Growing Constraints in India-Iran Relations: India Removed From Farzad-B Project


India’s prospects to develop the Farzad-B gas field located in the Iranian offshore exploration block diminished further after recent reports suggested that Tehran has dropped its plan to involve New Delhi. Reports further indicate that Iran has decided to use domestic firms to develop the gas field citing New Delhi’s failure to respond to its multiple ultimatums. Several rounds of negotiations between India and Iran have stalled amid US sanctions on Iran and the recent developments reflect the growing constraints on India-Iran relations.

The Indian consortium led by Oil and Natural Gas Corporation Videsh Limited (OVL) discovered the Farzad-B gas field in 2008. In 2010, OVL submitted a revised plan for producing 60 percent of the 21.68tcf of gas reserves. However, the delays in starting the project remained a key point of divergence between India and Iran throughout the negotiations.

Recently, India’s Ministry of External Affairs disclosed that OVL has been removed from the Farzad-B gas field project. The project floundered primarily because of US sanctions on Iran. However, other lingering issues like Tehran’s changes in terms and conditions and price fluctuations, as well as delayed responses from New Delhi, added to the larger conundrum.

India remains the world’s fourth-largest LNG importer and has been trying to diversify its energy imports in recent years. India imports approximately 45 percent of the natural gas it consumes and it plans to increase the share of natural gas in its energy basket from 6.5 percent to 15 percent by 2030.  India’s geographic proximity with Iran is a strong consideration in India’s efforts to meet its energy requirements via the Iranians and remains a key strategic choice for New Delhi.

The decision in relation to the Farzad-B project surfaced after several news agencies a few months earlier had reported Iran dropping India from the Chabahar-Zahedan railway project. Some of the reports mentioned that India objected to the involvement of Khatam al-Anbiya, an IRGC-controlled Iranian engineering firm, in the project. The IRGC and its affiliates are subject to US sanctions, thus impeding the negotiation process between Tehran and New Delhi. The Indian government has reiterated that it remains involved in the project. However, Iran has moved ahead to build the Chabahar-Zahedan railway line on its own with approximately $400 million from the National Development Fund to finance the project.

The port of Chabahar plays a key role in India’s trade connectivity with Central Asia, Europe, and Afghanistan. In 2016, Indian Prime Minister Narendra Modi, Iranian President Hassan Rouhani, and Afghan President Ashraf Ghani signed the Chabahar agreement that included a trilateral agreement to establish an international transport corridor between India, Iran, and Afghanistan. The agreement  also included the Chabahar-Zahedan railway line to be built by Indian Railways Construction Ltd. (IRCON) for $1.6 billion.

The reinstatement of sanctions on Iran by the Trump administration in 2018 impacted India’s engagement with Iran particularly in relation to the energy partnership between the two countries as India’s oil imports from Iran plummeted drastically. The sanctions have also stalled transactions between India and Iran as New Delhi cannot complete the transactions in US dollars. The plan to revive the 2012 rupee-rial payment system now seems difficult although there have been talks to open a branch of the Iranian bank Pasargad in Mumbai.

Despite the waivers given by the United States to develop Chabahar port and the Chabahar-Zahedan railway line, US sanctions have made it difficult for multinational companies to participate. In the current context, however, it seems like New Delhi and Tehran have not completely ended the prospect of IRCON to participate in the project at a later stage, possibly after the US elections.

Some of the opposition leaders in India’s Parliament questioned the Indian government on the developments in Chabahar port and the government reiterated its official position stating that an “MoU was signed between Indian Railways’ IRCON and Iranian Railways’ CDTIC (Construction & Development of Transportation Infrastructures Company) for construction of the Chabahar-Zahedan Railway Project. The two sides remain engaged on this matter.” However, the Indian government did not respond to the recent developments or reports about Iran dropping India from the railway project.

The China-Iran 25 years Comprehensive Strategic Partnership worth $400 billion becomes a key development here amid increasing tensions between India and China. India is concerned about growing Chinese influence in the region, and the recent developments in the Farzad-B gas field and Chabahar-Zahedan railway project indicate Tehran’s growing dependency on China.  Beijing’s growing inroads into Iran could potentially undermine Indian projects in the long run. The partnership also came under criticism from former Iranian President Ahmadinejad when he described it as “a suspicious, secretive deal.” 

So far, India has not detailed any tangible plans to deal with US sanctions on Iran, and as a result its businesses engaging with Iran remain vulnerable to US sanctions. The larger strategic considerations for India prompt New Delhi to engage actively with Tehran although the current Indian government is facing other critical geopolitical challenges such as on the Kashmir and Chinese front for it to take any significant steps at this moment in time concerning its bilateral engagement with Iran.

Editorial Team