360° Analysis

India’s Iran Dilemma


March 26, 2012 02:58 EDT
India needs to act in its own interests and should not give in to international pressure to halt oil imports from Iran.

US policy towards Iran is giving India a diplomatic headache. Iran cast a shadow even on the negotiations for the Indo-US nuclear deal. The US legislation enabling cooperation with India’s civilian nuclear sector gratuitously called for an alignment of India’s policy on Iran with that of the US. Since then US interlocutors have been trying to persuade India to see the Iranian reality through their eyes and downgrade ties with that country. They presume that India needs to reciprocate the US’s strategic initiative on the nuclear deal by being receptive to American demands on the Iranian question. Given this background, it should not cause any surprise if the US disregards India’s interests by further sanctioning Iran.

India has to prioritise its energy security, particularly as it already imports 70% of its oil and gas needs. This figure will increase to 90% in the years ahead. While India has diversified its sources of oil supply, Iran remains its second largest supplier after Saudi Arabia, providing about 12% of its annual requirements, worth $12 billion. Iran has the world’s second largest reserves of gas and can also be a source of either pipeline gas or LNG, if pipeline security issues are resolved and Iran gets access to embargoed LNG technology. With Iran located virtually next door, it makes no sense for India to compromise its long-term interests by cutting off or reducing its Iranian oil purchases for extraneous political reasons.

India has to worry additionally about competition from China, which needs massive oil imports to fuel its frenetically growing economy. China has already out-competed India in a few oil-producing countries, though in some cases Indian companies have entered collaborative arrangements in order to avoid under-cutting each other. It is believed that the Gulf region will be the major source for meeting India’s and China’s future needs, with falling US dependence on oil and gas from this region. China already has a big head start over India in securing its oil and gas needs from the Gulf region and Central Asia. It is now solidly entrenched in Iran. China is a member of the Security Council and has enormous financial resources, which give it a bargaining power that India lacks. It can defy US and EU sanctions more easily than India can, while its massive exports to the global market give it the capacity to enter barter arrangements with countries like Iran. India is floundering when it comes to paying Iran in dollars or euros for the oil, whereas China has worked out a barter system based on transactions in Yuan. India has now reached an understanding with Iran to pay for 45% of its oil imports in rupees, which will help boost Indian exports to Iran. With India reluctant to amass huge rupee funds, and with Iran concerned about fluctuations in the rupee, there are issues that still need to be worked out, but this agreement seems to be the most practical way out. In any case, India would still face the challenge of paying for the remaining 55% of its purchases through other means.

Even before the enhanced EU and US sanctions on Iran, India had trouble investing in Iran’s petroleum sector. There were concerns that the potential application of the 1996 Iran-Libya Sanctions Act by the US would restrict investment in Iran’s oil sector to $20mn a year. For that reason India has not been able to make hard decisions about investing in the offshore Farsi block (which would require almost $5bn of investment over seven-eight years) and the huge SP-12 gas field. While the Indian government is opposed to the extra-territorial application of US laws, it is also reluctant to enter into a political conflict with the US at a time when the Indo-US relationship is progressively shedding the inhibitions and suspicions of the past and entering a new phase. Moreover, Indian banks are unwilling to jeopardize their US operations, or risk being denied access to the US financial sector if they disregard US sanctions, with the result that de facto, India observes them. All this points to the need to have a clearer policy to preserve Indian equities in Iran and to avoid losing ground irretrievably to China.

US-Iran tensions are hurting India in other areas as well. As India is unable to get access to Afghanistan through Pakistan, Iran provides a logical alternative. India, Iran and Afghanistan should have a shared interest in reducing Afghanistan’s dependence on Pakistan by giving the former an alternative access to the sea. India took the strategic decision to build the Zaranj-Delaram section of the road directly linking the Chabahar port in Iran, to Kabul. India and Iran have discussed this project several times but progress has been tardy, with Iran slowly working on upgrading the port facilities and building the necessary rail links in the hinterland. India would be willing to invest in infrastructure at Chabahar but unless the port is declared a Free Trade Zone, potential investors think the economics may not be favourable. Even earlier, Iran’s relations with the West were tense, but ever since the situation has further deteriorated, and the West has engaged in economic warfare against Iran, the appetite for such investments has reduced. For India the Chabahar route acquires even more importance in the context of its planned investments in the Hajigak iron ore project in Afghanistan. Beyond transit to Afghanistan, the heightening tensions in the region will also delay India's plans to develop transit facilities through Iran to Central Asia and Russia (the North-South Corridor), from which India and other countries could have benefitted greatly.

India’s strategic interest in maintaining a productive relationship with Iran conflicts with the US’s strategic interest in seeing a regime change in Iran. India’s political and economic interests in Iran are apparent, whether they relate to energy security, easier access to Afghanistan, countering Pakistan-backed Taliban in Afghanistan, profiting from contradictions between Iran and Pakistan, or maintaining a balanced posture on the Iran-Saudi Arabia and the developing Shia-Sunni divide in west Asia. India is not playing any anti-western game in Iran or putting non-aligned solidarity ahead of its ties with the US. In fact, barring oil supplies, which, incidentally, are indispensable, India’s overall relationship with Iran is modest in scope. India has not proceeded with existing petroleum sector projects because of a reluctance to run afoul of US sanctions.

On the sensitive nuclear issue, India has already annoyed Iran by voting against it at the International Atomic Energy Agency (IAEA) in the past. This move was also criticized domestically as the step was imputed to US pressure. India has expressed public opposition to any Iranian nuclear weapon programme and while recognizing its right to peaceful uses of nuclear energy, has asked Iran to comply with its Non-Proliferation Treaty (NPT) obligations and respond to the queries raised by the IAEA about its nuclear activities. India is cognizant of the adverse regional consequences of Iran going nuclear. India wants stability in the Gulf region where it has vast energy and trade interests and where several million expatriates reside, remitting home billions of US dollars annually.

But India can neither make common cause with the US against Iran on the nuclear issue nor share its apocalyptic view of Iran’s nuclear ambitions. India itself has long suffered from US-led international sanctions targeting its nuclear programme. Worse, the US has tolerated nuclear and missile cooperation between China and Pakistan as it strategically balanced Indo-Soviet ties in the Cold War era. Pakistan’s nuclear capability was seen as India-centric, not a regional problem. Even today the US is unwilling to make an issue of China’s continued support to Pakistan’s nuclear programme in violation of the Nuclear Suppliers Group (NSG) guidelines. The frenzied western opposition to Iran’s nuclear programme contrasts with the attitude to Pakistan’s programme, even though Pakistan, on the pretext of its nuclear programme, has used terrorism as an instrument of state policy against both India and the US. Pakistan not only escapes sanctions despite its rogue conduct; it continues to be engaged as a matter of policy, ironically for the reason that additional US pressure may result in Pakistan’s collapse as a state and its nuclear weapons may fall into the hands of extremists. With Iran, the approach is openly coercive, with occasional military threats to prevent it going nuclear. Simply because the Pakistani leadership does not rant against Israel and the reality of the Holocaust does not make Pakistan less disruptive of regional stability, or less an incubus of extremist religious ideologies with their terrorist links that endanger peace and development.

A strategic partnership should have an element of reciprocity. If India is to take cognizance of vital US strategic concerns, the US must reciprocate in some measure. If the US does not consider Pakistan a black and white case and therefore bases its Pakistan policy on a regional framework, the same considerations should apply to Indian policy towards Iran. In fact, Pakistan threatens India’s security directly, whereas Iran threatens the US’s extended regional interests and not its territory directly.

The US should therefore take cognizance of India’s legitimate interests in Iran that transcend the present situation. US electoral pressures should not affect the barometer of tensions in the Gulf, nor should India be expected to accept without demur the narrow, domestically driven, Israel-incited US concerns about Iran. The US should not put serious constraints on India’s oil purchases from Iran as the latter’s nuclear defiance cannot be countered by undermining India’s energy security and its broader regional interests.

It is politically simplistic to suggest that India can buy more oil from Saudi Arabia in case Iranian supplies get disrupted. Saudi Arabia has announced that it will increase its output to compensate for the non-availability of Iranian oil in the international market, to which Iran has responded sharply. Indian oil supplies from Iran have in any case reduced because of payment difficulties. India’s private sector players could well reduce their purchases further. India can react appropriately to commercial exigencies but should not become an engaged party in political maneuvers against Iran on the basis oil supplies.

India's effort should be to avoid getting entangled in the mounting Iran-Saudi Arabia rivalry as much as possible as there is a deepening sectarian basis to it. Saudi Arabia fears rising Iranian power may make the Shias in Arab countries more restive against oppressive Sunni domination, threatening the power of the elites in some Gulf countries. India’s productive relations with Saudi Arabia and other Gulf monarchies in the field of energy supply, trade, investment, manpower and remittances, of course have to be preserved. However, India, with its own large Muslim population of Sunnis and Shias, should not be seen getting caught in the sectarian politics of west Asia. India should maintain a dynamic balance between its interests in the Arab world and Iran. US alignment with Saudi Arabia and the Gulf countries against Iran is not sufficient reason for India to tailor its policies accordingly. This would be common sense, not the lingering influence of nonalignment in India’s thinking.

India is accused by foreign as well as domestic critics for being a fence-sitter, of avoiding tough choices, of unwillingness to accept, as a rising global power, the responsibilities at the global level that come with an enhanced international status. India would presumably pass the test of acting responsibly if it sided with the US and the West on Iran, Libya, Syria and, earlier, on Myanmar. We have to be careful about such arguments. It is well to remember that countries make decisions in the light of their national or alliance interests, not on the basis of abstract principles. When interests and principles are in harmony, the latter can be invoked to give a moral cover to self-interest, but when principles and interests collide, principles are often abandoned. Protecting human rights and promoting democracy are unexceptionable principles but are applied selectively in practice in consonance with self-interest. The principles of non-intervention in the internal affairs of countries, and of respect for national sovereignty are being violated by powerful countries in order to shape the international or regional environment to their advantage. India’s enhanced international status does not require it to give up independence of judgment or endorse western policies on the presumption that they are necessarily right. Assuming responsibility at the global level should actually mean supporting or opposing western policies as necessary for the equitable functioning of the international system. If India gives weight to its own interests in crafting its policy towards Iran, just as the West does, it does not mean India is shirking its global responsibility. It means that India favours a less one-sided international view of the complex Iranian problem.

It is not the money Iran earns from the sale of oil to India or others that will determine its nuclear decisions. Much more important is Iran’s political judgment on the advantages and disadvantages of going nuclear. As it is, political developments have moved in its favour after the empowerment of the Shias in Iraq. The so-called Arab Spring has kindled the Shia communities of west Asia, generating pressure on Sunni regimes. Does Iran need to go nuclear to consolidate its political advantage? On the face of it, Iran is being pushed to the limit to go nuclear by western policies of economic warfare and military intimidation. The remarkable patience they are showing in the face of threats of regime change could either reflect lack of domestic consensus on the subject or technical inability to develop a nuclear weapon at this point. It is not clear whether the networks that A.Q. Khan exploited for Pakistan’s clandestine acquisition of nuclear weapon technology have been uprooted to the extent that Iran cannot use them. Can China, which is still supplying nuclear and missile technology to Pakistan, be relied upon to behave “responsibly” in this regard?

On the whole, the government has shown political grit in resisting US pressure to dilute even India’s energy relationship with Iran. Most recently in Chicago, the Finance Minister has expressed India’s inability to drastically reduce India’s oil imports from Iran. India has stated its willingness to abide by UN sanctions on Iran but not those by individual countries. Iran is not an easy partner and its conduct is questionable on many counts. Its decision-making processes are convoluted and its postures on Israel and the Holocaust are needlessly provocative. India is playing its difficult hand on the Iranian question as well as it can. The US should show better understanding of India’s stakes in Iran. India cannot ask the US to exempt it from the application of the latest sanctions, as this would mean accepting the extra-territoriality of US laws. India should do what it must and hope that the US will take into account its developing strategic relationship with India to decide what it should do.

*[A version of this article was originally published by Defence and Security Alert.]

The views expressed in this article are the author's own and do not necessarily reflect Fair Observer’s editorial policy.


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