the crisis in which revolutionaries stormed the US embassy in Tehran and took 66 hostages. Finally, burying the hatchet, the two long-standing enemies -Iran and US - struck a deal on Iran's nuclear programme raising new hopes for the world and its energy market last week.
International crude oil prices were the first to respond to the landmark deal between the two last Sunday, with Brent crude falling by 2 per cent on Sunday itself. "If the talks improve in the next four to six months, crude prices would come back to the $100 per barrel mark. If you look at the quantity of crude oil produced, Iran may not be a major player. However, the geo-political scenario in West Asia always has a 5 per cent weightage in global crude prices, making things hopeful for the world," says a Mumbai-based analyst.
The agreement with Iran involved the US, UK, Russia, China, France and Germany, adding a feather to the cap of Iran's new moderate President Hassan Rouhani who replaced the hardliner Mahmoud Ahmadinejad. The deal tightens the noose on the nuclear capability of the West Asian power, while giving it relief from international sanctions.
Interestingly, this time the deal has the backing of Iran's supreme leader Ayatollah Khamenei, so it is likely to be sustained. Iran agreed to stop enriching uranium beyond 5 per cent, give more access to inspectors and stop the development of the Arak plutonium plant. The jewel in the deal for the sanction-hit country is economic relief worth $7 billion in various sectors. The deal also lifts the freeze on Iran's accounts for oil payments across the world.
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What does the deal mean for India? For India, which is staring at an expected under-recovery loss of Rs 1.4 lakh crore on sales of petroleum products like diesel, LPG and kerosene this year, the deal can lead to a fall in international prices. "The prices are going to come down because the Iran development will have a sentimental impact on crude oil prices, with oil supply increasing. A correction in oil prices will naturally bring down the import bill," says Debashish Mishra, senior director, Deloitte India.
According to estimates of the petroleum ministry, every one dollar decrease in crude oil prices would pull the government's oil subsidy bill down by Rs 4,000 crore. On the other hand, the deal will be a dampener for Petroleum Minister M Veerappa Moily's ambitious plan to save $8.4 billion on the import of crude oil by importing 11 million tonne of crude on rupee terms.
Till February this year, India was routing 55 per cent of its payment for the National Iranian Oil Company through the Turkish Halk Bank and the rest through the Kolkata-based UCO Bank. But the sanctions against Iran generated the idea of going in for 100 per cent rupee payment for the minimal imports that have taken place since then. Now, the country can go back to the earlier system, putting an end to the payment crisis.
Petroleum Secretary Vivek Rae says that the ministry is in a wait-and-watch mode. "As of now, we plan to import only 11 million tonnes from Iran as per the earlier contract. Once the problems are solved, we will have more oil and gas available in the market. If sanctions are lifted, we would be able to go back to the earlier import volumes of 21 MT," he says. India imported 18.5 MT of crude from Iran in 2010-11. This came down to 17.4 MT in 2011-12 and 14 MT in 2012-13.
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The agreement will also make the Rs 2,000-crore Indian Energy Insurance Pool for covering refineries' risk in importing crude oil from Iran almost irrelevant. Earlier, Indian insurers depended on European companies to re-insure their risks. However, with sanctions being imposed on trade with Iran, these firms had refused to re-insure, necessitating an insurance pool. "This may not increase the imports immediately from that country but will ease out payment problems. Once there is clarity in the issue, we would increase imports," says P P Upadhyay, managing director, Mangalore Refinery & Petrochemicals Ltd. "We are anyways coming out with a Cabinet note in this regard, though the pool itself may become irrelevant now. There are also talks about giving just a state guarantee as re-insurance issues are sorted out," a senior petroleum ministry official told Business Standard.
The Mangalore-based subsidiary of Oil and Natural Gas Corporation and Essar Oil were planning to import 4 MT of Iran crude this financial year. A section of experts also believes that the move may revive hopes for the Iran-Pakistan-India (IPI) gas pipeline. "There is a good chance of the IPI pipeline project being revamped because a pipeline till Pakistan is already in place," says Subodh Kumar Jain, director, South Asia Gas Enterprise. However, Pakistan is not too keen on extending the project into India. The need for a pipeline with bigger width is seen as another hurdle in this project.
Meanwhile, an Indian delegation from the hydrocarbon and fertiliser sector is set to visit Tehran in the next couple of months to strengthen ties. This is expected to push plans like a long-term contract for annual supply of 5 MT of liquefied natural gas, development of the Farsi oil and gas blocks as well as of the Chabahar port and its related railway line. Iran already has stakes in Chennai Petroleum and Madras Fertilizer Company in India.
Through the sanctions imposed by US and the European Union on oil exports by Iran are to stay in place, these have been brought down from more than 2.5-3 million barrels per day to 1-1.5 million bpd. For Iran, this is a much-needed boost as its sales plummeted by 1.5 bpd, depriving Tehran of a revenue of about $80 billion from oil sales in the last one year, according to US estimates. As of now, India is checking its balance sheet of gains and losses expected because of the deal.
The world is divided on the deal, with countries like Israel terming it a "historic mistake". For the time being, all eyes are on Rouhani and the world powers. And the question doing the rounds is: will the Iranian President be able to turn this opportunity into "his-story" of success along with Barack Obama rather than let it end up as just another piece of "history"?
