India’s ambassador to the United States, Harsh Vardhan Shringla, announced on May 23 in Washington DC that New Delhi had ended all oil imports from Iran amid pressure from the Trump administration. “India had already sharply decreased its imports from Iran and bought 1 million tonnes of crude in April, the last month before Washington stepped up its pressure campaign against Tehran. That’s it; after that, we haven’t imported any (oil),” he said.
In 2018, a team of US officials in New Delhi prepared to address India’s concerns on two important issues—Iran sanctions and Countering America’s Adversaries Through Sanctions Act regarding India’s purchase of S-400 missile defence system from Russia. The American representatives, with shirt sleeves folded up, an aggressive posture, told Indian analysts across the table that while some compromise could be achieved, they were looking for New Delhi to stop all trade with Iran soon.
Fast-forward to May 2019, and India now stands at that juncture. Prime Minister Narendra Modi has won his second term with a thumping victory, and the diplomatic dance being played by India between Iran and the US will become one of the first major foreign policy challenges of his new tenure. The US, an increasingly pivotal partner for India, offers a challenge not just to Indian bilateral ties, but its idea of ‘strategic autonomy’.
Foreign secretary Vijay Gokhale earlier this year said that India’s alignment today is issue-based, not ideology-based, giving it diplomatic flexibility and decisional autonomy. This thinking is now being tested.
India’s relations with Iran are in the Trump administration’s crosshairs. While New Delhi managed to save the Chabahar Port project from US ire, oil imports played the role of the ‘fall guy’ as Washington DC moves troops to West Asia amid an increasingly precarious geopolitical situation. India, which imports nearly 70% of its annual crude requirements, historically had Iran as one of its top three suppliers. Oil is the single-most important commodity, political or economic, between New Delhi and Tehran. Remove oil from the picture, and India-Iran trade ties are laid bare bone with little else to ride home about for now.
Over the past few days, tensions between the US and Iran have escalated significantly. After Gulf states accused Tehran of trying to “sabotage” their oil tankers operating in the region, the White House announced military deployment along with supplying billions of dollars worth of weapons to Saudi Arabia, the UAE and Jordan. This claim in itself is highly contested; with other than ‘intelligence’ reports being highlighted by the US, little other concrete evidence has been presented, raising concerns of another American misadventure in the region.
This brewing crisis has many in New Delhi jilted, over both the supply of crude oil to India and, in general, a significant hike in global crude prices. However, more than oil itself, what concerns India equally, if not more, is its space in the global order and how it chooses to position itself in an increasingly transactional world. That is, not an out-and-out ally of the US, attempting to maintain its ‘strategic autonomy’.
Under Iran sanctions during the P5+1 negotiations with Tehran a few years ago, the Islamic country dropped down to seventh position as India hedged its energy security bets. This showcased that oil security is possible to achieve within Iran’s neighbourhood with both Iraq and Saudi Arabia seeing increased oil imports from India back then, and others such as Nigeria also chipping in to cover the deficits. Despite this, India went out of its way to protect its historic and civilisational relations with the home of Shia Islam.
New Delhi holds good experience on how to manage itself amid US – Iran tensions. Tehran, as it did last time, is pushing India to increase its investment flow into its economy with a question mark hanging over Europe’s alternative plans to open financial highways that would work despite American sanctions. Previously, India continued to purchase Iranian crude, the kind around which infrastructure such as the Mangalore refinery was built (Iran has a specific kind of crude oil known as ‘heavy crude’) specifically to cater for Iranian supplies despite sanctions.
To game the sanctions, India continued to purchase oil from Iran while depositing money into a bank account in Kolkata. At its peak, the account at a branch of UCO Bank held more than $6 billion in dues to the Iranians as Tehran was being pushed by Western powers (and India) to commit to what we today know as the Joint Comprehensive Plan of Action (JCPOA), committed to by Iran and UN Security Council members and Germany, and abandoned later by the Trump administration. In essence, today Iran stands on a higher moral pedestal than the US on this issue.
During the JCPOA negotiations and the time before that, Tehran applied similar pressure on India, as it would now, to increase economic presence and purchase more oil on extremely favourable terms and conditions. While India accommodated the American whims, it also gave space to Tehran, allowing Iran’s Bank Pasargad to open a branch in Mumbai, a move previously not entertained by India in order to pacify the US. This time, however, the openly bullish nature of the US has pushed India to highlight the fact that its bilateral relations with Tehran, while having some room for manoeuvre to accommodate American concerns, are sacrosanct to its own national interests.
The looming economic concerns for India do not necessarily come from American pressure on New Delhi to rein in oil imports, but on the Trump administration’s irresponsible attempts to create another crisis in West Asia suggesting Iran as an imminent threat, stoking fears of another Iraq War-like situation where US started a conflict on false pretexts. The US withdrawal from the JCPOA has created a problematic situation in Iran, where moderates who propagated the deal now find themselves facing the ire of conservatives and anti-US mullahs to reverse Iran’s outreach to the West and recede back into its anti-Western posture, which has prevailed since the 1979 Islamic Revolution.
For the new Modi government, which was staking its claim once again in New Delhi at the time of writing, playing by the rules of new global diplomatic challenges, weaponisation of international trade, threats to multilateralism and global diplomatic institutions are the challenges that wrap around the US—Iran kerfuffle, and by association, the globalised Indian economy as well.
Kabir Taneja is associate fellow, Observer Research Foundation, and leads their West Asia initiative
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