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With plenty to gain from doing so, India makes an effort to improve relations with Iran

With plenty to gain from doing so, India makes an effort to improve relations with Iran.

External Affairs Minister Salman Khurshid (third from right) with Iranian leaders in Tehran while attending the India-Iran Joint Commission meeting in May External Affairs Minister Salman Khurshid (third from right) with Iranian leaders in Tehran while attending the India-Iran Joint Commission meeting in May
Not long ago, Iran was a subject officials in the central ministries preferred not to discuss. Their dilemma was obvious. Tehran and New Delhi have longstanding ties, but given the sanctions imposed by the United Nations on Iran - at the United States's behest, in a bid to stop its controversial nuclear programme - New Delhi had little choice but to distance itself from its former ally as well.

Officially, there has been no change in India's stance since then. But in practice it is a different matter. First, External Affairs Minister Salman Khurshid visited Tehran in early May. Now Petroleum Minister M. Veerappa Moily is preparing to follow suit in end-August or early September. "Yes, I'm going to Iran as well as to Kazakhstan and Azerbaijan," he told Business Today. "I'm going with an open mind."

Veerappa Moily, Petroleum minister
I will go to Iran with an open mind: Veerappa Moily
Foremost among the matters Moily will discuss in Tehran will be India's resumption of exploratory work in the Farzad B gas field in the Persian Gulf. Farzad B is estimated to have gas reserves of 21.68 trillion cubic feet (Tcf), of which 12.8 Tcf may be recoverable. State-owned Indian companies ONGC Videsh Ltd (OVL), Indian Oil and Oil India had formed a consortium and won the rights to explore the gas field, but India did not apply to renew the service contract because of the UN sanctions. Meanwhile, Iran is committing itself to a billion dollar sovereign guarantee for all ships heading to India with Iranian products - largely crude oil. "Similar things are been worked out for the exploration work too," says an official in the external affairs ministry. A petroleum ministry official maintains Moily could make a firm commitment to resume exploration.

The sanctions have already reduced Iran's petroleum exports by half, with India too cutting down its imports. Doing business with Iran has been rendered increasingly difficult, since the supply of oil rigs is controlled by the West, as is the entire business of international insurance and re-insurance. Already, there is the persisting problem of paying Iran for oil imports. Given the sanctions, dollar payments are not possible, since international banks will not handle the transactions. "We have paid 40 per cent in Indian currency, but are still looking for ways to pay the balance," says a finance ministry official.

But officials close to the Farzad B related development maintain that in a renewed effort, OVL has been asked to look for ways to circumvent the sanctions. One option being considered is that of using a relatively small player to carry out the exploration work, rather than the consortium, so that even if that entity is blacklisted, it will not affect India's other operations. But insurance will remain a problem, as well as employing foreign experts. "We are working closely with the Iranian establishment. This is good asset, it is in our interest that we should not let it go," says an official.

Iranian oil minister Rostam Qasemi, too, visited India in end-May. He offered some more oil and gas blocks for Indian companies to explore. He also proposed an undersea Iran-India pipeline, circumventing the land route through Pakistan. But the officials involved claim India is not terribly keen on such a pipeline right now. Instead it is very keen to set up a fertilizer plant in Iran, most likely near the port city of Chabahar and has been hunting for companies, be they public or private, to take on the project. Qaqsemi, during his visit, assured gas for the proposed unit. India has also committed itself to taking on the renovation of Chabahar port with an assured investment of $100 million. India plans to lay a rail link from this port to Afghanistan, thus making inroads into central Asia bypassing Pakistan.

Iran is committing itself to a billion dollar sovereign guarantee for all ships heading to India, largely with crude oil

Given the new prevailing spirit, a foreign ministry spokesperson now denies that ties with Iran have been affected at all. "Our stand has not changed one bit," he says. "We maintain Iran will have to come clean about its nuclear plans, but we have also told the West we cannot sever our relations with Iran which go way back into history." Similarly, in an earlier discussion with BT, Sudhir Vasudeva, Chairman and Managing Director, ONGC said: "Iran was always good to us. It continues to supply us with crude. We have no objections to Iran apart from these sanctions it is facing."

The urgency to mend fences has also been prompted by the awareness that Pakistan and China have been cozying up to Iran. Pakistan is going ahead with its pipeline plan - which now excludes India - and has also accepted Iran's offer to set up a refinery at Gwadar in southern Sindh. The port in Gwadar is controlled by China, which can use the refinery to meet some of its growing requirement of refined products. "Now India will have to balance the power equation in the region," says security analyst C. Uday Bhaskar.

India may be taking the gamble of incurring the US's wrath, but change is in the air in Iran as well. Many hope the ascension of the President-elect Hassan Rouhani, known to be a moderate, in August, will see sanctions being eased. Iran has indicated its willingness to start talks with the permanent members of the UN Security Council. "We hope things improve further," says an official.