by R. Sasankan

A country’s political history can turn on a set of unrelated and almost inconsequential events. For India, that moment came in the mid-eighties when the events surrounding the award of the Hazira-Bijaipur-Jagadishpur (HBJ) gas pipeline triggered momentous political developments.

The contract for this 1400 km-long, Rs 14 billion pipeline was awarded in the 1980s when Rajiv Gandhi was the Prime Minister and V.P. Singh the finance minister. The contract was decided at a remarkable speed of less than two days after the bids were opened. The tender evaluation exercise in the finance ministry, carried out in extreme secrecy, indicated that the consortium headed by Spie Capag of France was emerging as the frontrunner and Snam Progetti of Italy, which was represented in India by the controversial Ottavio Quattrochhi, was trailing. Rajiv Gandhi rang up V.P. Singh to learn that the decision had gone in favour of the Spie Capag-led consortium. “How and why”, he asked. “On the basis of the tender norms,” V.P. Singh replied. Why not change the tender norms was the next query. “Can’t be done at this stage,” Singh said. The rest as they say is history.

Readers may wonder how and from where I learnt about this conversation as both the leaders are dead. I am just reproducing the text from an interview I had with V.P. Singh after he resigned from the Rajiv Gandhi cabinet. The interview was published on the front page of Indian Express for which I worked at that time.

What this episode reveals is that even in a country like India, which is not reputed to maintain a very high level of transparency in such dealings, had deep respect for tender norms. Rajiv Gandhi could have ordered a re-tender but he did not. I acknowledge that kickbacks from contracts have been a major source funds for political parties in India but the checks and balances within the system ensured that manipulations are limited and tender norms are ultimately respected.

I recall this incident for the benefit of my friends in India’s oil PSUs who seem to be agitated over the reported move by the Iran authorities to deny them the contract to develop the Farzad B gas field which they discovered. They have reportedly threatened to slash crude imports from Iran drastically. If that happens, it would be an unprecedented retaliation by India. The Indian government has not officially commented on the development. The possibility of such tit-for-tat retaliation was communicated through an international wire agency. Iran must have got the message.

Iran is quite unlike India when it comes to awarding contracts. A course of action that is in the best interests of Iran isn’t decided by the political leadership alone. The ruling class, which comprises the bureaucracy and senior executives of state-owned oil and gas companies, has a big say in such decisions. The public is neither involved nor interested.

There is a wrong perception in India that Iran, which was a victim of debilitating sanctions by the US and Europe, will now increasingly turn to countries like India and China to boost future business relations. This springs from an insufficient understanding of the dynamics of Iran. The ruling elite of Iran has always been in love with the West, more particularly Europe; they are accustomed to the European way of life; their children study in schools and universities there and they are looked after by corporates that hope to do business with Iran. This is a more sophisticated form of kickback than the usually-known variety and its size cannot be quantified or detected. It is a continuous process. Let us not forget that the sanctions did not affect the Iranians who lived abroad. Post sanctions, the Iranian authorities will have to reward these companies. Indian PSUs do not figure in their scheme of things. Indian PSUs must learn to acknowledge this truth.

But from the point of view of Iran’s national interest, which is very different from the interests of the ruling elite, it needs India’s vast market for oil. Farzad B is a huge gas field with in-place reserves of 18.75 TCF. True, Indian PSUs did not discover it under a Production Sharing Contract and, therefore, it is not binding on Iran to assign the development job to them. But the Indian PSUs’ rightful claims to develop the field cannot be ignored either. The Indian government and the companies, both state-owned and private companies, helped Iran during the difficult days when sanctions crippled its economy. Post sanctions, Iran replaced Saudi Arabia as the largest crude supplier to India in FY 2016-17.

The threat by Indian refiners to slash crude import from Iran drastically at this stage when Iran is crawling back to some form of economic stability, if carried out, can tantamount to a form of surgical strike. This is perfectly in tune with the Narendra Modi style of governance. Could it have been inspired by the mercantile instincts of a Gujarati or is it a deliberate move to convey India’s new sense of assertiveness that has risen in sync with its growing economic clout? The message is clear: India needs Iran only if Iran needs India. This strategy is being pursued by the Modi government in its relations with all its neighbours. Just like the surgical strike against Pakistan, Modi pooh-poohed China’s threats by visiting Arunachal Pradesh’s border with that country.

On present reckoning, Iran cannot afford to ignore Indian PSUs’ threat. But India cannot underestimate the clout of Iran’s ruling elite either. Crude exports represent Iran’s Achilles heel. The oil market is in the doldrums. Iran will come under OPEC’s production restrictions after May. And with Donald Trump in the White House, Iran may soon to have to grapple with more unpredictable outcomes.