By RAJESH ROY, BIMAN MUKHERJI and SAURABH CHATURVEDI
NEW DELHI -- India and Iraq on Friday signed an energy-cooperation agreement spanning oil exploration and refining as well as work toward establishing a 10-year crude oil supply agreement from the Middle East nation.
Iraq is eager to boost oil supplies to India, one of the largest oil consumers, in the face of shrinking demand from the US, which has been getting more of its oil and gas from domestic shale deposits in recent years.
India also wants to increase imports from Iraq, its second-largest oil supplier after Saudi Arabia, as a replacement for dwindling shipments from traditional supplier Iran amid the West's sanctions on Tehran.
Indian Prime Minister Manmohan Singh said the energy-cooperation agreement "will provide a very strong framework to further diversify our cooperation in this sector and we look forward to concrete progress in the near future."
Neither side said how much additional oil India is likely to import under the long-term agreement. India's crude-oil imports from Iraq are currently estimated at about $20 billion annually.
Earlier in the day, Indian Trade Minister Anand Sharma said that the two countries would explore the possibility of a trade-payment mechanism in their local currencies as the nations seek more partnerships in various sectors.
Last year, India introduced a rupee trade-payment mechanism with another major oil exporter, Iran. However, the international sanctions have made it tough for shippers to secure insurance for carrying Iranian oil to India.
The trade talks with Iraq follow a dispute with Iran over its detention of an Indian oil tanker carrying crude oil from Iraq. Iran has denied any political motive and alleged that the Indian tanker was polluting, but the Indian side says the vessel was compliant with laws.
Indian oil companies, which so far haven't actively participated in Iraq, now appear more interested in tapping more oil from the country.
Iraqi Prime Minister Nouri al-Maliki said his country will seek partnerships with India in pharmaceuticals, chemical and agricultural sectors.
As part of the discussions, Iraq also offered state-run Indian companies exploration of three oil and gas blocks in Middle Furat Oil Field.
It also allowed three Indian oil companies -- ONGC Videsh Ltd., Mangalore Refineries & Petrochemicals Ltd. and Reliance Industries -- to bid for the Nasiriya oil and gas project.
An analyst said that India needs to strike a balance between Iran and Iraq for its energy needs.
Sanjay Kaul, president at University of Petroleum and Energy Studies, said for India's energy needs, Iran is a "current solution" while Iraq offers a future potential.
India would probably need time to arrive at a rupee payment mechanism with Iraq similar to Iran, which essentially works like a barter trade agreement.
Dow Jones Newswires