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India’s Iranian sanctions predicament February 17, 2012

Posted by southasiamasala in : DeSilva-Ranasinghe, Serge, Future Directions International, India , trackback

Sergei DeSilva-Ranasinghe

First published in Future Directions International on 8 February 2012

The implementation of the tough new US and EU sanctions against Iran has encountered practical challenges, with India, an important Western strategic partner, voicing its concerns. Given that India is a major recipient of Iranian oil, a major investor in Iran’s energy sector and has other vitally important strategic interests at stake in Afghanistan and Central Asia, its quandary encapsulates the difficulties   involved in the full implementation of sanctions.

In a press conference on 29 January, India’s Finance Minister, Pranab Mukherjee, clarified India’s position on sanctions targeting the sale of Iranian oil: ‘It is not possible for India to take any decision to reduce the import from Iran drastically [emphasis added by author] because, after all, the countries which can provide the requirement of the emerging economy, Iran is an important country amongst them.’ From this statement, it is clear that India has emphasised its willingness to cooperate with the US and EU sanctions regime, but with certain limitations in mind.

So far, Turkey has rejected the imposition of sanctions and Russia confirmed that it intends to use local currencies to trade with Iran instead of the US dollar.  Although China has disapproved of Iran’s nuclear enrichment programme, it also argued against sanctions. In fact, China’s response to the US and EU sanctions has been ambivalent. Since January 2012, China has cut its oil imports from Iran by over half, from 555,000 bpd in 2011 to 285,000 bpd, yet Chinese companies have yet to be prevented from trading with Iran. Although Iran and China remain strategic partners, China’s response to the sanctions regime reflects its need to also balance its significant and lucrative trade relations with the US and EU.

Much like Japan and South Korea, India has also pushed the US to agree to a temporary exemption. Iran has talked about using alternative currencies, exemplified by its recent request for India to use the Japanese Yen. Similarly, there have been some inferences that suggest India is also investigating the option of using Indian rupees to purchase Iranian energy.

Although India has consistently voiced its disapproval of real or implied Iranian plans to develop a nuclear weapons capability, India’s response to US and EU sanctions is not solely based on concerns over its own energy security. Saudi Arabia is presently India’s foremost source of oil and has offered to supplant Iran altogether as a source, however, New Delhi’s response is likely to be selective and tempered given Iran’s geo-strategic importance to India’s interests in the Middle East and in South and Central Asia.

Iran and India have well-developed ties. According to the Indian Ministry of Commerce and Industry, bilateral trade between India and Iran increased from US$6 billion in 2005-06 to US$13.3 billion in 2009-10. Since 2009, a number of state-owned Indian firms have operated in Iran’s energy sector and have pledged to invest US$5 billion in developing Iran’s natural gas sector.

Outside of cultivating it as a necessary counterweight to influence Pakistan, Iran’s strategic location has become increasingly important in facilitating India’s ambitions in Afghanistan and Central Asia. India has invested heavily in the construction of Iran’s North-South Transport Corridor, astride Pakistan’s western borders, including the Chahbahar port and the Chahbahar-Faraj-Bam railway, which link Iran’s eastern regions to Afghanistan and Central Asia.

Not long ago, India’s Foreign Secretary, Nirupama Rao, affirmed the strategic importance of the North-South Transport Corridor to India: ‘There is a need for accelerating our joint efforts to fully realise the potential of the Chabahar port.’ He continued: ‘This is a project that is in the common interest of not only India, Iran and Afghanistan, but also Central Asia.’

India has invested hundreds of millions of dollars in Afghanistan, as part of its effort to assert its influence in the region. Similarly, India is also active in Central Asia. It has stationed military personnel in Tajikistan, is involved in oil and gas exploration in Uzbekistan, and has signed agreements with Kazakhstan in a number of areas, emphasising uranium, agriculture, public health, information technology, education and oil and gas.

Given India’s comprehensive ties and interests with Iran and the wider region and the stance it has espoused publicly, US and EU efforts to persuade India to diminish ties with Iran are likely to be more complicated than anticipated. Conversely, India has significant trade relations with both the US and EU that cannot be overlooked and this is likely to compel India to find a middle-ground on the issue of sanctions. This could entail a reduction in India’s demand for Iranian oil, while attempting to negotiate a tentative solution that could, within reason, appease US and EU demands, while enabling India to maintain its strategic foothold in Iran.

Comments

1. Amy - February 20, 2012

Any views why the Iranian-backed (presumably) attack on Israeli interests in Delhi, given the good relations between India and Iran? Just opportunity?