New Delhi, In a big setback for India's ambitions to build its energy security by acquiring oil and gas blocks abroad, Iran is set to deny ONGC Videsh Ltd (OVL) exploration and production rights for the prestigious Farzad B gas field.

Highly placed sources in the oil ministry said that Iran may not offer the Indian company to develop the gas field but so far it has not officially communicated its decision.

Farzad-B, which was discovered by OVL in the Farsi block about 10 years ago, had in-place gas reserves of 21.7 trillion cubic feet, of which 12.5 Tcf is believed to be recoverable. If India gets a share of this gas, it could reduce its dependence on expensive LNG.

Iran has been dilly dallying over the grant of the development right of Farzad B for a few years now. Things have come to a standstill since the US sanctions in 2018 on Iran with India also moving slowly in the matter.

Sources said that changes in the geo political scenario in the COVID-19 world, which suggests that Iran is coming closer to China while the proximity of India is growing towards the US, may further spoil the deal. In fact, information coming out from Iran now suggests that the country may offer it to a local entity rather than OVL. Media reports earlier suggested that Tehran would award it to Russia's Gazprom.

This would be a double blow for Indian investment in Iran as reports suggest that an Indian company may not be allowed to develop a rail line that was part of the Chabahar port second phase project. India has done the first phase work at the port.

"There are two issues to Farzad B project. Iran may not be giving development tights to OVL but an Indian consortium continues to have part ownership of the block and would get its share of profit whosoever develops the project," the source quoted earlier said.

The OVL-led consortium, which also includes Oil India Ltd and Indian Oil Corp (IOC), have invested close to $100 million in the project.

Farzad-B was discovered by OVL in the Farsi block about 10 years ago. India and Iran were initially targeting concluding a deal on Farzad-B field development by November 2016 but later mutually agreed to push the timeline to February 2017. The deadline to wrap up negotiations was later targeted for September 2017. But the deal was stuck over the pricing of the gas. Sanctions delayed the process thereafter and despite visits of ministers from both sides no agreement could be reached. OVL pushed for the deal with a sweetened offer that included investment of close to $11 billion. But that also did not break the ice and the project remains in limbo.