US embassy cable - 05NEWDELHI1175

C O N F I D E N T I A L SECTION 01 OF 04 NEW DELHI 001175 
 
SIPDIS 
 
STATE PASS EPA, EXIM, OPIC 
USDOC FOR 4530/MAC/ANESA/OSA/DROCKER/STERN 
USDOC FOR 3131/USFCS/OIO/ANESA/RMARRO/CSHARKEY 
USDOC FOR 6000/TD/AC/BLOPP 
DOE FOR TOM CUTLER 
TREASURY FOR INTERNATIONAL-SOUTH ASIA/MACDONALD 
 
E.O. 12958: DECL: 02/14/2015 
TAGS: ENRG, EPET, ECON, ETTC, IR, IN, India_Iran 
SUBJECT: AIYAR DEFENDS IRAN-INDIA OIL AND GAS RELATIONSHIP 
 
REF: A. STATE 24948 
 
     B. NEW DELHI 300 
     C. 2004 NEW DELHI 7089 
     D. 2004 STATE 177574 
     E. 2004 NEW DELHI 4871 
     F. 2004 NEW DELHI 4590 
     G. 2004 NEW DELHI 1770 
     H. 2004 STATE 166919 
     I. 2004 STATE 108728 
 
Classified By: Ambassador David C. Mulford, Reasons 1.5 b,d 
 
1.  (C) Summary: In a February 11 meeting with the 
Ambassador, Indian Petroleum and Natural Gas Minister Mani 
Shankar Aiyar said that India's national security compelled 
it to look towards Iran for natural gas.  He pointed out 
that India is competing in Iran with many others, including 
some of the United States' close friends and allies.  By 
seeking oil and gas relationships with Iran, India is merely 
ensuring it would be well-positioned when the "Iran problem" 
is resolved, he added.  He also asserted that Indian 
investment in the Iranian oil and gas sector is some distance 
in the future, and perhaps the Iran will not be of as much 
concern by then.  Aiyar contended that a major "strategic" 
hurdle had been crossed with the Indian cabinet's decision on 
February 10 to authorize him to pursue energy deals with Iran 
and Pakistan.  Aiyar said he anticipates the negotiations to 
be neither quick nor easy.  He said he is fully supportive of 
the Economic Dialogue and would welcome results-oriented 
exchanges on energy issues.  Aiyar was very optimistic about 
India's hydrocarbon potential.  He was pleased with the 
response he received from American companies during his 
recent Houston visit.  Aiyar believes that entry of a major 
American company into India's upstream oil and gas sector 
will provide international credibility for India's 
hydrocarbon potential.  In contrast to his often provocative 
and sometimes anti-American pronouncements and writings, 
Aiyar was thoughtful, reasonable and insightful.  The 
Ambassador urges Energy Secretary Bodman to consider an early 
visit to India.  Such a visit would help support our 
transformed bilateral relationship with India.  It is also 
important we engage at high levels with a country that is 
likely to  play an important role in the global oil and gas 
markets in the future.  End Summary. 
 
India-Iran Cooperation 
---------------------- 
 
2.  (C) In a February 11 meeting with Indian Petroleum and 
Natural Gas Minister Mani Shankar Aiyar, the Ambassador 
raised USG concerns about Indian investments in the 
development of Iran's petroleum resources given Iran's 
nuclear activities and it support for terrorism.  The 
Ambassador said he recognized India's growing energy needs 
but was obliged to alert India to our concerns, which are 
based on US policy and US law. 
 
3.  (C) Aiyar responded that India's energy security and, by 
extension, its national security compelled it to look towards 
Iran for gas.  He described briefly the explosive growth in 
India gas demand.  Current Indian production of 90 million 
cubic meters per day (mcmd) is about ten times higher than in 
the 1980s.  Yet, it falls far short of demand, which is 
estimated at 150 mcmd and projected to increase to 400 mcmd 
in 20 years.  Given this shortfall and the absence of 
adequate alternative sources, according to Aiyar, India is 
forced to turn to Iran, the country with the second biggest 
gas reserves in the world.  New discoveries in India and new 
sources of gas -- Bangladesh, Myanmar, Indonesia, 
Turkmenistan -- may reduce Indian reliance on Iranian gas, 
but he sees no alternative to trying to source as much gas 
from Iran as possible. 
 
4.  (C) Secondly, Aiyar continued, India is only competing 
for oil and gas relationships in Iran with many others -- 
Japan, European countries, China -- some of whom are the 
United States' close friends and allies.  (Note: Aiyar 
clearly implied that the United States should first ask its 
friends to back out of the Iran oil and gas sector before 
pressing India to do so. End Note.)  Thirdly, according to 
Aiyar, India did not want to be in the position it found 
itself in with Libya.  It had refrained from seeking 
hydrocarbon relationships in Libya due to United States 
sanctions.  When sanctions were lifted, American companies 
quickly moved in, leaving India out in the cold, he said. 
The effect of United States policy to discourage other 
countries from Libya was to preserve the Libyan oil and gas 
sector for American oil and gas interests, he observed.  By 
seeking oil and gas relationships with Iran, India was merely 
ensuring it would be well positioned when the "Iran problem" 
is resolved, Aiyar explained. 
 
5.  (C) Lastly, Aiyar asserted, Indian investment in the 
Iranian oil and gas sector is some distance in the future, 
and perhaps Iran will not be of as much concern by then. 
Showing a clear preference for a multilateral solution, he 
noted that India was working with the United States within 
the IAEA to address international concerns about Iran's 
nuclear activities.  He claimed that India has made clear 
that Iran must adhere to its treaty obligations.  Aiyar 
closed the discussion on Iran by saying that India will keep 
an eye on evolving international efforts to resolve concerns 
about Iran, but he does not see India stepping back from 
relationships in the Iranian oil and gas sector at this time. 
 
 
Iran-Pakistan-India Pipeline 
---------------------------- 
 
6.  (C) Aiyar contended that a major "strategic" hurdle had 
been crossed with the Indian cabinet's decision to authorize 
him to pursue energy deals with Iran and Pakistan (as well as 
Burma and Bangladesh.)  He said this move will reassure the 
Pakistanis and Iranians who naturally wondered whether he had 
the backing of the Cabinet.  They will now recognize that "I 
am not a wild card," he noted. 
 
7.  (C) Aiyar will begin discussions with the Iranian Oil 
Minister the week of February 14 during the Asian Gas Buyers' 
conference in Delhi.  He fears that if India is not involved 
in any Iran pipeline discussions up-front, it will lose any 
influence on the pricing.  If the price differential between 
LNG and pipeline gas at the Indo-Pak border is narrow, then 
India will opt for LNG, he asserted.  Trying to dampen any 
expectations of an imminent agreement, Aiyar said he 
anticipates the negotiations to be neither quick nor easy as 
the Iranian are hard bargainers.  "The process is only 
beginning," he noted, and will be long drawn out. 
 
Economic Dialogue 
----------------- 
 
8.  (SBU) The Ambassador described the Economic Dialogue (ED) 
framework, in which the 5 tracks are retained because they 
serve a useful purpose, but the leadership of the ED is 
elevated so that key issues can be lifted to the White 
House/Prime Minister's Office level.  A new CEO's forum will 
be added to advise policy makers on what needs to be done to 
remove structural impediments to greater trade and investment 
ties.  The Ambassador felt that energy companies should be 
included in this forum. 
 
9.  (SBU) Aiyar responded that Indian Ambassador Ronen Sen 
had briefed him about the ED.  Aiyar said he is fully 
supportive of the ED.  Any restructuring of the ED is 
acceptable to him if it encourages greater energy-related 
ties between the two countries.  He would like 
results-oriented exchanges on energy issues.  His priority 
for such exchanges would be for American companies to study 
India's hydrocarbon potential and "advise us on how best to 
utilize it."  He also wants an institutionalized and 
continuing, not sporadic, intellectual exchange between 
Indian and American companies and institutes. 
 
Aiyar's Road Show 
----------------- 
 
10.  (SBU) Aiyar, who was in Houston last month to promote 
interest in India's fifth round of exploration and production 
leasing, said he was witnessed an enthusiastic response from 
American companies.  The companies he met with were pleased 
with the policy framework and the incentives in the National 
Exploration Licensing Policy.  He did not know whether this 
interest will manifest itself in greater bidding for the 
leases, although he sensed a changing perception about 
India's potential in the eyes of American companies.  Aiyar 
believes that unless a major American company enters India's 
upstream oil and gas sector, there will be no international 
credibility for India's hydrocarbon potential, which is 
completely open to foreign investment. 
 
11.  (SBU) Aiyar was particularly impressed with his visit to 
ExxonMobil's $2 billion research and development facility in 
Houston.  He lamented that Indian companies are not spending 
as much on R&D.  He pledged to strengthen institutional 
relationships with organizations such as the US Chamber's 
hydrocarbon committee, the Canadian Petroleum Institute, and 
the University of Alberta. 
 
12.  (SBU) Aiyar referred to his meeting in Houston January 
31 with DOE Director Robert Price and regretted he could not 
meet with Energy Secretary Bodman as he had not yet been 
confirmed.  The Ambassador expressed his hope that the Energy 
Secretary, who has a great interest in India, could visit 
 
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this year.  Aiyar said he would warmly welcome such a visit. 
He asked whether it was appropriate now, with the Energy 
Secretary sworn in, to write or call to congratulate him. 
 
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The Ambassador encouraged Aiyar to do so. 
 
Bay of Bengal: South Asia's North Sea? 
-------------------------------------- 
 
13.  (SBU) Aiyar spoke at length about India's hydrocarbon 
potential, noting that known oil and gas reserves in a belt 
from the Gulf to Indonesia suggest that the Bay of Bengal may 
have huge gas deposits.  The 2003 discovery by Reliance in 
the Krishna-Godavari basis and subsequent discoveries by 
Cairns and ONGC further strengthen the case.  Aiyar said he 
wants to change the perception of the international community 
and Indians of India as a hydrocarbon-poor country. 
 
14.  (SBU) The problem, according to Aiyar, is South Asia's 
geology.  Over 95 percent of India's potential deposits are 
in soil formations that are only 60 million years old while 
most of the world's oil and gas deposits are in formations 
that are 300 million years old.  Secondly, Indian deposits 
are covered by a vast volcanic layer.  Both these 
peculiarities pose challenges for exploration in India. 
Aiyar wants to encourage scientific discussion with American 
companies and institutions to help India better address these 
challenges. 
 
15.  (SBU) Aiyar said he has come up with two additional 
ideas for expanded US-India ties in the energy sector.  He 
expects much of India's oil and gas reserves will be found in 
deep water.  The United States, with its experience in deep 
sea exploration and production in the Gulf of Mexico, has 
great potential for providing technology transfer to India. 
Second, Aiyar noted a decline in oil and gas production in 
Texas, with West Texas Intermediate output down 60 percent in 
the last 10 years.  According to him, the exploration, 
drilling and production assets that are being made idle could 
be redeployed, in part, to India. 
 
Comment 
------- 
 
16.  (C) In contrast to his often provocative and sometimes 
anti-American pronouncements and writings, Aiyar was 
thoughtful, reasonable and insightful.  He stood his ground 
firmly on Iran, but did not use the opportunity to vent 
against our approach, something he may have been quick to do 
in earlier incarnations.  We were impressed with his candor 
and his forthrightness.  He took pains to wave his welcome to 
American energy companies.  He was also eager to open a 
dialogue and relationship with the Department of Energy, 
building on his well received interactions with DOE and U.S. 
industry in Houston last month. 
 
17.  (C) The Ambassador urges Energy Secretary Bodman to 
consider an early visit to India.  Besides being one of the 
world's fastest growing economies, India is also one of the 
fastest growing oil and gas consumers and importers.  It is 
important we engage at high levels with a country that may 
play an important role in global energy markets in the 
future.  A visit by Secretary Bodman would also help  support 
our transformed bilateral relationship with India.  Such a 
visit would establish relationships that may allow us to 
exert some influence on Indian oil and gas activities in 
countries such as Iran.  Finally, a visit by the Energy 
Secretary would help convey momentum and focus to an active 
 
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but sometimes drifting set of cooperative activities under 
the Energy track of the bilateral Economic Dialogue. 
MULFORD