US-Iran Stand-off: India Will Have To Do A Deft Tight-Rope Walking

The last couple of days have been a trying one for Indian diplomacy. First, Iranian Deputy Foreign Minister Abbas Araghchi visited India for discussions on energy cooperation on 16 July. Then, Indian officials held talks with US Assistant Secretary for Terrorist Financing, Marshall Billingslea, on the American sanctions against Iran.

India has been caught in a dilemma on buying Iranian oil in view of the US pulling out of the nuclear deal with Tehran and announcing sanctions against it. The sanctions will be imposed in two phases, first on 4 August and the next on 4 November. India’s problem is that Iran is its third biggest supplier.

Araghchi, during his talks with Indian officials, has said that Iran would like to be a reliable supplier of crude oil to India. Indications are that both the nations are trying to work around the US sanctions. On its part, the US wants India to stop buying crude oil from Iran. It is threatening sanctions against all those who have trading relations with Iran. While no clear-cut decision was taken during the meeting between India and US officials, indications are that India would reduce its purchase of crude oil from Iran. For India, there are other concerns like the Chabahar port and connectivity projects that it is currently executing in Iran.

Livemint quoted former Indian Ambassador to the US, Arun Singh, saying that India is facing a situation that is similar to the one it faced during 2012-15. Then, countries that reduced oil imports from Iran by 20 per cent every six months were given an exemption from US sanctions. India complied and got exemptions, after which, he said India had managed to insulate the Chabahar port development from sanctions through a special waiver.

However, there is some difference in the ground situation on the sanctions against Iran. Last time, the global community got together as one to implement the sanctions. This time around, the US is facing resistance from Russia, China, Britain, France and Germany. Russia has gone a step forward offering investments in the oil and gas sector in Iran. China, on the other hand, has begun measures to launch a full-scale trade war against the US. Beijing plans to impose a 25 per cent import duty on US crude and this has turned Chinese refining companies towards Iranian crude.

During the 2012-15 sanctions, India was able to get exemption under the food-for-fuel programme. It bought Iranian crude and in turn, supplied tea, pharmaceuticals and rice to Tehran. New Delhi had to face payment problems, which was, however, overcome by paying 55 per cent of its dues to Iran in euros and the rest by remitting Indian currency in Iranian companies that had accounts with UCO Bank. The sanctions last time boosted tea, rice and pharmaceutical exports from India.

On Chabahar project, the External Affairs Ministry assured Iran that India was committed to the project. Iran, in turn, has said it understands India’s difficulties and has offered to come up with flexible measures. That opens up the options of barter, like the oil-for-food programme, and Monday’s talks could have dealt with these issues. India can think of buying crude oil as payment for the Chabahar project. Remember, in late 1990s India executed a railway project through IRCON in Malaysia and took the payment in palm oil!

Reports say that some of the Indian firms have begun winding down their purchases from Iran. As a result, crude oil import from Iran dropped 16 per cent in June, while shipments from the US hit a record. There are two other developments on the Indian side, worth noting. One, the Oil Ministry has asked the refiners to prepare to limit imports. Two, the Finance Ministry has given approval to privately-owned Bank Pasargad to open its branch in India - a sign that India might choose its own path in maintaining its relations with Tehran.

The view among the diplomats is that though Europe or other countries could oppose the sanctions, their industries may not sail along with them. For example, if Germany stands up to the US sanctions, it could still see its companies shying away from trading with Iran. These companies have a vast presence in the American market and they wouldn’t want to risk their future by going along with their government’s decision.

For India, more than the crude oil supply, the Chabahar port project is important. It should try and protect its interests by convincing the US how the port project is crucial to getting supplies to Afghanistan, overcoming the stiff resistance from Pakistan. It should tell the US that the port plays a key role in its dealings with Afghanistan and taking on the Islamic militants in Pakistan. The other way for India to get around this issue would be to allow its industries and business houses to take their own decisions, based on their commercial interests.

In the meanwhile, India could join Europe and others to find a way out of this US-Iran standoff. But how far can the US be convinced, especially when countries like Russia are ignoring Washington’s threat? Last week, senior Iranian Advisor for International Affairs of Iran, Ali Akbar Velayati, visited Russia and met President Vladimir Putin and concluded a deal that will see Moscow investing $50 billion in Iran’s oil and gas sector. The next couple of weeks will tell us all how deft India can be in doing a tight-rope walking in balancing its bilateral relations with the US and Iran besides securing its national interests.