US sanctions against Iran: Donald Trump's waiver merely postpones, doesn’t address India's energy problem

There is no small amount of relief in India over the fact that it has been included in the list of eight countries that received transitory permission to keep buying Iranian oil as toughest-ever US sanctions were imposed on Tehran on Monday. This was on expected lines. India had been lobbying hard for a carve-out. It is important to remember, however, that there is no space for triumphalism or political signaling in this development.

The waiver does little to ensure India’s energy security paradigm, does not address India’s geo-economic and geopolitical interests in West Asia and does not solve New Delhi’s regional connectivity conundrum in Central Asia. It merely postpones these tricky issues till a later date.

It was disconcerting to note Union petroleum minister Dharmendra Pradhan rushing to congratulate Prime Minister Narendra Modi even before the US had announced the names of the nations (India, China, Japan, Italy, Greece, South Korea, Taiwan and Turkey) that have been granted a temporary exemption. Pradhan said India “won” the waiver because the Donald Trump administration was convinced by Modi’s “forceful campaign”.

At the other end of the spectrum, Trump is busy making Game of Thrones memes to ratchet up the rhetoric against Iran.

These posturings are counterproductive when the need of the hour is quiet engagement. There is a fear that the burgeoning US-India strategic partnership may fall between the twin stools of Trump’s obsession with Iran, and India’s energy and geopolitical interests. Hit by secondary sanctions that seek to choke Tehran’s energy, banking, oil and shipping industries, and force a change in Iranian behaviour, India must show nimble diplomacy.

Representational image. News18

Representational image. News18

India’s status as the second-biggest buyer of Iranian crude after China and Tehran’s position as the third-largest supplier of oil to New Delhi (after Saudi Arabia and Iraq) are the foundations of a robust relationship. As a seller, Iran throws in incentives such as 60-day credit, free insurance for cargoes and shipping. Iranian oil also suits the technical configurations of Indian fuel refineries. The imposition of US sanctions on Iran also gives India the opportunity to buy the crude entirely in Indian currency — a situation that suits New Delhi, considering the recent wobbly nature of rupee.

The robust energy tie is reinforced by the fact that as the world’s fastest-growing economy, India’s energy requirements are huge. Its low per-capita consumption of energy presents massive opportunities for exporters.

As Kabir Taneja writes in Asia Dialogue, “Oil and gas are expected to remain its main sources of energy for the next two decades at least. As a net importer of oil, New Delhi has relied on Iran’s massive reserves of hydrocarbons to fulfill its annually burgeoning oil needs… Most importantly, the Iranian quality of heavy crude oil was most suited for Indian refineries such as those operated by MRPL in Mangalore, Karnataka and Essar in Jamnagar, Gujarat.”

As the world’s third-largest consumer of oil, India imports 85 percent of its crude and 34 percent of its natural gas requirements. The US, which wants countries to bring down their Iranian energy imports to zero, is putting pressure on India to restrict its monthly purchase to 1.25 million tons or 15 million tons in a year (3,00,000 barrels per day), down from 22.6 million tonnes (4,52,000 barrels per day) in 2017-18 financial year, according to a report in The Indian Express.

Due to the tough sanctions, India will now have to progressively cut back its crude imports from Iran and within a span of 180 days from 5 November, keep paying Iran for the oil in INR that will be deposited in an escrow account in an Indian bank that does not have international exposure and is hence immune to sanctions. Iran will use this fund to import items from India, according to a report in The Times of India.

The US is desperate to check the flow of oil money in Iran to sectors other than “humanitarian” trade or bilateral trade in non-sanctioned goods and services. During a recent briefing, US Secretary of State Mike Pompeo stressed that “100 percent of the revenue Iran receives from the sale of oil will be held in foreign accounts. Iran can only use this money for humanitarian trade or bilateral – in bilateral non-sanctioned goods.”

Pompeo added that “US actions today are targeted at the regime, not the people of Iran, who have suffered grievously under this regime. It’s why we have and will maintain many humanitarian exemptions to our sanctions including food, agriculture commodities, medicine, and medical devices.”

While it engages with the US in traversing the sanctions minefield, India also needs to re-evaluate its energy and connectivity ties with Iran vis-à-vis its relationship with the US that must rank among India’s top priorities, given the strategic alignment with Washington and a robust trading and defence relationship.

The Trump administration would note that its policies against Russia and Iran are, at least in the short term, at loggerheads with the Indo-Pacific policy where Washington seeks to play the role of an enabler in developing India’s abilities as a net security provider in Indo-Pacific to check China’s coercive behaviour.

As geostrategist Brahma Chellaney writes in Nikkei Asian Review, “Ensnaring India in sanctions aimed at punishing Iran and Russia, and then dangling concessions, undermines the U.S. goal of developing a more robust defense relationship with the world's largest democracy and building a stable power balance in the Indo-Pacific. While the U.S. and India will remain close friends, Washington has gratuitously introduced a major irritant in the relationship that no waivers can fully purge.”

To engage in a meaningful relationship based firmly on shared interests and values, India and the US must be more accommodative of each other’s policy priorities, at the cost of deviating from force of habit that unfortunately plays a disproportionate role in foreign policy.

India would do well to recognise that its ties with Washington cannot be made conditional on Trump recognising its priorities in Iran. This quid pro quo is false. India’s engagement with the US is deeper, multifaceted and ultimately in its own security interests in a volatile geopolitical environment compared to Iran, where ties rest on energy trade and a dodgy connectivity strategy that has promised more than it has delivered.

Moreover, there is a conflict of interest to consider as a defiant Iran gravitates towards the Russia-China axis and cozies up with Taliban. As Seema Sirohi writes in The Economic Times, “Many analysts in New Delhi seem to restrict their critical analysis to US actions while ignoring egregious actions by other countries — in this case Iran. India’s interests are many and complex, just like any major country. Iran is important as an entry point to Central Asia and as a partner in the development of Afghanistan. But the terms of engagement have changed — today Iran is getting close to the Taliban.”

The Trump administration has so far shown an inability to differentiate between the short and the long in framing a meaningful South Asia strategy. India occupies a pivotal role in Trump’s security calculus, and yet ties have frequently been hit by secondary sanctions or even petty bluster on insignificant issues. India-US ties have moved towards a more institutionalised framework, but it seems the US is still struggling with the concept of maintaining close partnership with a nation that may never become its treaty ally but might turn out to be a more valuable partner than any affiliate.

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Updated Date: Nov 06, 2018 21:01 PM

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