Iran moved back into third place as a source of energy in 2016, soon after the JCPOA unshackled global engagement with Tehran. A sizeable number of Indian refineries are configured to working on Iranian crude. But with the US openly calling for a “zero” by November 4, things begin to look difficult. Notwithstanding Indian government’s brave words, Indian companies, banks, even India’s oil PSUs, are scaling back faster than you can say Hassan Rouhani.
The world is awash in oil, so that’s not the problem. Between Iraq, Saudi Arabia, Nigeria, even Equatorial Guinea and now US, India is not short of suppliers. Prices will be an issue for a while, but energy experts expect a levelling out once production ramps up again.
Iran does not see things in the same way — Iranian officials have responded to US’ “zero” demand by saying, “This big claim (of cutting Iran oil supply) is not feasible because last month Iran exported 2.8 million barrels of crude oil and condensate per day.”
During the earlier round of sanctions, India, like China and Japan, got a sanction waiver, because they “demonstrated” significant reductions (about 20 per cent every 6 months). India moved Iran transactions from dollars to euros, and even after Turkey’s Halkbank refused to process Indian payments, a rupee-rial deal was worked out. The trouble with buying Iranian oil in Indian currency remains the same — while Iran has tons of things it wants to buy from China, there’s very little it wants to buy from India beyond basmati rice and some pharmaceuticals. Post sanctions, the rupee-rial deal has not yet taken off.
A bigger issue will be connectivity. Energy dominated the discourse in the last round of sanctions, but this time the focus is multi-modal connectivity. India needs Iran for keeping it connected to Central Asia and Russia. The joint statement issued after Hassan Rouhani’s visit here in February 2018 focused mainly on connectivity, with energy taking second place. India wants to use the Chahbahar port not only as an access point for Afghanistan but link it to the International North-South Corridor (INSTC). India’s connectivity ambitions were made clear after New Delhi signed on to the TIR Convention and the Ashgabat Agreement. During Rouhani’s visit to Delhi, Iran also asked India to build a new extension of the rail link at Zahedan (which connects to Afghanistan as well as to Iran’s national network) to Mashad, and thence to central Asia. Nitin Gadkari has promised to make Chahbahar fully operational by 2018, but now that’s uncertain. This is a win-win — it connects India but also provides a viable alternative to Pakistan as a route.
A carve-out for Chahbahar was written into the US sanctions the last time around, as it was connected to Afghanistan. This time, logically India could hope for a similar provision. But Washington is unpredictable these days. In addition, there has been virtually no high-level contact between the Modi government and Trump’s people in the past few months. Chahbahar and INSTC is key to India’s geopolitical ambitions of providing an alternative to China’s OBOR with a very different collaborative philosophy.
In the 1990s, India and Iran were on the same page regarding Afghanistan, when both countries supported the Northern Alliance against the Pak-Saudi supported Taliban. Now, Iran is on a different wavelength — Iran, like Russia, is more sympathetic to the Taliban, seeing them as a buffer against US presence and the growing footprint of ISIS. That has put a wedge with New Delhi. But as a friendly nation to the west of Pakistan, Iran remains invaluable to India.
India’s Iran woes have few sympathizers — not the US, and definitely not India’s closest partners in the Gulf and Middle East, all of whom have so far held their noses at India’s Iran ties. Israel and Saudi Arabia would lead the cheering squad if India has to scale back ties with Iran, as would the UAE. All of them and the US blame Iran for the troubles in the Middle East. India’s views are much more cautious because in the sectarian war that has engulfed the Middle East there are no good guys, so far as India is concerned.
Iran has done precious little to help its case. In the past three years, Iran has preferred to focus on the Syria war and less on its economy after the sanctions were lifted. From the beginning of this year, Iran has been wracked by protests, by students and young workers, and, in the past week, by merchants and shopkeepers. The rial has plummeted, the Iranian economy is in shambles. Meanwhile, this week Iranian Supreme Leader has asked the parliament to disregard recommendations by the FATF in drafting anti-terror financing legislation.
India opposes terrorism as much as it opposes another country acquiring nuclear weapons in its neighbourhood. That puts India in a very different space, and much closer to the US. While India welcomed the JCPOA when it was signed in 2015, a decade prior, India had voted against Iran twice at the IAEA signalling its opposition to Iran’s budding nuclear programme.
The question is no longer whether India can survive US sanctions. It can. But with its economy becoming more integrated with the world, does India want to subject itself to secondary sanctions from the US, especially with a vast private sector that would take the rap? The EU revived an older law that promises its companies compensation if they come under US sanctions — despite this, energy biggies like Total and Shell have already pulled out from Iran.
The Indian government is working on ways to circumvent the coming sanctions while trying to preserve its ties with Iran. A lot of creativity has to come out of South Block in the coming months.