Fear of US Sanctions Precludes India from Partaking in Russian Gas through Iran
• Dr. Vijay Sakhuja
India’s quest for overseas investments in energy resources continues. The latest initiative is in the Caspian Sea wherein the ONGC Videsh Ltd (OVL), the overseas investment arm of the Oil and Natural Gas Corporation (ONGC), a state-owned enterprise, has signed a “definitive sale purchase agreement (SPA) for directly acquiring 0.615 per cent participating interest (PI) in offshore Azeri Chirag Gunashli (ACG) oil field in Azerbaijan from the Norwegian company Equinor. The agreement also includes acquiring 0.737 per cent shares of the Baku Tbilisi Ceyhan (BTC) pipeline company through its wholly-owned subsidiary ONGC BTC Limited.”
The current investment adds to the earlier assets of the OVL in 2013 when it acquired a 2.31 percent stake in the ACG oil field and 2.36 percent in the BTC pipeline company. It merits mention that the OVL produces nearly 200,000 barrels of oil and oil-equivalent natural gas per day from 32 oil and gas projects in 15 countries across geographies.
The hydrocarbons potential of the Caspian Sea is high, and its littoral states—Azerbaijan, Russia, Kazakhstan, Turkmenistan, and Iran—have rich hydrocarbon deposits in their respective offshore areas. These countries are attracting investments in the energy sector, and in 2023, excluding Iran, they “collectively produced over 1.2 million barrels per day of oil and 50 billion cubic meters per year of gas from these fields.”
While the energy potential of the Caspian Sea is noteworthy, it is mired in geopolitics. Russia, the largest gas producer in the world, is under US sanctions (invasion of Ukraine in 2022) and is unable to supply to its customers, particularly in Europe, and therefore facing an oversupply of natural gas. Iran is constrained to produce hydrocarbons in the Caspian Sea due to “significant technical and financial hurdles for exploration and development.” The situation is further exacerbated due to US sanctions, which preclude foreign investment and technical expertise.
Russia and Iran recently signed a major agreement for the supply of gas; under an MoU, Gazprom of Russia will supply natural gas to the National Iranian Gas Company (NIGC) through a pipeline with a capacity of up to 300 MMcm/d (around 110 bcm/annum). This pipeline will be built under a thirty-year gas sales agreement. According to Dr. Mohammad Mokhber, the acting President of Iran, his country will “become a regional gas hub and a new chapter will be established in the region.”
The MoU will allow Iran to export gas to Iraq, Türkiye, and Pakistan at a higher price. However, Türkiye and Iraq are reported to be inconsistent customers: “Turkey is constantly altering the quantities that it imports and trying to push prices downwards, arguing that Russia offers lower rates,” and “Iraq imports only limited volumes of natural gas and is a late payer.”
Pakistan is hesitant to import gas from Iran due to the threat of US sanctions. In April 2024, the US Department of State explicitly warned that “anyone considering business deals with Iran should be aware of the potential risk of sanctions.” Despite Pakistan’s rejoinder that India was also trading with Russia and Iran, Pakistan has apparently stepped back. It is also worried about an Iranian warning that Tehran would wait until September 2024, before demanding an $18 billion penalty from Pakistan if the case goes to arbitration.
Islamabad faces a dilemma and has chosen to put on hold the construction of the Iran-Pakistan gas pipeline despite the fact that over 48% of its primary energy is in the form of natural gas. It maintains that US sanctions preclude work on the project.
The Gazprom-NIGC natural gas MoU should be seen through the strategic prism of Russia-Iran bilateral relations. Dr. Mohammad Mokhber boldly stated that the agreement would have a “serious message for the world, and the path of gas cooperation started between the two countries will lead to bigger agreements,” apparently referring to the fact that between Russia and Iran, they own more than 60% of global gas reserves. The Iranian Oil Minister Javad Oji is optimistic that the MoU would raise Iran’s share in international trade and “will act as a revolution in the energy and industry scene of the region.”
India’s energy needs are growing, and natural gas consumption in the country is expected to increase by more than 7% during 2024. The natural gas reserves in the Caspian Sea can potentially contribute to satisfying the growing demand. However, New Delhi does not appear inclined to confront the US over acquiring gas from Russia through Iran, given that the US has so far avoided announcing sweeping sanctions against India.
Dr. Vijay Sakhuja is Professor and Head, Center of Excellence for Geopolitics and International Studies (CEGIS), REVA University, Bengaluru.
