Iran sets one-month deadline for Indian oil companies to sign contract

NEW DELHI,Febrauary7,2012: In a strategic move to force India's hands, Iran has set a month's deadline for a consortium of Indian state-run oil companies to sign the contract for bringing to production a gas field discovered in the Persian Gulf in 2006. The consortium of ONGC Videsh, the overseas investment arm of ONGC, northeast explorer Oil India Ltd and refiner-marketer IndianOil Corporation had in 2010 told Teheran it planned to develop the Farsi offshore block by pumping $5 billion over seven-eight years. But it did not sign a contract for fear of being blacklisted by the US under the 1996 Iran-Libya Sanctions Act of the US that barred any entity to pump more than 20 million in any 12-month period. US blacklisting would have made difficult for the Indian oil companies in the consortium to source funds, technology and other oilfield services. The latest round of embargo against Iran by the US and the EU has added to India's problems, making it difficult to buy Iranian crude - accounting for 12% of total imports - and pay for it. Now, India is routing oil payments through a Turkish bank, at best seen as a temporary measure. The latest deadline on the gas field puts India in a Catch-22 situation. If it signs on the dotted lines, it could upset the Western powers who can make things difficult for the Indian firms. If New Delhi refuses to sign on the dotted lines, it may lose a field with estimated reserves of 21 tcf (trillion cubic feet), or twice the size of India's biggest gas field. This is considered a costly proposition for an energy-deficit economy whose hunger for fuel is growing at a robust rate since oil and gas fields are not easy to come by, and China is always breathing down India's neck in so far as acquisition of global oil assets are concerned. Finance minister Pranab Mukherjee made it clear last week during his two-day visit to the US that India would not cut Iranian oil imports. While there is still an outer chance that the West may take a lenient view on oil imports, it may not be the same in case of the gas field contract. Perhaps, the best option available for India is to seek more time and keep Iran engaged in discussion simultaneously. But whether Teheran will play ball this time is anybody's guess. Indeed, Iran had threatened to scrap the block's award earlier too, but did not carry out the threat.