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MAY 04 2017

Iran delay in oilfield contract leads to cracks in Tehran-Delhi ties

  • Economic Times, ET Bureau / Hyderabad
  • Created: Thu 04th MAY 2017

A war of attrition appears to be on between India and Iran over Tehran's delay in awarding contract for a major gas field. A move by Indian state-run refiners to reduce Iranian oil imports has prompted Iran to retaliate by reducing the credit period by a third and raising ocean freight.

India had stood by Iran through the sanctions over Tehran's nuclear pro gramme and continued to buy its crude after securing a US waiver, citing its rising appetite for oil. That relationship appears to have developed cracks over Tehran dragging its feet for nearly a decade in awarding the contract for Farzad-B gas field discovered by an Indian consortium led by ONGC Videsh.

Miffed with the delay , Indian state-run refiners were told to reduce oil imports from Iran. Two of the biggest public sector buyers of Iranian crude -IndianOil and MRPL, the refining arm of explorer ONGC -have decided to cut imports to four million tonnes in 2017-18 from five million tonnes earlier.Bharat Petroleum and Hindustan Petroleum will pare their Iranian imports by half a million tonne each to 1.5 million tonnes this fiscal.

Iran has hit back by reducing the payment window from 90 days to 60 days. Simultaneously , National Iranian Oil Company has also cut the discount on ocean freight it offered to Indian buyers from 80% to nearly 60%. The long credit period and the huge discount made Iranian crude extremely profitable for Indian refiners.

The loss of these benefits are bound to affect the margins of Indian refineries. India's retaliation is also being helped by availability of cheaper crude from elsewhere in the changed situation in the global oil market, which is still grappling with surplus. Reducing Iranian crude imports would have been difficult in earlier days as the same grade of crude would have been costlier due to more hard-nosed marketdriven terms.

What got New Delhi's goat this time is that after the sanctions were lifted, Tehran has started playing hardball over Farzad-B and has failed to move on the deal in spite of high-level intervention from the Indian establishment, including oil minister Dharmendra Pradhan.

After Pradhan's visit to Tehran, the two sides set a target of concluding the deal by November 2016 but later mutually agreed to extend the deadline to February 2017.Iran has refused to move even after ONGC Videsh revised its development plan for the field to $4 billion and excluded facilities for turning gas into liquid for shipping to India and elsewhere. Now the deal is being targeted to be wrapped up by September after the two sides agree on a price and a rate of return for OVL's investments.

Last month, Iranian news agency Irna quoted the country's oil minister Bijan Zangeneh as dismissing the Indian threat of cutting imports.



Delhi Mangalore Refinery And Petrochemicals Limited Gas Oil ONGC Gas Field ONGC Videsh United States Petroleum Iran India ongc

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