The deal reached by the US and five other world powers with Iran on its nuclear programme is a welcome development for India. The primary reason is oil: Its import cost has hovered well above $100 a barrel even as those of other commodities — from gold and base metals to grains, vegetable oils and fertilisers — have declined significantly over the past year. While a weak rupee and the overall economic slowdown have led to India’s non-oil imports falling by 7.4 per cent in dollar terms during April-October, oil imports are up 3.3 per cent year-on-year. Oil prices have remained high more on account of geopolitical factors, especially the stand-off between the West and Iran. The progressive tightening of western sanctions on the Islamic republic has reduced its oil sales from 2.5 million barrels per day (bpd) in early 2012 to around one million bpd now.
Sunday’s accord does not end the sanctions; all it provides for is no further tightening of the screws. Iran will be allowed to sell oil, but only at the current one million bpd level that is 60 per cent below that in early 2012. In other words, the deal isn’t going to increase global crude supplies. The current easing of oil prices has basically to do with sentiment or expectation of a real easing of sanctions in the future. That, of course, is contingent upon how the West views Iran’s compliance with what it has committed for the next six months. These include limiting uranium enrichment to 5 per cent (enough just to fuel power reactors), converting the existing 20 per cent enriched uranium stockpile to a form that cannot be used for weapons, not installing any more centrifuges for enriching uranium, and permitting external inspectors unhindered access to nuclear sites. Whether Iran will agree to extend the ‘freeze’ in its nuclear programme beyond six months — leave alone a complete rollback — remains to be seen.
The right strategy for India is to be prepared for tensions to be ratcheted up afresh down the line, while asserting its right to import Iranian oil so long as there aren’t any explicit United Nations sanctions preventing such purchases. Simultaneously, efforts to diversify its sources of crude imports must continue. Between 2009-10 and 2012-13, India has cut its imports from Iran from 4,26,000 to 2,63,000 bpd. From being its second largest supplier after Saudi Arabia, Iran has been relegated to No. 6 spot with the likes of Iraq and Venezuela more than filling the vacuum. This has been possible thanks to the superior configuration of Indian refineries, which today have the capacity to process a variety of crudes, including high-sulphur ‘sour’ oil from origins such as Venezuela. While Iran’s re-entry into the global oil marketplace is good, it is better not to be too optimistic.