Iran sets new terms for gas field award



Mains Paper 2: IR | Bilateral, regional and global groupings and agreements involving India and/or affecting India’s interests

From UPSC’s perspective, the following things are important:

Prelims Level: Location of gas field, nearby gulfs, countries and other map based facts.

Spinoff- Read about Baluchistan, OPEC, Shale gas exploration techniques.

Mains level: India-Iran relations, impact of western sanctions on them in last few years, present status and way forward.

  • Farzad-B Gas field is important in various aspects. The distance between Pakistani Gwadar port and Iranian Chahbhar port is just 72 kilometers.
  • Geographically both ports are important. Gwadar port enhances the geo-strategic importance of the underdeveloped province Baluchistan. Since 9/11, Indo-Iranian Naval cooperation is seen in the Indian Ocean and Arabian Sea.
  • On the other hand, Pakistan and China are collaborating on the development of Gwadar port which is much significant for China to fulfill its economic and strategic needs.
  • India has dual objective in Iran, first it wants to encircle Pakistan by maintaining cordial relations with Iran and Afghanistan secondly to counterweight China.


  1. In fresh conditions, Iran wants India to pay more than triple the gas price for award of the coveted Farzad-B natural gas block to ONGC Videsh (OVL)
  2. Iran wants India to buy all of the natural gas to be produced from the Persian Gulf block at a price equivalent to the rate Qatar charges for selling liquefied natural gas (LNG) to India under a long-term deal

What is the deal with Qatar?

  1. Qatar, as per a revised formula agreed upon in December 2015, sells 7.5 million tonnes a year of LNG to Petronet LNG Ltd. — India’s biggest gas importer — at a price of $7-plus per million British thermal unit

Issue with Iran:

  1. The rate being sought by Iran is triple of $2.3 per mmBtu rate OVL is willing to pay for the gas during [times of] low global oil prices
  2. If global rates rise, OVL is willing to pay $4.3 per mmBtu, sources privy to the development said
  3. When oil prices move up, rates of LNG from Qatar would also rise

Why change in Iran’s stance?

  1. Sources said that since the lifting of western sanctions, Iran is playing hardball over award of the field which was discovered by OVL — the overseas arm of state-owned Oil and Natural Gas Corporation (ONGC)
  2. Also, Iran allows all the cost sunk in by an operator to be recovered from sale of oil or gas. For this reason, it wants OVL to reduce the cost of development as well as pay a higher gas price.


IRAN Nuclear Deal Explained





[op-ed snap] Navigating between friends


  1. Changes in the United States’ attitude to Iran could be very serious for India
  2. Among the issues involved are:
  • India’s access to Iranian oil supplies and other resources,
  • Progressively more cordial relations between New Delhi and Washington, and
  • India’s deepening defence relationship with Israel

Upping the ante:

  1. The Trump administration is openly and consistently confrontational towards Iran
  2. S. Secretary of State Rex Tillerson wrote that Iran continues to comply with the deal, but also called Iran “a leading state sponsor of terror”
  3. Secretary of Defense, James Mattis, who has long been very hostile to Iran, accused it of attempting to “destabilise yet another country”, meaning Yemen
  4. Two months earlier, Mr. Mattis had responded to Iran’s late-January test of a ballistic missile by calling it the world’s “single biggest state sponsor of terrorism”

U.S. Allies:

  1. Washington’s major regional allies, Israel and Saudi Arabia, have been no less hostile
  2. Israeli Prime Minister Benjamin Netanyahu has said Iran’s “aggression must not go unanswered”
  3. Following exchanges with Riyadh, the White House has said the U.S. and Saudi Arabia have agreed to address what the U.S. Treasury’s Office of Foreign Assets Control calls Iran’s “destabilising activities” in the region

India’s Iran relationship:

  1. In October 2016, Iran was India’s largest supplier of crude oil, with its exports to India exceeding the overall largest supplier Saudi Arabia’s exports by over 10%
  2. As the U.S. federal body Energy Information Administration notes, India is also funnelling Iranian oil into its expanding strategic petroleum reserves (SPR), with a view to holding 90 days’ supply against contingencies
  3. Crucially, Tehran has consistently offered New Delhi very favourable terms, including non-dollar oil sales and other commercial attractions
  4. Oil is of course only one commodity in a long-standing Indo-Iranian trade relationship
  5. Iran buys basmati rice and sugar from India, as well as various agrochemicals and petroleum products
  6. The Indian government has taken steps to reassure Indian insurers in the public and private sectors, as well as banks, over the risks they might take in handling Iranian money while the U.S. sanctions regime remains in force
  7. In addition, India and Iran have reached agreement on the expansion of several industrial facilities at the port of Chabahar; the work is to be undertaken mainly by Indian entities
  8. Another substantial deal is the one under preparation for India to have operating rights in the Farzad B gas field, which lies within Iranian waters in the Persian Gulf


  1. The prospect of a more aggressive U.S. attitude on Iran will almost certainly make the Government of India very uncomfortable
  2. It may help India that within the U.S. and Israel, moderating factors — both commercial and military — obtain
  3. In 2012, the then Chairman of the U.S. Joint Chiefs of Staff, General Martin Dempsey, stated that attacking Iran would only delay Iran’s development of a nuclear weapon and not stop it
  4. Former head of Israel’s intelligence service Mossad, Meir Dagan then said that a pre-emptive attack on Iran was “the stupidest idea” he had ever heard
  5. Commercial agreements have followed the Iran nuclear deal like the Joint Comprehensive Plan of Action between Iran, the five permanent members of the United Nations Security Council and the European Union
  6. Another important deal is a 10-year, $16.6-billion contract for the aerospace giant Boeing to supply Iran Air with 80 passenger aircraft
  7. Quite apart from Boeing’s competition with the EU manufacturer Airbus, any attack on Iran could put about 1,00,000 U.S. jobs at risk


For India, a further point is that while previous U.S. administrations exempted India from certain sanctions over India’s continuing oil deal with Iran, the Trump administration may see the matter differently. Read how imposing sanctions on Iran will effect India carefully from Mains PoV.

Bilateral trade hit by banks’ reluctance to transact with Iran

  1. The problem: India’s trade with Iran is yet to be fully normalised even a year after the lifting of international sanctions on Tehran
  2. Why? Indian exporters are complaining of difficulties faced by them due to some Indian nationalised banks refusing to deal with Iran-related transactions
  3. This is despite the RBI, in a notification in May 2016, specifying that payment or remittance or reimbursement can be made from or to Iran in any freely convertible currency for imports from Iran and exports to that country
  4. Background: Previously, following the sanctions on Iran over its nuclear activities, both the nations had agreed in 2012 that 45% of India’s oil import payments to Iran would be paid in rupees and deposited in UCO Bank as that bank hardly had an exposure to U.S. or European Union
  5. In turn, Iran was to utilise that amount to pay for its imports from India
  6. Now: However, it is now learnt that the balance in the rupee account may not be sufficient to cover three months of India’s exports to Iran
  7. India-Iran trade: India’s trade with Iran in FY’16 was $9 billion, of which $6.3 billion were imports from Iran (of which $4.5 billion was the oil import bill), while India’s exports were worth only $2.7 billion


Need to know the development as it can be a point in mains answer or probably a prelims question.

Deal on Iran gas field may be sealed by October

  1. Context: India’s Farzad-B gas project by a consortium of Indian companies led by ONGC Videsh
  2. Farzad-B gas project: A common project by Iran and India to develop the Farzad-B field
  3. It is discovered in 2012 and estimated to have 21.68 trillion cubic feet (tcf) of gas reserves
  4. ONGC Videsh: The overseas arm of state-run Oil and Natural Gas Corporation

India to develop Chahbahar port

  1. Context: A new bilateral agreement between Iran and India was signed during PM’s visit to Iran
  2. Chabahar: To develop and use the port of Chahbahar to access Central Asia and Afghanistan
  3. It is 1st such agreement & will provide India the right to develop and operate two terminals and five berths
  4. This is along with multipurpose cargo handling capacities in the port of Chahbahar for 10 years
  5. Other: In all, 11 agreements were signed by India and Iran, covering culture, finance and conservation
  6. Also the agreement between IPGPL (India Ports Global Private Limited) and Arya Banader of Iran was signed

Immense opportunities after lifting of sanctions, says Modi

  1. Context: Prime Minister Narendra Modi’s visit to Iran (1st Indian PM to visit Iran in 15 years)
  2. PM: Lifting of international sanctions on Iran has opened up immense opportunities
  3. India is looking forward to expanding cooperation with Iran in sectors such as trade, investment, infrastructure and energy
  4. Chabahar port: Will provide wider connectivity
  5. Doubling oil imports: India is looking at doubling oil imports from Iran which, a few years back, was second-biggest oil supplier
  6. Farzad-B gas field: Going beyond the buyer-seller relationship to being genuine partners in the field of energy

A background to Iran oil policy change

  1. In November 2013, Iran had offered free delivery of crude oil to Indian refiners
  2. Why? Tough Western sanctions had crippled its exports
  3. Iran came out of western sanctions in January and has since then made several changes in the way it trades its vast oil
  4. From April 2016, National Iranian Oil Company (NIOC) has informed oil importing companies that the future delivery would be based on Free on Board (FOB) basis and the freight has to be arranged by the buyer
  5. In the last two-and-a-half years, Iran sold Indian refiners crude oil on cost, insurance and freight basis

Iran ends free shipping of oil to India

  1. Iran has ended free shipping of crude oil to India
  2. It has asked refiners like Mangalore Refineries (MRPL) and Essar Oil to arrange for freight
  3. However, the NIOC has agreed to provide vessels and insurance till such time Indian companies are able to arrange the same

Iran is India’s reliable partner, says Rouhani

  1. Context: External Affairs Minister Sushma Swaraj’s visit to Iran
  2. Rouhani: Iran can be a reliable partner for India’s energy needs
  3. Chabahar port: A defining partnership which has the potential of connecting the entire region
  4. India: Has been eyeing deeper energy ties with Iran following lifting of nuclear sanctions
  5. India has already lined up $20 billion as investment in the oil and gas and petrochemical and fertilizer sectors there

India offers to invest $20 billion in Iran

  1. Context: Oil Minister Dharmendra Pradhan is in Iran with a delegation of industry executives for two days
  2. Indian offer: ITo invest $20 billion in Iran’s petrochemical, fertilizer and liquefied natural gas (LNG) facilities
  3. In return: India sought cheap natural gas and land to set up the units

India approves $150 million Iran port plan

  1. News: India approved a $150 million project to develop the strategic Iranian port of Chabahar
  2. Background: In May 2015, New Delhi had signed a MoU with Tehran to develop the port on its southeastern coast
  3. Benefits: It provides opportunities to Indian companies to penetrate and enhance its footprint in the region

What is International North South Transport Corridor (INSTC)?

The INSTC is a project to link India and Iran via the sea route and then through Iran to the Caspian sea onwards to Central Asia.


  1. INSTC is a multi modal transport corridor established in 2000 in St. Petersburg.
  2. The founding members are Iran, Russia and India.
  3. The purpose is promoting transportation cooperation among the Member States.
  4. It connects Indian Ocean and Persian Gulf to the Caspian Sea via Islamic republic of Iran, then is connected to St. Petersburg and North Europe via Russian Federation.
  5. It was expanded to include 11 new members, namely: Azerbaijan, Armenia, Kazakhstan, Kyrgyz, Tajikistan, Turkey, Ukraine, Belarus, Oman, Syria, Bulgaria (Observer).

India-Iran will try to resolve Chabahar Port issue at foreign office consultation

The officials representing India and Iran will attempt to resolve contentious issues related to the proposed Chabahar Port in Iran at foreign office consultation.

  1. The officials attributed the delays to Iran changing terms and conditions for the port, and India seeking a better deal after initially giving in.
  2. The discussions now centre on resolving conditions that both sides consider each other to be imposing.
  3. The consultation will also take up the International North South Transport Corridor (INSTC) project linking India with Central Asia and other countries.
  4. It will also consider regional and international issues such as the rise of the Sunni militant IS and peace talks in Afghanistan.

Iran sanctions end: Cheaper oil, more trade opportunities for India

“We can sign commercial deals with Iran since payment is no longer an issue”.

  1. The lifting of the sanctions on Iran will benefit India with lower oil prices and more opportunities for trade.
  2. Iran will gradually ramp up production by 0.5 million barrels per day over the next six months.
  3. The lifting of sanctions also removes an important hurdle — U.S. pressure to hold off on the deal — in the proposed India-Iran gas pipeline
  4. India reportedly owes Iran $6.5 billion for crude oil purchases, the payment of which has so far been held up due to the sanctions.
  5. One of the major construction projects in Iran that India has taken an interest in is the development of the Chabahar Port.

Government pitches for global north-south corridor

  1. The commerce ministry has pitched for popularisation of International North-South Transport Corridor (INSTC) in a bid to boost trade with former Soviet Union countries, Iran and Russia.
  2. The corridor is an alternative route through Tehran that significantly reduces costs and travel time.
  3. This moves is significant as govt. has adopted a market diversification strategy.
  4. This will help Indian exporters to reduce their dependence on traditional markets in the West.
  5. The ministry also wanted banks and insurance companies to play an active role in boosting traffic through INSTC.

India asks Iran to expedite procedures of Farzad-B gas field

India considers Iran as an important partner and expressed satisfaction at the growing bilateral interaction in diverse area including energy, shipping, ports and railways.

  1. India has emphasised to Iran for early completion of all necessary procedures for its participation in the Farzad-B gas field worth 5 billion US dollars.
  2. India’s request was forwarded by External Affairs Minister to Iranian Minister for Economic Affairs and Finance in Joint Commission Meeting.
  3. Iranian side suggested participation of India’s public and private sectors in development of Chabahar Port and Chabahar Free Trade Zone (FTZ) and in setting up industrial units in it.
  4. India mentioned that Chabahar port will facilitate linking Afghanistan and Central Asia with India which will result in enhanced trade and commerce.

Iran promises preferential treatment to Indian investors

  1. With the lifting up of sanctions, Iran is looking towards India for huge investments.
  2. Major areas where India can invest are – Chabahar port, railways infrastructure, gas & oil projects especially the Farzad B oilfields, fertilizer and petrochemical projects.

India welcomes Iran deal, wary of implications

  1. India and Iran have an annual bilateral trade of about $14 billion with high balance of trade problem due to sanctions in past.
  2. Benefits for India could be cheaper oil imports from Iran and access to Afghanistan through Chabahar port.
  3. Worries are that it could affect India-Israel relations, backlash from Saudi Arabia could lead to closer nuclear cooperation with Pak and Iran’s preferential treatment could go to Russia, China, US and Europe.

How India gains from the Iran N-deal?

  1. The deal could have significant effects on India’s energy needs, as it will allow imports of oil and natural gas from Iran.
  2. Analysts point that oil prices would drop further as a permanent agreement would be reached with Iran, as Iran would then increase its oil production.
  3. A fall in global oil prices would be good news for India. Why?

A $1/barrel fall in international crude oil prices is likely to reduce India’s net import bill by $0.9 billion a year.


What else?

  • The Farzad-B gas field project – Discovered by OVL in 2008, might receive a fillip because India could not pursue the project aggressively until now, due to US sanctions against Iran.
  • Gas Pipeline – Between India and Iran.
  • Chabahar Port Route – The peace agreement will lead Indian govt. to push for completion of Chabahar port route to Afghanistan, a gateway to Central Asia.

Indian presence in Chabahar

  1. India to enter into a JV port project in the Chabahar province in Iran with close proximity to the Strait of Hormuz which facilitates ~40% of the global oil trade.
  2. This is India’s answer to the Chinese control over at the Gwadar Port.

Questions (attempt in the comments section)


The official start of the lifting of crushing Western sanctions on the Iranian economy is generally said to benefit India. But some commentators argue that it also throws various challenges to India’s relationship with Iran. Examine.


Are there possibilities for India to have a broader and deeper relationship with Iran beyond trade relations? Critically analyse.

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