Iran's blow to India - Farzad-B Gas Deal is over

International Jun 03, 2021

In one of the recent advancements that has emerged between India and Iran, the former had to swallow an unpalatable decision as Iran has dumped India from the prolonged Farzad-B deal. National Iranian Oil Company (NIOC),has signed a contract with Petropars Group (local company) to develop gas at Farzad-B in Persian Gulf. This is a setback for India’s ongoing energy ties with Iran as ONGC Videsh Ltd (OVL) had discovered the gas field in 2008 & was expected to develop the project.

But,

What was this deal & its past history with Iran?

Let's try to understand it.

The chronology of events pertaining to this deal takes us back 2 decades in 2002 when India under the leadership of then PM Atal Bihari Vajpayee approached Iran's government and showed willingness to explore natural gas sources in the Persian Gulf (Farzad-B field). Iran also agreed to India's proposal.

A consortium of Indian firms signed a pact with the NIOC to develop the Farzad-B block of the Farsi field.Their efforts paid off and finally gas field was discovered in 2008 by the consortium, led by the India's ONGC Videsh Ltd (OVL) with a 40% stake, IOC and Oil India (there total investment was of USD 400 million). After the successful discovery of gas in the block, it was declared commercially viable by NIOC, in 2008, the firm submitted a Master Development Plan of the gas field to Iran.

Meanwhile, in the next decade  discussions were carried out on various occasions (2012, 2015, 2018) but nothing was finalized due to international sanctions. But Iran found a silver lining in it's deteriorating economic phase and considering the present situation when sanctions imposed on it might be waived off, it quickly showcased its true colors.

In 2020, NIOC informed OVL of its intention to conclude this contract with an Iranian company, which was clearly an apparent rejection of the Indian firm's bid. After this, it kept beating around the bush on OVL's investment proposal.

And finally, on May 17, the Iranian oil ministry's official news service Shana reported, "The deal worth USD 1.78 billion has been signed in between the NIOC & Petropars Group for the development of Farzad-B Gas Field in the Persian Gulf".

Thus, Iran hit the final nail in the coffin and stole the show in its favor by ending the controversy of this prolonged deal, and wiping out India's hope to explore this gas field. Further India also had to lose its huge investment of $ 400 million spent while exploring the gas field in Persian Gulf over initial years. It was OVL (Indian Company) which found that the field holds 23 trillion cubic feet of gas reserves, of which about 60% is economically viable & also holds gas condensates of about 5,000 barrels per billion cubic feet. This signed Iranian contract envisages production of 28 million cubic meters of gas on a daily basis for over five years.

Though, it was India and OVL's sincere efforts and investment which lead to discovery of this field but OVL won't reap much fruits of its efforts. This deal came despite India’s long-standing cooperation regarding the field.

After last year's failure of the Chabahar railway link deal, Farzad-B is the second instance of Iran playing petty politics with India. Now onwards, India needs to learn lessons from this & be more vigilant in its approach of signing deals & building bilateral relations.

This article has been written by Kartik Bajare for The Paradigm

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