The Uncertain Future of India-Pakistan-Iran Pipeline

The surprise removal of Mani Shankar Aiyar was perhaps the most significant aspect of Prime Minister Manmohan Singh’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 India has seen in a long time. His virtual demotion from the high-profiled Ministry to the Ministry of Youth and Sports and replacement with one of the staunchest Pro-US businessman, Murli Deoria, portends major changes in the strategic direction India is likely to follow in pursuit of meeting India’s future energy needs.

Imports of oil and natural gas account for a major chunk of India’s imports and are mainly responsible for her international trade deficit. Over the last 20 years, India’s domestic production of oil has stagnated while its consumption of petroleum products has almost trebled. India 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, India 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 India’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 economy expands and the hunger of her middle class consumers for cars and other vehicles increases.

Aiyar had a two-pronged approach to meeting India’s energy imports. The first was for the ONGC’s international wing, Videsh Oil Nigam, to bid for oil fields in oil-producing countries. This policy, which had in fact been initiated during the earlier NDA regime, has so far met with only limited success. India 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 war between itself and the much richer rival and less bureaucracy-shackled Chinese National Petroleum Corporation. Aiyar realised that this bidding war was helping neither India nor China 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, Bangladesh and Pakistan to build pipelines to bring natural gas to India. Aiyar saw these pipelines serving the dual purpose of securing India’s future energy needs as well as improving fractured relationships with the neighbouring countries. His Burma pipeline proposal did not succeed as Burma chose China over India for selling its gas. But it was the tripartite agreement to bring Iranian gas to India which was the centrepiece of Aiyar’s vision of a future where India and Pakistan’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 India and Pakistan. It was said, moreover, that Pakistan 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 India-Pakistan-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 Manmohan Singh to the U.S.A. While Aiyar was extolling the virtues of the civilisational links between Iran and India and India’s unwillingness to compromise this relationship in the interests of the third parties, Manmohan Singh was voicing public concern in the US about Iran honouring its commitment with respect to its nuclear program. The signing of the US-India protocol for civilian nuclear cooperation between the two countries signalled a clear desire on the part of the Indian Prime Minister to reduce India’s dependence on fossil fuels in favour of nuclear energy. India’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 India’s future energy 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 India has now more or less abandoned the tripartite pipeline project. A few days ago, the U.S Ambassador to India, 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 India’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 India voting according the US desire. For a while, it seemed that India, 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 China 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-India nuclear accord is likely to go through despite substantial road-blocks. These road-blocks are both in the US and India and relate to the number of Indian nuclear reactors to be placed under the IAEA monitoring. The US would like this opportunity to cap India’s nuclear program by including almost all its nuclear reactors under IAEA inspection, thereby removing them from being used for producing nuclear weapons. India, 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 nuclear weapons program. In the final analysis, this is a classic bargaining situation which would result in an eventual compromise solution. India’s vast energy needs and several powerful multinational companies wanting to peddle their nuclear wares to India would ensure that such a compromise is reached sooner or later.

It would be in India’s interests to continue with the pipeline proposal even if the US-India 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 India 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 India’s nuclear and energy diplomacy.