Oil shock and surprise


April 29, 1974: When Prime Minister Indira Gandhi called on the Shah of Iran at Niavaran Palace in Tehran. PHOTO/The Hindu Archives

How the Indira Gandhi government dealt with the oil price hike of 1973 by signing beneficial agreements with Iraq and Iran.

IN retaliation for Israel’s victory in the Yom Kippur Arab-Israeli War of 1973, the Arab countries of West Asia together set up a new international organisation, the Organisation of Petroleum Exporting Countries (OPEC). The first thing it did was to hike the price of crude oil from the then prevailing $18 a barrel to $40 a barrel.

At that time, India was importing about 50 per cent of its crude oil requirements from OPEC in hard currency and 50 per cent from the then Soviet Union on rupee payment terms. So, India was badly hit by OPEC’s sudden and steep increase in oil prices. How did it respond to this development? It responded in two ways—first by conserving oil consumption to the maximum extent and, secondly, by maximising exports to Arab member countries of the OPEC.

Prime Minister Indira Gandhi set up two inter-agency task forces, one under Mantosh Sondhi, Secretary, Heavy Industries, and the other under Lovraj Kumar, Secretary, Ministry of Petroleum. The mandate of both task forces was to maximise exports of projects, products, technology and skills to OPEC countries to pay for the oil India was importing from them. Thus, the Sondhi task force facilitated the setting up of a 110-km railway line in Iraq by the Indian Railway Construction Corporation (IRCON), on a turnkey basis and a major TV transmitter and TV studio complex in Baghdad by the public sector company Engineering Projects (India) Ltd (EPI) in collaboration with Mitsubishi Heavy Industries of Japan. The railway project was worth $300 million (all of which came to India), while the TV complex project was worth $100 million, of which 50 per cent came to India. Another major initiative was a series of new townships in Iraq. Five such projects executed by EPI were worth $800 million.

Meanwhile, the Lovraj Kumar task force planned and facilitated the setting up of two oil refineries, each with a capacity of four million tonnes of oil a year. The basic and detailed engineering for these refineries were undertaken by Engineers India Ltd (EIL), India’s premier design engineering and consultancy company. The plants and equipment were supplied entirely from India. The two projects were worth $1.2 billion. Meanwhile, President Saddam Hussein of Iraq asked Indiraji, whom he used to write to and whom he called “My dear Sister”, for senior pilots of the Indian Air Force (IAF) to train his pilots, as the mainstay of both air forces was the same military aircraft—the MiG-21, which both countries had imported from the then Soviet Union and which were already being manufactured in India. Thus, between 1974 and 1978, IAF pilots trained some 300 Iraqi pilots in both Iraq and India. Iraq paid India $100 million for this.

Projects in Iran

Many and major as our projects in Iraq were, we did not “put all our eggs in the Iraqi basket”. Apart from several projects in Kuwait, India undertook several major projects in Iran—again railway transportation systems and revamping and upgrading of existing petroleum refineries and construction of new refineries—all by EIL and Indian Oil Corporation (IOC), India’s largest oil refining company in the public sector. Through that programme the country earned around $1.5 billion.

After having set up a broad-based cooperation with Saddam’s Iraq, doing likewise with the Shah was next on India’s agenda. So, after the ground had been carefully and comprehensively prepared by Ram Sathe, India’s Ambassador to Iran, Indiraji visited Iran from April 28 to May 2, 1974, along with a large delegation. External Affairs Minister Sardar Swaran Singh and Minister for Petroleum and Natural Gas Dev Kanth Barooah were members of the delegation as the Iranians had evinced, through diplomatic channels, a keen interest in collaborating with India in advanced science and technology. I was also a member of the delegation.

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