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The strategic tango in Washington

Iran has now only a marginal role in India-US relations

Written by Harsh V. Pant |
June 15, 2012 2:14:19 am

Iran has now only a marginal role in India-US relations

After making exemptions for the EU states and Japan in March,the US has now decided to exempt seven more countries,including India,from a law about to come into effect later this month that penalises foreign financial institutions for transactions with Iran’s central bank. This decision comes at a crucial time,as Washington and New Delhi have engaged in their third Strategic Dialogue this week and India’s ties with Iran have continued to bedevil Indo-US relations for quite some time now. Wary of any international support for Iran,the US has pressured India to curb its relations with Tehran and significantly cut levels of Iranian oil imports.

By now suggesting that countries like India have “significantly” reduced crude oil purchases from Iran,US Secretary of State Hillary Clinton was not only underscoring the success of the US strategy of sanctions to isolate Iran but was also sending a signal about Washington’s seriousness in pursuing a robust partnership with Delhi.

Western efforts to undermine Iranian financial institutions have complicated payments for Iranian resources. An executive order issued by the White House in November 2011 authorises the Secretary of State to impose financial sanctions upon any entity failing to satisfactorily curb support to the Iranian market,thus pressuring countries such as India to reduce imports. In order to avoid threatened sanctions,countries like India and China have been bartering food products,consumer goods and local currencies for oil,a system which may prove insufficient in meeting the payments necessary to maintain current levels of oil imports.

As a result,despite the Indian government’s public bravado,India’s presence in Iran has been gradually shrinking,as firms such as Reliance Industries have withdrawn from Iran,partially under Western pressure,and others have shelved their plans to make investments. Indian oil companies are finding it hard to get vessels to lift Iranian cargo because of the sanctions. Even the Shipping Corporation of India,India’s largest domestic tanker-owner,has refused to provide tankers to the Indian Oil Corporation for Iranian oil.

Moreover,the Indian government itself has asked its refiners to cut their imports from Iran by about 10-15 per cent ,even as Iran has tried to sell extra volumes to those refiners on long credit terms. India has also struggled to find ways to pay Iran after the US made dollar transactions almost impossible. Not surprisingly,Iran’s share in Indian oil imports is declining,and Iraq has replaced Iran as the second-largest crude oil supplier to India. Yet Delhi feels that it cannot replace Iran as an oil supplier overnight,and any drastic step by India to reduce its presence in Iran will only further entrench China in the Iranian oil and gas sector.

American pressure is not the only factor at work. There has been little evidence so far that Iran would be a reliable partner in India’s search for energy security. Iran has either rejected or not yet finalised plans due to last-minute changes in terms and conditions for a number of important projects with Indian businesses and the Indian government. Moreover,both major energy deals recently signed with great fanfare,which also raised concerns in the West,are now in limbo. India’s 25-year,$22 billion agreement with Iran for the export of liquefied natural gas (LNG) has not produced anything since it was signed in 2005. The agreement requires India to build an LNG plant in Iran and would need American components,which might violate the US’s Iran and Libya Sanctions Act. The other project involves the construction of a 1,700-mile,$7 billion pipeline to carry natural gas from Iran to India via Pakistan,and it is also currently stuck.

India has continued to affirm its commitment to enforce all sanctions against Iran,as mandated since 2006 by the UN Security Council. However,much like Beijing and Moscow,Delhi has argued that such sanctions should not hurt the Iranian populace and has expressed its disapproval of sanctions by individual countries that restrict investments by third countries in Iran’s energy sector,such the US sanctions.

India would like to keep a diversified oil basket and is reluctant to rely solely on Saudi Arabia. Riyadh is the chief supplier of oil to India’s booming economy,and India is now the fourth-largest recipient of Saudi oil after China,the US and Japan. India’s crude oil imports from the Saudi kingdom will likely double in the next 20 years,and Riyadh has repeatedly emphasised its commitment to uninterrupted supplies to a friendly country such as India,regardless of global price trends. However,Riyadh’s traditionally close ties with Pakistan and its support for radical Islamist forces continue to stifle Delhi-Riyadh relations.

So India will keep Iran a part of its energy matrix,but it is increasingly clear that despite Delhi’s public pronouncements,Tehran’s role will be a marginal one in the coming years. And this is good news for India-US ties which have continued to suffer due to the hyperbole surrounding India-Iran relations.

The writer teaches at King’s College,London

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