A growing Iraq-Iran economic rivalry in India bolsters stability

Little attention has been paid to a growing economic rivalry between Tehran and Baghdad in India, one that might have important implications for this region.

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Iran's growing influence in Iraq since the US invasion in 2003 has been cause for enormous concern for many in the Middle East and beyond. But a growing economic rivalry between Tehran and Baghdad has attracted little attention.

Nowhere is this rivalry clearer than in India, where Iraq is emerging as an economic partner instead of Iran. Iraq's economic relations with India might also have implications for stability in this region.

Last month, Indian external affairs minister, Salman Khurshid, became the first Indian official to visit Iraq in 23 years. He emphasised India's commitment "to participate in rebuilding the infrastructure in Iraq". He went on to suggest that New Delhi wants "to look beyond all sectors" and that the priority India is giving to Iraq "will become more intense and stronger" in coming years.

Though Iraq remains mired in sectarian violence, it has been keen to attract Indian investment. Iraq is keen to revive bilateral ties with India and is seeking to take the relationship beyond that of oil buyer and seller. The Iraqi foreign minister, Hoshyar Zebari, invited Indian companies to invest in Iraq saying, "there are many places in the country which are peaceful and stable" .

With the world's third largest proven oil reserves, Iraq has replaced Iran as India's second largest crude oil supplier after Saudi Arabia. Iraq intends to double its output of 3.15 million barrels a day of crude by 2020 and is planning to increase its oil exports to Asian economies from the present 50 per cent to around 80 per cent by 2030. During the last fiscal year (2012-13), Iraq accounted for about 13 per cent of India's total crude oil imports.

India's petroleum and natural gas minister, M Veerappa Moily, visited Iraq earlier this month for the India-Iraq Joint Commission - which is designed to boost economic relations between the two countries - as part of Iraq's vigorous efforts to reach out to India.

In a bid to cement its position as one of India's main oil suppliers, Iraq has offered India three newly-discovered oil blocks in the Middle Furat oilfields in Karbala and has agreed to consider investing in Indian Oil Corporation's 15 million tonne Paradip refinery. It has not only offered to extend 60-day credit for crude sales to India but has also agreed to restart negotiations with India's ONGC Videsh Ltd to finalise the long-pending contract for oil block 8, an on-land exploration block in the western desert in Iraq. Iraq has assured India it is willing to provide as much crude as it can to fulfil the requirements of the growing Indian economy.

After the war in 2003, New Delhi consistently ignored Baghdad and refused to seriously engage with the democratic process in the country. Even as Iraq needed external support to rebuild its war-ravaged economy, India remained reluctant for fear of getting entangled in Iraq's domestic sectarian turmoil. Though India shares strong cultural and historical ties with Iraq, and despite the fact that Indian businesses had a strong presence in the country in the 1990s, India's recent hands-off approach has made it a marginal player in the country.

But with the recent visit of the external affairs minister, India has signalled a new willingness to reach out to Baghdad. And the warm reception Mr Khurshid received indicates the Maliki government views India as a serious regional and global partner.

This partnership comes at a time when turmoils in Syria, Egypt, Turkey and Palestine need regional and global attention. New Delhi and Baghdad are both keen to see stability return to this strategically crucial region.

Meanwhile, India's ties with Iran are facing difficulties. Under pressure from the West, the Indian government was forced to ask its refiners to cut imports from Iran by 10 to 15 per cent, even as Iran has tried to sell extra volumes to those refiners on long-credit terms. India has also struggled to find ways to pay Iran after the United States made dollar transactions almost impossible under financial sanctions. Indian oil companies are finding it hard to get vessels to transport Iranian cargo because of western sanctions. And Shipping Corporation of India, India's largest domestic tanker owner, has refused to provide its tankers to the Indian Oil Corporation for lifting Iranian oil. As a consequence, Iran's contribution to Indian oil imports is declining.

Iraq has replaced Iran as the second largest crude oil supplier to India as the Indian government has unofficially asked its top importers to cut shipments from Iran -though the US has exempted India, along with eight other countries, from financial sanctions for significantly reducing their dependence on Iranian oil. During the years of 2012 and 2013, India's oil imports from Iran declined by more than 26 per cent. In contrast to 10.5 per cent last year, Iran supplies now account for 7.2 per cent of India's oil imports.

To salvage its economic profile in India, Iran responded last week by offering India's state-owned oil companies production-sharing contracts in a departure from its usual practice of offering Indian companies 15 per cent fixed returns under a buy-back contract with the national oil company of Iran. There have also been reports that Tehran has offered to ship gas to Oman where it can be processed into liquefied natural gas which can then be shipped to India.

It is not clear if this would be enough to make Iran an attractive energy partner for India at a time when Iraq is going all out to woo India. But what is clear is that this economic competition between Baghdad and Tehran will not stop in New Delhi but will be replicated elsewhere.

Dr Harsh V Pant is a reader in international studies at King's College London