Iran’s economic and political isolation might end sooner than expected. A pact between Iran and the five major world powers has enabled the Islamic Republic to use nuclear energy for peaceful purposes. India has welcomed this agreement and is glad that business with Iran can now be carried out with much more ease and in a transparent manner. Western sanctions imposed upon Iran had a disastrous effect on the country’s economy. Iran is home to vast oil and gas reserves, which when put to use can make Iran a major petrochemical hub. But the sanctions imposed by the western nations had restricted hydrocarbon exports, crippled operations at refineries and affected production and export of petrochemicals. Without access to technology, financial support, technical know-how and markets, Iran had to shelve plans to increase petrochemical output. Iran’s economy was on the verge of collapse.
India continued to maintain social, political and economic ties with Iran, despite the hurdles created by the sanctions. India used to import large quantities of crude oil from Iran but the sanctions forced our nation to cut down imports to much lower levels. But recent developments can lead to a more broad-based and a more balanced trade between the two countries. India heaved a sigh of relief when the new agreement was signed, especially because of the positive impacts it could have on our economy.
Iran’s entry into the world economic order meant that the Iran-India gas pipeline project could become a reality. But the difficulties with the project persist primarily due to the strained relations between India and Pakistan. The two neighbours will have to reach an understanding in order for the project to be completed. India requires large quantities of gas for local production and this demand can be met through LNG imports from Africa, Australia and the Middle East. However, pipeline supplies from Iran can compete with any of these supplies but chances are that the project may never see the light of day.
The possible end of Iran’s economic isolation will definitely moderate oil prices. If Iran manages to expand production within 2-3 years oil prices will plummet, benefitting countries that rely on imports, including India.
Despite access to large gas and oil reserves the Iranian petrochemical industry has failed to make its mark. Petrochemical production and exports had been badly affected by the sanctions and efforts to expand capacity were futile. The lifting of sanctions will bring about radical changes in the way the petrochemical industry of Iran functions. While the return to normalcy might be slow, government efforts can help Iran emerge as a major petrochemical hub by the end of the decade.
India exports sizeable quantities of chemicals from Iran, including basic chemicals (methanol, isobutanol, vinyl acetate, ethanolamines), polymers (PVC, PE, SBR, PBR, ABS), aromatics (mixed xylenes, toluene), LPG (propane, butane), fertilizers and raw materials (ammonia, urea, sulphur, ammonium nitrate). The sanctions had forced India to reduce the volume of imports. However, Iran can now increase the amount of imports without any hassles. The coming few years are likely to witness a rise in demand for basic chemicals in India. India’s imports of urea and ammonia are also expected to increase as domestic production based on costly gas may make imports seem like a cheaper alternative.
India can also invest in downstream chemical business in Iran, which includes technical agrochemicals, pharmaceutical ingredients and specialty chemicals. Thus, a revitalized Iran will do wonders for the Indian economy.
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