Saturday, September 19, 2009

IPI not yet over, Iran India still in bed with each other

The ongoing discussions between Iran, Pakistan and India, regarding the so-called Iran-Pakistan-India gas pipeline project (IPI) are again heating up. International news sites have quoted Iran’s ambassador in India Seyed Mehdi Nabizedeh as stating that Tehran is only willing to offer India a limited time to reach a decision regarding the total deal. The IPI pipeline will transport gas from Iran to India through Pakistan, and is seen as crucial to Indian energy needs. The last days, news has emerged that Iran and Pakistan are inclined to sign a deal for the technical operations of the gas transfer deal for the Iran-Pakistan-India gas pipeline by the end of this month. Both sides have indicated that they will be signing the latter after in June a bilateral deal for the proposed 1,724-mile IPI natural gas pipeline was signed, in which Pakistan has agreed to buy 750 million cubic feet per day from the South Pars gas field in Iran to generate electricity under the terms of a 25-year deal. If a new deal is signed, the latter would mean that first gas could be transported to Pakistan within the next 4.5 years. Iran is the second point of receiving Iranian gas. For Tehran the latter is of vital importance as it would mean that Iran for the first time ever would be able to export a main portion of its overall gigantic gas reserves (2nd in the world after Russia) to international markets. At the same time, it would bring in the necessary hard currency to invest in other economic areas, as the country is feeling the increased negative repercussions of the  current sanction regimes of the US, UN and EU. The Pakistani deal with Tehran is a major step forward, but the main market at present is still India, the second largest economy in Asia. The last years, increasingly the last weeks, Tehran has put pressure on India to confirm or deny its role in the project. It now seems that the official patience with India is over, Delhi needs to come to a conclusion on the latter. However, internal and international politics are playing its part. India does not want to affront the USA to much, especially when taking into account that India and the US are setting up major military cooperation which includes nuclear assistance. India is seen by the West as a potential force to counter growing islamic fundamentalism in the old ally Pakistan. For India it also is of importance to squeeze as much out of the Iranian deal as the Indian economy is yearning for increased energy supplies. Some analysts also have warned that if India is not decisive enough, Pakistan would be willing to link its gas infrastructure with China, as the latter is more than willing to take gas from Iran the coming years.  Washington opposes the project because of its potential to provide an economic benefit to sanction-strapped Tehran. The latter vision, presented in most news analysis, is still viable but should somehow be taken with a bit of salt. Iran’s position is still strong, the new Washington administration looks not able to set up a viable anti-Iran policy. Obama is playing two main cards, sanctions and reapproachment it seems. India is now stuck in the middle, no real options are clear. The only thing really is hurting Delhi is that Iran is at present the only viable gas option it has. The economic growth of India is under threat if no additional gas volumes (pipeline or LNG) are being sourced to counter demand growth. At the same time, it can be argued that IPI could contribute to regional security as Iran, Pakistan and India would depend on each other more. Some other issues are also still involved, such as disputes over transit fees. The Indian government has said the project is feasible, but needs to be financially viable with assured supplies. India’s position at present has become stronger as overall global gas prices are under pressure, LNG also has shown a decline in value. Iran and India should be able to reach an agreement, as both sides increasingly are depending on each other. Delhi also understands that if it waits too long, Iran could be reaching an agreement with European parties for supply to the European market (via Nabucco). This could be very negative for Asian markets in the long-run. Financial issues can be solved reasonably easy. Iran and India could sign an agreement if normal (current) gas prices are being taken as basis for discussion. If India is also able to reach a security agreement with Pakistan, necessary as all the gas will go via Pakistani soil, no real obstacles any more exist. In the end, Washington will not put its current friendship with India at stake as long as Pakistan become a viability to all. India’s Petroleum Minister Murli Deora had said they were very close to signing the deal. Analysts now only have to take the backseat and wait for an unexpected breakthrough. Gas will reach India, only the price and security issues need to be solved. Both can be dealt with as history has shown before.

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