The Joint Comprehensive Plan of Action, commonly known as the Iran deal, was signed on July 14, 2015 between Iran, the U.S., China, France, Russia, the U.K., Germany and the European Union. It was considered a landmark deal which would eventually bring peace and harmony to the turmoil-stricken Middle East. However, President Donald Trump recently decided to unilaterally pull the U.S. out of the Iran nuclear deal and to re-imposing nuclear sanctions against that country

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Recent Incidents:

• In a recent incident, four commercial vessels were sabotaged near Fujairah (an emirate of the UAE), one of the world’s largest bunkering hubs lying just outside the Strait of Hormuz.
• The incident has come at a time of heightened tensions in the Gulf.
• The US has deployed an aircraft carrier, bomber planes and defence missiles to the region amid rising tensions with Iran, which has threatened to block oil shipments through the Strait of Hormuz if the US succeeds in halting its energy exports

Implications for India:

• Oil and Gas:
  • The impact on world oil prices will be the immediately visible impact of the U.S. decision.
  • Iran is presently India’s third biggest supplier (after Iraq and Saudi Arabia), and any increase in prices will hit both inflation levels as well as the Indian rupee.
  • The negotiations on the Farzad-B gas field remain stuck, with both sides blaming the other for shifting the goalposts. It was remained on paper because of Iranian unhappiness over India’s stand in the IAEA.
• Chahbahar port:
  • India’s moves over the last few years to develop berths at the Shahid Beheshti port in Chahbahar was a key part of its plans to circumvent Pakistan’s blocks on trade with Afghanistan.
  • India has already committed about $85 million to Chabahar development with plans for a total of $500 million on the port, while a railway line to Afghanistan could cost as much as $1.6 billion.
• INSTC:
  • Beyond Chahbahar, India has been a founder of the International North South Transport Corridor (INSTC) since it was ratified in 2002.
  • It starts from Iran and aims to cut right across Central Asia to Russia over a 7,200-km multi-mode network, cutting down transportation and time taken by trade by about 30%.
  • New U.S. sanctions will affect these plans immediately, especially if any of the countries along the route or banking and insurance companies dealing with the INSTC plan also decide to adhere to U.S. restrictions on trade with Iran.
• Shanghai Cooperation Organisation:
  • India joined the SCO along with Pakistan last year, and both were formally admitted in June 2018, when Prime Minister travelled to the Chinese city of Qingdao for the SCO summit.
  • Chinese officials say they will consider inducting Iran into the 8-member Eurasian security organisation.
  • If the proposal is accepted by the SCO, which is led by China and Russia, India will become a member of a bloc that will be seen as anti-American, and will run counter to some of the government’s other initiatives like the Indo-Pacific quadrilateral with the U.S., Australia and Japan.
  • The move may also rile other adversaries of Iran, like Saudi Arabia, UAE and Israel, with whom the government has strengthened ties in an effort to balance its West Asia policy.
• Rules-based order:
  • India has long been a proponent of a “rules-based order” that depends on multilateral consensus and an adherence to commitments made by countries on the international stage.
  • By walking out of the JCPOA, the U.S. government has overturned the precept that such international agreements are made by “States” not just with prevailing governments or regimes.

Measures to enhance energy security for India:

• Policy measures:
  • Around three-quarters of our power comes from coal powered plants. It is important that India increases its domestic coal to reduce its dependence on imports. There is need to fast track the regulatory clearances, improve labour productivity, increase coal production and enhance efficiency of distribution.
  • Hydrocarbon Exploration and Licensing Policy (HELP) intends to minimize government’s discretion in decision making, reduce disputes, reduce administrative delays and introduce concept of revenue sharing, freedom of marketing to stimulate growth in the oil and gas sector in India.
  • The tax structure should be rationalized in import and sale of energy on thermal value basis with a view to enhance the competitiveness of the economy.
  • The INDIA ENERGY SECURITY SCENARIOS, 2047(IESS) has been developed as an energy scenario building tool. The guiding ambition of this is to develop energy pathways leading up to the year 2047, comprising of likely energy demand and supply scenarios.
  • NITI Aayog launched the India Energy Security Scenarios 2047 calculator (IESS 2047), as an open source web based tool.
• Energy diplomacy:
  • India is setting up a web of energy relationships in the extended neighbourhood covering Myanmar, Vietnam in the east, with Central Asian countries like Kazakhstan and Gulf countries in the west.
  • Indo-US Nuclear deal opened new vistas for India in field of Nuclear energy facilitating cutting edge technology and nuclear fuel. India has started to engage with China, Kazakhstan and Australia for nuclear fuel.
  • India’s SCO membership could now play a bigger role in ensuring greater energy cooperation between energy producers and consumers by linking Central Asia and South Asia.
• Promotion of Renewable Energy:
  • A renewable energy capacity of 100 GW should be achieved by 2019-20 so as to contribute to achievement of 175 GW target by 2022.
  • Solar Energy Corporation of India Limited (SECI) should develop storage solutions within next three years to help bring down prices through demand aggregation of both household and grid scale batteries.
  • A large programme should be launched to tap at least 50% of the bio-gas potential in the country by supporting technology and credit support through NABARD by 2020.
  • The potential non-conventional energy sources must be explored and researched to make them technologically economical and accessible, like geothermal energy, tidal energy etc.
• Enhancing efficiency:
  • The National Mission for Enhanced Energy Efficiency (NMEEE) should conduct a thorough cost-benefit analysis of the available energy-efficient technologies and products across all sectors, especially agriculture, housing and transportation.
  • At the institutional level, the national and state designated agencies working in the area of energy efficiency should be strengthened.
  • To enhance vehicle fuel efficiency gains, the auto fuel quality should be upgraded to BS VI norms for nation-wide launch in 2020.
• Infrastructure:
  • Augment refining and distribution of oil and gas. India should sustain its export capacity of refined products by setting up new refineries.
  • For the hydro projects, the government will need to make efforts to expedite progress on capacity under construction through satisfactory Rehabilitation & Resettlement implementation.
  • India has also built its strategic petroleum reserves in order to meet any supply shocks due to any external exigencies like wars, natural disasters etc.
  • Indian Strategic Petroleum Reserves Ltd, a special purpose vehicle under the Oil and Gas Ministry, has constructed three strategic petroleum reserves in huge underground rock caverns at Visakhapatnam on the East Coast, and at Mangaluru and Padur on the West Coast.
  • These facilities, with total capacity of 5.33 million tonnes, can meet about 10 days of India’s crude oil requirements. India now plans to build another 6.5 million tonnes of storage at Padur and Chandikhole in Odisha which will augment its supply to 22 days

Conclusion:

India and Iran are looking to swiftly conclude a preferential trade agreement and a bilateral investment treaty. India needs to ensure long term planning to ensure universal energy access and meeting its commitment under Paris Agreement to ensure sustainable and inclusive growth.