Iran pulls out of gas deal with subcontinent

Iran has backed out of a deal to supply Pakistan and India with natural gas, Pakistani media reported on Thursday. Iran was seeking new negotiations over gas prices before commencing construction of the US$7.6 billion (Dh27.9bn) Iran-Pakistan-India (IPI) pipeline, the PakTribune website reported, citing an unnamed senior Pakistani official. The news of an Iranian walkout was not unexpected, given India's opposition to the cost of the deal, according to Samuel Ciszuk, an Iran expert at Global Insight.

"If the Iranians have actually walked out, it's not quite surprising," he said. "As long as India has been reluctant to commit to it, the future of the project has really been under a death sentence." The two countries remain far apart in negotiations over price, he said, and India has shied away from Iran after signing a civilian nuclear deal and improving relations with the US this year. "We're not talking about a few cents here, we're talking about a 30, 40, 50 per cent price divergence," Mr Ciszuk said, estimating that Iran was demanding a price of just over $8 per million British thermal units (btu) and India was hoping to pay about $4 per million btu.

With opportunities to export gas to the UAE, Kuwait and Europe via Turkey looking increasingly grim, Iran was "panicking a bit" about the IPI deal, he said, and may be bluffing to get India's attention. India is also concerned about Iran's capability to deliver on its promises, given the fact that it will almost certainly fail to deliver the 5 million tonnes of liquefied natural gas (LNG) it pledged to deliver to India by next year. The deal has been riven by disputes over prices and Iran's seeming inability to get LNG production off the ground.

Earlier this month, Murli Deora, the Indian petroleum minister, approached Qatar with a request to increase LNG purchases from the gas-rich Gulf state by 5 million tonnes per year. "India is preferring to look in all other directions right now," Mr Ciszuk said. "They feel if there's a definition of unreliable energy partner, then Iran is that one." Pakistan has been an enthusiastic supporter of a deal between India and Iran, as it would allow the country to reap tens of millions of dollars in transit fees. Without India, however, construction of a 900km leg of the pipeline makes little financial sense, since Pakistan offers a much smaller market for the gas.