Monday, July 19, 2010

U.S. Sanctions Cloud India-Iran Projects

Petroleum Secretary S. Sundareshan, pictured here in February, says Indian state-owned firms are weighing their options in the wake of new sanctions on Iran.


NEW DELHI -- India's petroleum secretary said the latest round of U.S. sanctions against Iran could complicate the activities of Indian state-controlled companies that are looking to invest in Iran's oil and gas sector.

The official, S. Sundareshan, said in an interview that Indian public-sector firms, including Oil and Natural Gas Corp., are exploring opportunities in Iran, a huge potential market as India hunts for energy resources abroad. India also recently renewed talks with Iran over a proposed $7.4 billion pipeline that would deliver natural gas to Pakistan and India.

"These are Indian public-sector companies who are negotiating these," Mr. Sundareshan said. "We've asked them to obtain appropriate legal advice."

The U.S. sanctions, signed by President Barack Obama earlier this month, are designed to penalize companies that invest in Iran's oil industry and export refined petroleum products to it. The moves are intended to ratchet up pressure on Iran to curb its nuclear program, which Tehran says is for peaceful energy purposes but Washington believes is aimed at producing highly enriched uranium for nuclear weapons.

A few days after the U.S. sanctions became law, Indian Foreign Secretary Nirupama Rao said India was concerned that "certain unilateral sanctions recently imposed by individual countries" might "have a direct and adverse impact on Indian companies and more importantly, on our energy security."

Mr. Sundareshan said India doesn't currently export gasoline to Iran – private oil and gas giant Reliance Industries Ltd. ended its shipments in May 2009 – so the sanctions won't have a big impact on oil refiners. But the restrictions on investments to develop Iran's oil sector might interfere with planned projects, so big state-owned oil firms are weighing their options, he said.

"You would appreciate that there are immense opportunities in the oil and gas sector in Iran," Mr. Sundareshan said. "There are unexplored frontiers in gas, which provide immense opportunities for the country. We would certainly like to utilize these opportunities without sanctions."

Under the U.S. sanctions, companies that invest more than $20 million in any project that "significantly contributes to the enhancement of Iran's ability to develop petroleum resources" would face penalties such as restrictions on credit from U.S. financial institutions. A U.S. embassy spokeswoman in New Delhi declined comment on the impact of the sanctions on India.

India already imports $11 billion of crude oil annually from Iran -- about 14% of its total crude-import bill. The sanctions won't disrupt those purchases. But ONGC and other Indian companies are now exploring how to develop oil resources jointly with Iranian firms. Iran is the world's fifth-largest crude exporter.

The U.S. sanctions came after a new round of U.N. sanctions against Iran last month that banned countries from selling Iran various military equipment or accepting Iranian investment in their nuclear industries. The U.N. sanctions blacklisted a shipping firm, Irano Hind Shipping Co., that Indian media reports said was involved in shipping crude oil from Iran to India.

Mr. Sundareshan, however, said he isn't aware of any major Indian oil refiners who are importing crude via that shipping company.

The project to build a 2,600 kilometer pipeline, which has been in the works since the mid 1990s, has been stuck amid disagreements over how Iran's gas would be priced. The three countries haven't discussed it together since July 2007. India has agreed to re-engage Iran on it, though not Pakistan yet.

"It's necessary for a bilateral discussion with Iran before any progress can be made," Mr. Sundareshan said. He said it isn't yet clear whether the new sanctions will impinge on the pipeline project.

The petroleum secretary also said the Indian government will save about $5 billion this year through its recent withdrawal of fuel subsidies for state-owned firms, which came in tandem with a deregulation of fuel prices. The resulting increase in gasoline prices of 3.50 rupees per liter sparked a nationwide protest by opposition parties.

Mr. Sundareshan said the government has an "emergency clause" in the new fuel policy that will allow it to intervene and lower prices again if international crude prices spike.

"If the price of oil goes up to abnormally high levels as it did in 2008, it isn't that the government is going to be a silent spectator," he said. But he added, "Having said this, the intention is that for the present there is absolutely deregulation of petrol prices."

Since June 25, state-run oil companies have been given the right to set their own prices. For the time being, they'll set uniform prices once per month, but over time they'll likely begin pricing their products differently, Mr. Sundareshan said.

He said the government likely won't consider full deregulation of diesel for a "few weeks or even a few months," because of the sensitive nature of the issue. "It's an extremely difficult move for the government. Diesel is seen as a fuel of the common people," he said.
—Krishna Pokharel contributed to this article.

Write to Amol Sharma at

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