The quid pro quo should be the resolution of the Kashmir imbroglio – India-Iran pipeline

By

Maj. Gen. SCN Jatar (Retd)

 

 

Introduction

Iran has been pressing India to purchase its gas for many years now.  Iran holds the second highest reserves of gas at about 800 trillion cubic feet, only next to Russia.  The most economical way to carry gas to India is by a pipeline, ether sub-sea or overland.  In both eventualities, it would be susceptible to sabotage, especially overland through Pakistan.  So far, both Iran and Pakistan have created a perception that India’s need for energy sufficiency is of prime importance.  They have downplayed the tremendous economic benefits that would accrue to both Iran and Pakistan.  India can play its cards skilfully and weave in crucial clauses in the tripartite agreement to ensure its security of supplies.  Alternatively, India could actively consider an alternative via Russia and China through Ladakh for an oil and gas pipeline.  This paper argues that India can negotiate from a position of strength and could tie up resolution of the J&K imbroglio while negotiating for gas with Iran and Pakistan.  

‘Conversations without commitments’

Indian minister for petroleum & natural gas, Mani Shankar Aiyar recently proposed ‘conversations without commitments’ for a pipeline through Pakistan.  This is a positive step forward towards meeting India’s energy needs.  Aiyar also recommends talks on similar lines with Bangladesh and Myanmar.  Aiyar’s view is, “it would be in our larger national interest to encourage this (gas) demand to grow to lower the appetite for crude”. 

Ramifications on India’s fuel policy

The minister’s proposal has larger ramifications than are immediately apparent.  While discussions should commence without commitments on either side, India should do its homework well to prepare for hard bargains that would ensue.  Accessing large volumes of gas would influence national fuel policy, which aims at ensuring adequate, secure and affordable fuel supplies to support economic and social development, and guarantee strategic and defence needs.  

The Indian economy is diesel-based; with our consumption of diesel, five times that of petrol.  There are some deep repercussions in a changeover from diesel to gas: conversion of engines to work on gas and laying national and regional pipeline grids would need large fund outlays in addition to the cost of importing gas.  Global experience suggests that only countries with abundant gas reserves or located contiguous to large gas reserves, and those with an elaborate domestic pipeline network have totally succeeded in changing over to gas.  

Gas reserves of Bangladesh and Myanmar

Bangladesh and Myanmar have limited gas reserves. These countries pose political and security concerns.  The gas reserves of Bangladesh are 10.6 trillion cubic feet (TCF) and of Myanmar 10 TCF.[1]  However, Bangladesh University of Engineering & Technology assesses the reserves at 24 TCF.  Compare the Bangladesh and Myanmar reserves with the massive 1855 TCF of the Middle East (including 812 TCF of Iran), 1700 of Russia and 277 TCF of Central Asian States and the answer to our mid and long-term energy security concerns becomes clearer.  There are political issues with Bangladesh, which could affect such an endeavour adversely.  Some of these issues concerning Bangladesh are serious: resurgence of fundamentalist Islam, state encouragement to anti-India militancy including setting up of Al Qaeda cells in the country, and illegal migration of Bangladeshis into India.  India has floated a public sector company called India International Gas Company with the Indian Oil Corporation, Gas Authority of India and Oil & Natural Gas Corporation as equity partners to progress gas purchase from Bangladesh and lay a pipeline, but with little success.  Considering the quantum of Bangladesh gas, it may offer a mid-term solution to our energy needs only if the pipeline is techno-economically viable and there is a developed market for it.  The pipeline from Myanmar would be longer and more insecure than from our own fields in Assam, Arunachal Pradesh and Tripura.  Myanmar gas, thus, may not satiate our needs. 

India’s own gas reserves in the Northeast

India has not yet fully exploited its gas resources in Assam, Arunachal and Tripura due to insurgency and lack of market.  Does it not sound rather illogical that we do not exploit our own gas resources adequately but look for imports? 

LPG deficit

India will continue to use LPG, as fuel for cooking but the government encourages it also as automobile fuel although it will continue to be deficit in both India and the Asia Pacific region.  Indian plans to import natural gas, as LNG from countries, such as Qatar and Iran and piped natural gas from Bangladesh and Myanmar may not bridge the LPG shortfall because the import would be of lean gas, from which stripping of LPG is not possible. 

Pakistan may hold the key to India’s energy security

If, as Mani Shankar Aiyar says “the answer would be to access gas wherever possible”, we should realise that Pakistan would hold the key to our energy security, nay to the entire Indian economy if our economy changes over to gas because our long-term requirements of gas would be from Iran through Pakistan.  On land, we could pinpoint a disruption to the pipeline on Iranian or Pakistan territory but offshore, hostile elements could still do it and disclaim total responsibility.  Pakistan is today so helpless that it cannot protect its own gas grid adequately with reports surfacing periodically of pipeline blasts in and around Sui gas field.  There are reports of terrorist attacks in Sui because of growing discontentment in Balochistan.  The terrorists fired 50 rockets on June 6, 2004 at a gas well and a check post in the Sui area wounding 12 persons.  There were attacks on June 10 and June 20 on Sui gas pipelines.  Currently the Sui gas distribution network is almost throughout Pakistan.

Energy sufficiency and economic have dominated our concerns

So far, India appears to have considered only energy sufficiency and economics when allowing for talks for Iranian gas.  Our two main conditions so far have been that Iran should give us crude oil producing fields in return and that Pakistan should grant us the most-favoured nation status.  Iranians are hard negotiators and have that typical outlook of an oil-exporting nation of not used to giving away easily.  It is not just wrangling over the pricing of LNG that seems to have stalled the Indo-Iran talks on import of 5 million tonnes per anum of LNG.  The negotiations between the two sides have not made much headway over the Iranian offer of a 20% share on a nomination basis in the giant Kusk-Husseineieh oil field in Iran.  This offer is a quid pro quo against the import of LNG.  The crude oil involved is equivalent to 60,000 barrels per day or 3 million tonnes per anum at peak production, which is not very large.[2]   

Geopolitical and defence considerations are important

There are geo-political and defence considerations also that are critical.  The smouldering Kashmir problem could affect the security of the pipeline itself in case of worsening Indo-Pak relations.  In such eventualities, underwriting or insuring the pipeline is no solace.  Iranian stance is also not predictable considering that in both 1965 and 1971; it sided with Pakistan.  Only if it were in Iran's overriding national interest - either economic or political - to adopt a different stance on a future problem between India & Pakistan, Iran could conceivably side with India.  India, therefore, should create an overriding Iranian interest in the proposed project.  Incidentally, that was precisely what Indira Gandhi and Foreign Minister Swaran Singh did with the Shah of Iran after the 1971 war through a durable long-term arrangement to buy crude oil from Iran as well as supply Kudremukh iron ore for Iran's steel plant at Ahwaz. 

Commonality of interests

What about Pakistan, though?  India has to think of other commonalities of interest to ensure a lasting peace arrangement with Pakistan.  Transiting gas through Pak territory is one such interest because it would immensely benefit Pakistan’s economy due to large transit fees that it would earn.  We could also insist with Iran that Pakistan should purchase the gas en route for its own use and not be just a carrier.  We should be firm on an in-built clause in the tripartite India-Iran-Pakistan agreement that in case of a breach in the pipeline to India on Pakistani soil, Iran would stop the gas flow to Pakistan too. 

An alternative route to access Iranian and Russian hydrocarbons

India does have an alternative to the Iran-India pipeline.  A Eurasian oil and gas pipeline via China to India may not be economically viable but is strategically more secure than a pipeline through Pakistan.  Import of oil and gas from Iran, Central Asia and Russia to India is possible overland via the Xingjian province of China and through Tibet to Ladakh.  

Strategic considerations more critical than economic

It is not always that ventures for the security of a nation have to be commercially viable.  Japan, with no petroleum resources of her own is the world's second-largest oil consumer, is eagerly supporting the construction of a 2,500-mile $5 billion oil pipeline that would bypass China, bringing Siberian oil to the Sea of Japan.[3]  There is more of energy security than economics in this venture.  China has gone from energy independence to a net importer of crude oil.  That is why it is moving to ensure its long-term security by building pipelines into Russia, Kazakhstan and Turkmenistan.  The Kazakh deals involve the construction of a massive pipeline to China.  The pipelines are from the Kazakh gas fields, which has gas reserves of 65 trillion cubic feet as per estimate from Oil & Gas Journal as of January 2001).[4]  China is further constructing a 2600-mile long gas pipeline connecting Tarim Basin of Xingjian to Shanghai at a cost of $18 billion.[5]   China hopes to become a land bridge for future oil deliveries to Japan and South Korea, giving Beijing important advantage in its strategic goal to replace the United States as the major power in the Eastern Asian basin.  China and Japan worry more about energy security than economics.  

Strategic importance of crude oil

It is well to remember that strategically, gas can never replace crude oil, which is an easily transportable fluid and unproblematic to store.  It is also less prone to sabotage than gas, especially during transportation and storage.  Diversified import sources and rejecting over-dependence on a single geographical source of supply and on any solitary commodity would ensure security of supplies.  In our quest to achieve security of hydrocarbon supplies, it not as if India does not hold any trump cards at all, as we have discussed in this paper.  In fact, the odds are more in India’s favour because both Iran and Pakistan are desperate that India buys the gas from Iran because of the tremendous economic benefits. 

Quid pro quo to convert LoC into an international border

If India steers the negotiations skilfully, Pakistan will agree to convert the line of control into an international border as a quid pro quo for a land pipeline over Pakistan.  Iran could persuade Pakistan in this regard. 

Conclusion

While ‘conversations without commitments’ is an excellent idea to meet our concerns of energy sufficiency, it is necessary that our ultimate goals are clearly defined politically so that the negotiators are clear of the direction that the negotiations should take.  At no stage should Iran or Pakistan get an incorrect idea that India is negotiating from a position of weakness and that the entire process is solely to meet Indian requirements.  Not only that the pipeline would benefit Iran and Pakistan economically, India too has an alternative in terms of a pipeline through Russia and China to Ladakh.  It is best to remember that removing Kashmir from bilateral contentious issues would go a long way in making the Indian sub-continent a zone of peace.  Converting the LoC to an international border in J&K is likely to be acceptable to all the countries and even the US, Russia and China may acquiesce. 



[1] Oil & Gas Journal, USA

[2] Indianpetro.com, July 20, 2004

[3] Brooke, James, Koizumi Visits Energy-Rich Russian Region, Seeking Oil, January 12, 2003

[4] Woodrow, Thomas, “The Sino-Saudi Connection”, “China Brief”, Oct. 24, 02, from: http://china.jamestown.org/pubs/view/cwe/002/021_003.htm, Thomas Woodrow was a senior China analyst at the Defense Intelligence Agency.

[5] Goodman, Peter S., “A Pipeline to the Future, Clogged by China's Past? Politics, Economics Complicate Natural Gas Push”. Washington Post Foreign Service, Aug. 20, 02; Page E01