India currently imports three million barrels of oil a day, however, because of the sanctions, India has reduced its oil imports from Iran over the past few years and moved to African oil; this event gives it a chance to strengthen its oil trade with Iran once again.
The intense negotiations between major powers and Iran are finally over, with a deal being reached between the two. What does this deal mean for India and its oil security?
It is likely to put pressure on oil prices further. Immediately after the announcement that a deal had been made, oil prices fell globally.
Brent crude oil was trading at $56.86, down by nearly 1.7% and oil prices on NYMEX fell 2%.
Reuters reported that stock prices of oil-related companies fell in European stock markets after the deal was announced.
According to estimates, Iran currently exports nearly 1.3 million barrels of oil per day as against over two million barrels, before the sanctions were put in place by the US, European Union and the United Nations.
Iran currently produces nearly 2.8 million barrels of oil a day, which is nearly half of its peak production in the 1970s.
With the sanctions being lifted gradually and Iranian oil coming into the market, oil prices are likely to be depressed further.
Oil prices have already fallen since July 2014, and reached a low of $45 a barrel before stabilising at over $60 a barrel. This has also brought down India's oil import bill by nearly 50%.
HDFC Securities, in a note dated July 14 said, "The deal, as and when it is signed, augurs well for India." It further said that an additional 5,00,000 barrels of oil could hit the market within a month of signing the deal, and another 10,00,000 barrels after six months.
Following the sanctions, heightened tensions between the US and Iran, and pressure from the US, India cut its oil imports from Iran to merely 6% of its total needs in 2013. Oil imports from Iran jumped four times last year when major powers and Iran had reached an interim nuclear deal, which set in motion the current final deal.
India's oil imports from Iran stood at 11 million tonne in 2013-14 as against over 13 million in 2012-13.
India currently imports three million barrels of oil a day, however, because of the sanctions, India has reduced its oil imports from Iran over the past few years and moved to African oil; this event gives it a chance to strengthen its oil trade with Iran once again.
According to Reuters, Nigeria came on top of India's oil import list in the month of May.
The Chabahar Port
India has also signed a contract with Iran to build Chabahar Port in Southeast Iran. The agreement was signed in 2003 but went into cold storage because of the sanctions.
In May this year, Transport Minister Nitin Gadkari said that the port will be operational by December 2016.
The work on the project is already underway, and a draft agreement is expected to be signed soon.
India is expected to lease two berths at the port for 10 years, which will be used to export oil to Kandla and JNPT ports in Gujarat and Mumbai, respectively.
Natural gas
It is also estimated that Iran has one of the largest natural gas reserves in the world.
India had plans of buying five million tonnes of natural gas per year as per the deal signed in 2005, between National Iranian Gas Export Company and India's GAIL, Indian Oil Ltd and BPCL.
India and Iran also had a deal about the Farzad-B field, but according to certain reports, Iran had cancelled the deal.
ONGC Videsh, together with Oil India and Indian Oil Corporation Ltd, have already invested over $100 million in the field, and discovered oil way back in 2008. According to estimates, the field holds 13 trillion cubic feet of reserves.
Iran wants India to increase its oil imports from Iran and resumption of investment in this block will be a key to negotiate a deal.
Indian refiners, who cut imports from Iran, will have to scale up their oil imports from Iran once again.
Payment in rupees
India's oil bill is nearly $150 billion, which puts immense pressure on the current account deficit and forex reserves.
Iran had agreed to accept all payments in Indian Rupees following the sanctions, but in October 2013 it went back on its word and resumed the old system of accepting only 45% of the bills in Indian currency.
Iran would not want to continue this deal, now with the sanctions being lifted -- and the country coming on the map of global banking, thereby making it easier for it to accept and spend money on goods and services.
However, if India manages to convince Iran to continue with the current deal, then with increasing imports from Iran coupled with more payments in Indian Rupees, India's forex reserves will get a positive boost.
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