Can US Sanctions on Oil Import from Iran Hit India’s Bilateral Relations?

The United States’ announcement of ending the exemptions from May 2 given to eight countries, including India, from trade embargo on Iran that enabled them to purchase Iranian oil may adversely impact New Delhi’s bilateral relations with Tehran. Unlike previous years, it is likely that this time India may halt the oil imports from Iran, or at least reduce it substantially, until some way out is worked out.  News agency PTI quoted a “top official” of the government as saying, “Until the waivers are not restored back, I don’t think India can buy oil from Iran. We will stop importing oil from Iran.” The official further added that they hope that India will be allowed exemption, “but purchases cannot be made in anticipation. We will not be importing any oil from Iran.”

When the US government had announced its decision in April, Oil Minister Dharmendra Pradhan had made it clear that the government has already worked an alternate “robust plan for an adequate supply of crude oil to Indian refineries”. He had tweeted, “There will be additional supplies from other major oil-producing countries; Indian refineries are fully prepared to meet the national demand for petrol, diesel & other petroleum products.”

Although India is the third largest consumer of energy, it is also energy hungry and needs to import two-third of its oil requirements. Till 2010-11, Iran was the second largest supplier of the oil to India, after Saudi Arabia, but the import figure has since gradually gone down substantially although it still remained the third largest supplier last year. India still remains the second largest buyer for Iran, after only China. In absolute terms, just in last two years, the oil import from Iran has come down from 27.14 million tonnes in 2016-2017 to 17.62 million tonnes in 2018-2019. In fact, by December 2018 the oil import from Iran had dropped by 63%, interestingly with the simultaneous rise of 53% in import from Saudi Arabia.
While India had always shared very cordial relations with most West Asian countries by not interfering in their rivalries, it has assiduously developed very close bilateral strategic relations with the Kingdom of Saudi Arabia and the United Arab Emirates in last couple of years, besides Israel, that expands beyond trade to counter-terrorism operations. Saudi Arabia has in fact traditionally been India’s top oil supplier although for last two consecutive years Iraq tripped it to become the number one exporter. Import from UAE has also gone high in recent years. Prime Minister Narendra Modi, it should be pointed, has received the highest honours in both these countries, despite his – and his party’s – complex relations with India’s Muslims. India also imports oil from Kuwait, Nigeria, USA and the South American nation of Venezuela.
However, owing to its distance, the freight charges from the Persian Gulf nation were least, besides Tehran provides 90 days credit purchase to Indian companies. In short terms, the US or other countries may offer some discounts to cut into the rising cost, but it may not be as advantageous in the long run. The double whammy for India and all other oil importing countries is that besides Iran, the USA has put new sanctions on Venezuela as well as Trump administration has extended its support to the opposition leader’s attempt of a coup.
Despite the US pressure, India in the past maintained steady supply of oil, retorting to cash transfer through accounts in UCO Bank, or even ancient barter system. While these options are still open besides paying the third country from which Iran imports goods, it appears this time India might bring the supply to bare minimum, if not halt it completely. While India does not appear to offend the USA, the rising proximities with Israel as well as KSA and UAE, all of which have hostile relations with Iran, cannot be completely ruled out. According to reports in media, US administration wanted India to support its oil-sanctions on Iran in lieu of their efforts at the United Nations Security Council to list Jaish-e-Mohammad chief Masood Azhar a “global terrorist”. Azhar was put in the list after China withdrew its veto on May 1, a day before the exemption ended. While this could be a fortuitous coincidence the timing remains significant.
It would be interesting to note here that at a conversation at Asia Society in April after the US announcement, the Foreign Minister of Iran, Javed Zarif blamed the “B-Team” — US National Security Adviser John Bolton, Israel Prime Minister Benjamin Netanyahu, Crown Prince Mohammed bin Salman of Saudi Arabia, and United Arab Emirates President Mohammed bin Zayed — for stirring up trouble for Iran in the region and for “pushing the U.S. toward disaster” in spite of Donald Trump’s campaign promise not to get involved in expensive foreign wars.
India and Iran shares historical and civilisational relations. In fact, before India was partitioned in August 1947, two countries were literally neighbours and shared long borders and history. New Delhi should draw lessons from Islamabad that has very close ties with Sunni KSA and UAE, but in recent years it has simultaneously developed good relations with Shia Iran too. It has, in fact, built a pipeline for natural gas that was originally supposed to reach India as well, but New Delhi brushed aside the Iran-Pakistan-India (IPI) project after opposition from the Washington DC. Iran and India have traditionally been all weather friends, and despite international sanctions they not only maintained friendly bilateral relations but also worked together in Afghanistan and other connectivity projects, most importantly the International North South Corridor and the ambitious Chabahar Port project.
The multi-billion Chabahar port that India is developing is very crucial for New Delhi in its “Connect Central Asia”. It hopes to bypass Pakistan through this port and open the alternate route to sea for not only Afghanistan but the larger Central Asia reducing their reliance on Pakistan’s Karachi port or the one at Gwadar being developed by China. Although Chabahar would continue to enjoy exemption and would not be affected by current impasse, if India does not take a strategic decision to not alienate its close regional ally and yields to pressure from other gulf nations and the US, it may adversely impact its connectivity projects as well. It should be mentioned here that China has been eyeing Chabahar too for the expansion of its ambitious Belt and Road Initiative (BRI). In the past Iran too had expressed frustrations after very slow progress on the project, even hinting that countries like China too can join the project.
Chabahar finally gained momentum after the Indian Prime Minister Narendra Modi visited Iran in May 2016, while President Hassan Rouhani reciprocated with three days visit to India in February 2018. Officials from Iran, India and Afghanistan have held series of trilateral meetings as well in recent months to extract maximum benefit from Chabahar.
Even though sanctions have become effective from May 2, India is gearing up to host senior Iranian officials for the fifth round of negotiations for a bilateral preferential trade agreement (PTA). This shows that India is not willing to let the current sanctions affect bilateral relations with Iran. Once PTA becomes operational, India can also reduce the current trade imbalance. The import figure for 2017-2018 was USD 11.11 billion owing to oil imports (besides fertilisers, chemicals, etc.), while India exported goods (cereals, tea, coffee, spices, etc.) worth only USD 2.65 billion.
Although India has publicly announced this time to cut its oil supply from the Persian Gulf nation, it is also trying to negotiate for an exemption in the long run. It should be mentioned here that after the US decided to unilaterally in May 2018 withdraw from the 2015 the Joint Comprehensive Plan of Action (JCPOA), European partners who were part of the deal – France, Germany, and the United Kingdom – worked on an alternative trade deal to continue with their commitments.
Like India, Turkey, China and other oil importing countries are going to be adversely affected, and hence they should jointly work to resist the US pressure. There are reports that the two Asian powerhouse and traditional rivals – China and India – may quietly be working on to work on a “momentous deal” for setting up a buyers’ bloc as counterweight to the Organization of the Petroleum Exporting Countries (OPEC). As second and third largest importer of oil and major economic powers, if these two Asian countries come together they can not only dictate prices in their favour, but also outsmart the US and the OPEC.

M Reyaz

26/05/19

A version of this article has been published in the India Times. You can read it by clicking on the following link

https://www.indiatimes.com/news/india/has-india-put-bilateral-relations-with-iran-at-stakes-for-masood-azhar-366813.html?fbclid=IwAR1_9lTwyVu7ID4Yr85kUA-VwUWhIXc8R177VfhEcHYLC5fuaalYcntJM9M