The Uncertain Future of India-Pakistan-Iran Pipeline

Dost Mittar
Feb 2, 2006

The surprise removal of Mani Shankar Aiyar was perhaps the most significant aspect of Prime Minister ’s cabinet changes announced earlier this week. One does not have to be a Marxist to acknowledge that Aiyar was arguably the most competent and energetic Petroleum Minister has seen in a long time. His virtual demotion from the high-profiled Ministry to the Ministry of and Sports and replacement with one of the staunchest Pro-US businessman, Murli Deoria, portends major changes in the strategic direction is likely to follow in pursuit of meeting ’s future needs.

Imports of oil and natural gas account for a major chunk of ’s imports and are mainly responsible for her international deficit. Over the last 20 years, ’s domestic production of oil has stagnated while its consumption of petroleum products has almost trebled. imports 70% of her oil, which has had a significant impact on her balance-of-payments position. In the next ten years, even if the latest series of domestic oil exploration discoveries are fully exploited, will still struggle to keep its imports down at current levels. Domestic demand for petroleum products is increasing at 5% per year. Meanwhile, demand for natural gas, which stood at 0.6 trillion cubic feet (tcf) in 1995 had reached 0.9 tcf by 2002 and is expected to touch 1.2 tcf by 2010 and 1.6 tcf by 2015. Domestic sources of supply met over 90% of demand as late as 2003. However, despite the increased reserves discovered by recent exploration, the country will need to import up to one-third of its projected consumption needs by 2015. Moreover, volatilities in the international gas market threaten not only ’s balance-of-payments position, but also the underlying growth rate of its industrial and agricultural sectors -- where gas is a fast-rising substitute fuel and is used extensively to produce chemical fertilisers . Despite some encouraging new discoveries in Rajasthan and Krishna-Godavari basin on the east coast, this dependence is not likely to go down and will probably increase as Indian expands and the hunger of her middle class consumers for cars and other vehicles increases.

Aiyar had a two-pronged approach to meeting ’s imports. The first was for the ONGC’s international wing, Videsh Oil Nigam, to bid for oil fields in oil-producing countries. This , which had in fact been initiated during the earlier NDA regime, has so far met with only limited success. was late in the field and too small a player to compete with large MNCs for the established oil producing countries. So, its hunt was restricted to secondary oil producing countries and a reliance on using diplomacy as a vehicle to get a slice of the global oil pie. ONGC bid and won some contracts in countries such as Nigeria, Sudan, Iran, Russia, Libya, Angola and Vietnam and Venezuela. However, these fields were becoming more and more expensive and the ONGC generally found itself on the losing side of the bidding between itself and the much richer rival and less bureaucracy-shackled Chinese National Petroleum Corporation. Aiyar realised that this bidding was helping neither nor and made a bold proposal to the Chinese for joint-bidding of available oil and gas fields for mutual benefit. The Chinese recognised the mutual benefit in this proposal and Aiyar signed MOUs in Beijing earlier this year which are likely to be found useful by the new Minister.

Aiyar’s other approach was to enter into agreements with neighbouring countries, Burma, and to build pipelines to bring natural gas to . Aiyar saw these pipelines serving the dual purpose of securing ’s future needs as well as improving fractured with the neighbouring countries. His Burma pipeline proposal did not succeed as Burma chose over for selling its gas. But it was the tripartite agreement to bring Iranian gas to which was the centrepiece of Aiyar’s vision of a future where and ’s vital interests would be tied to this mega project. The Project always had its opponents in the Prime Minister’s Office and the Ministry of External Affairs. Their opposition was mainly centered on the unreliability of the supply of gas in the event of hostilities breaking between and . It was said, moreover, that could not guarantee the security of the pipeline even if it wanted to because it could not control the jihadis within its borders and because the pipeline would pass through the turbulent territory of the Balochistan province, notorious for frequent sabotages of gas pipelines. Under these circumstances, it was Aiyar’s single-minded efforts which kept the --Iran pipeline proposal afloat despite both domestic and external opposition.

The first sign that Aiyar was losing his battle in the Cabinet came during the July visit of to the U.S.A. While Aiyar was extolling the virtues of the civilisational links between Iran and and ’s unwillingness to compromise this relationship in the interests of the third parties, was voicing public concern in the US about Iran honouring its commitment with respect to its nuclear program. The signing of the US- protocol for civilian nuclear cooperation between the two countries signalled a clear desire on the part of the Indian Prime Minister to reduce ’s dependence on fossil fuels in favour of nuclear . ’s turnaround was complete when it voted against Iran in the IAEA and in favour of the US-Europe sponsored resolution to restrain Iran’s nuclear ambition, thus jeopardising her long-standing cordial relationship with that country. Aiyar still soldiered on keeping his usual optimistic stance on the Tripartite gas pipeline and maintaining that progress was being made on feasibility studies for the pipeline.

The clash of visions regarding ’s future sources between the Prime Minister and Mani Aiyar made Aiyar’s position in that Ministry untenable. The replacement of Aiyar with Deoria would suggest that has now more or less abandoned the tripartite pipeline project. A few days ago, the U.S Ambassador to , Mr. Mulford put his foot in the mouth with linking the passage of the Singh-Bush Accord on nuclear cooperation in the U.S Congress to ’s vote against Iran at the IAEA. The effect of Mulford’s statement was opposite to what he desired and both the right wing and the leftists combined in their opposition to voting according the US desire. For a while, it seemed that , which was inclined to vote against Iran at the IAEA, would now be forced to abstain because of the Mulford statement just to show her independence. It seems however that the decision of both Russia and to vote for sending the Iran issue to the U.N gives some room for manoeuvre to the Indians.

The decision to replace Aiyar also means that the US- nuclear accord is likely to go through despite substantial road-blocks. These road-blocks are both in the US and and relate to the number of Indian nuclear reactors to be placed under the IAEA monitoring. The US would like this opportunity to cap ’s nuclear program by including almost all its nuclear reactors under IAEA inspection, thereby removing them from being used for producing . , on the other hand, would like to get by with a few token reactors to be placed under nuclear inspections and retain most of them available for its ongoing program. In the final analysis, this is a classic bargaining situation which would result in an eventual compromise solution. ’s vast needs and several powerful multinational companies wanting to peddle their nuclear wares to would ensure that such a compromise is reached sooner or later.

It would be in ’s interests to continue with the pipeline proposal even if the US- nuclear accord is finally approved by the U.S Congress. But Iran is now likely to take a tougher stance on this proposal. It has already signalled its displeasure with by announcing its desire to renegotiate the price of the LNG deal signed last year. Moreover, the stridently Anti-US and Anti-Israel position of the new Iranian regime would make the U.S opposition to this project even more determined than before.

Interesting times are ahead for ’s nuclear and diplomacy.