Iran-Iraq war leaves India scrambling for oil and trade

With Arab oil producers promising to increase output to help the third-world countries hardest hit by the Iran-Iraq war, India is breathing more easily in its search for oil alternatives.

But the giant of the subcontinent, home to 1 out of every 7 people in the world, is also looking at the long-term economic implications of the drawn-out war between its two main oil suppliers and seeing plenty of trouble ahead.

Like many other developing countries, India has been stepping up its exports of goods, services, technical know-how, and people to earn the hard currency it needs to pay its spiraling bills for imported oil.

Unfortunately for India, two of its most promising export markets happen to be the two Middle Eastern antagonists now entering their sixth week of armed conflict.

Neither is anywhere near as critical to Indian export sales as they are to its oil supplies. (Between them they provided 70 percent of India's imported oil before the outbreak of fighting.)

But India had been cultivating both with long-term trade gains in mind. It responded enthusiastically, for example, to an Iranian trade mission that openly solicited Indian commerce last summer to help circumvent Western economic sanctions against Iran.

If found in Iraq a growing market for the kinds of exports it particularly favors -- sophisticated engineering goods and high-visibility contruction projects such as industrial complexes -- and in Iran, an outlet for its large pool of highly skilled technical and professional personnel.

Now, however, with hostilities continuing, India is feeling an economic pinch as a seller as well as a buyer.

For Indian overseas contractors, both public and private, the war means uncertainty and concern over the fate of $1.5 billion worth of construction projects in Iran and Iraq.

Whether the ongoing projects are damaged or not, most contracts will have to renegotiated, according to the engineering export promotion council.

Sitting on the bombay docks, or on board idle ships, is more than $15 million worth of cargo destined for Iran and Iraq. The stalled goods are part of an estimated $100 million in exports believed to be immediately affected by the war.

The departure of many Indian workers from the war-torn countries spells financial trouble in several ways. For the treasury, it means an end to their remittances in hard currency -- a major component of India's foreign-exchange earnings. For the workers' relatives in India, it means an end to valued monthly supplements to the family income. For workers suddenly back in India, such as the 4,000 who have left Iraq, it means a search for new jobs in competition with India's millions of unemployed.

Precise data are not available, but an analyst estimates that one-third of the $150 million a month overseas workers send back to India has come from IRan and Iraq.

Even before the war, India's purchases of crude oil and refined petroleum products were running to $6.25 billion a year and swallowing a gargantuan 70 percent of its foreign-exchange earnings.

Now, in a particularly mean economic twist, India's hard-currency earnings from exports to Iran and Iraq will decline just as the war between them is driving up oil prices.

India also had hoped to win concessions on oil purchases from the Organization of Petroleum Exporting Countries (OPEC) this year, and had enlisted Iran as an ally to press its case. Its hopes for special rates have faded, since OPEC now is considered unlikely to go ahead with previously scheduled fall meetings to discuss concessions to developing countries.

The outbreak of war last month left India with a shortfall of 3.5 million metric tons of undelivered Iranian and Iraqi oil for the fall quarter. India's oil minister said recently that spot market purchases and promises of extra oil from other supplier governments would reduce the gap to less than 2 million tons for the rest of the year.

Other Gulf countries reportedly will supply most of the extra oil. India asked the Soviet Union to add more oil to its existing sales contract, but reportedly was told it had none to spare.