US-Iran crisis: With massive shale reserve, America no longer hostage to West Asia fuel; India can ill-afford to be fence sitter for oil needs

Looking out at the world from his lavish office in Caracas, Juan Pablo Perez Alfonso, founder of the Organisation of the Petroleum Exporting Countries, had watched nations transfigured by the unimaginable wealth their oil had brought. Yet, that afternoon in 1976, as he spoke to the scholar Terry Lynn Karl, Perez Alfonso seemed strangely pessimistic. “Ten years from now,” he told her, “20 years from now, you will see, oil will bring us ruin.” “We are drowning,” he concluded, “in the Devil’s excrement.”

Representational image. Reuters

Five decades, almost, since that speech, the time’s coming for India’s fateful reckoning that grim prophecy. As West Asia lurches into a period of protracted instability, the world is also entering a phase where the United States will not necessarily be available to contain and mitigate the consequences. In the future, India might have to pay the price for the devil’s excrement in blood, not just dollars.

Iranian general Qasem Soleimani’s assassination, on Friday, isn’t just significant for what it is, but its wider geopolitical meaning. For decades, the United States held back from such actions, concerned at their potential to destabilise West Asia, and with it, the world’s energy security. President Donald Trump, though has proved willing to take that risk.

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To understand just how significant this development is, one has to travel back the closing years of World War II when the global oil order was established. “Persian oil,” president Franklin D Roosevelt said to a British diplomat in 1944, “is yours. We share the oil of Iraq and Kuwait. As for Saudi Arabian oil, it’s ours”. The devil’s excrement brought untold wealth to West Asia and North Africa, but it also meant endless war. For two generations, the United States engineered coups and civil wars to ensured it ruled by proxy.

From the 1970s, when the OPEC cartel sent crude oil prices hurtling up, the need to project power in West Asia became even more pressing. In 1970, crude oil sold at around $20 a barrel, at today’s prices. In 1979, prices touched over $120. In addition, there was a series of geopolitical shocks: the revolution in Iran and the Soviet intervention in Afghanistan. All of these posed threats to the Strait of Hormuz, through which Persian Gulf oil reached the world.

In 1980, president Jimmy Carter laid down a thick red line to protect the US’ most vital interest. “Let our position be absolutely clear,” he said, “an attempt by any outside force to gain control of the Persian Gulf region will be regarded as an assault on the vital interests of the United States of America, and such an assault will be repelled by any means necessary, including military force.”

The United States has gone to war directly in the region 18 times since 1980, seeking to keep sources and shipping routes secure. Hudson Institute scholar Arthur Herman, in a seminal 2014 paper, noted that “keeping the region’s shipping lanes, including the Strait of Hormuz, open to tanker traffic costs the Pentagon, on average, $50 billion a year — a service that earns us the undying enmity of populations in that region”.

Princeton University’s Roger Stern has estimated that the US’ oil mission cost it $6.8 trillion from 1976 to 2007. “On an annual basis,” he noted, “the Persian Gulf mission now costs about as much as did the Cold War.”

Then, in 2014, the shale revolution in the United States became the world’s largest oil producer—ahead of Saudi Arabia.  That year, the tanker BW Zambesi carried a cargo of 400,000 tonnes from Galveston in Texas to South Korea—reversing a decades-long ban on exports. The availability of shale was great news for Prime Minister Narendra Modi—prices plummeted from over $100 per barrel in mid-2014 to under $50.

Herman notes: “Iran saw its former stranglehold over Europe’s oil supply collapse as the US’ tumbling demand for imported oil allowed Europe to buy what it needed from other sources, and at relatively low prices."

India’s economy, too, floated on a sea of cheap oil—but there was a hidden cost no-one saw, just then. The United States no longer had an existential dependence on West Asia’s oil, which inexorably changed its priorities. Though the United States still maintains significant troops numbers across West Asia, especially in Kuwait and Qatar—positioned to defend Saudi Arabia and the Persian Gulf monarchies—they’re there to protect its allies, not the global energy commons.

For generations of United States presidents, ensuring Persian Gulf oilfields and shipping routes remained opened was an existential imperative. For President Trump, and his successors, that isn’t, and won’t, be so.

Ever since the late 1990s, as the Indian economy began to grow sharply, New Delhi has been aware of the need for strategic influence to protect its interests in West Asia. The ambition crystallised, in 2016, when Modi stood with Iran’s Hassan Rouhani and Afghanistan’s Ashraf Ghani to announce the creation of a trade corridor stretching from the Indian-built port of Chabahar, that he argued would “alter the course of history”.

The years that have followed, though, have provided an unhappy education in geopolitical reality. Faced with United States sanctions, India had to suspend oil imports from Iran in May—infuriating Tehran, and placing the future of this keystone project in question. That isn’t the only problem: there’s growing reason to fear India might have invested not in a goldmine, but a sink-hole.

Following, 9/11, optimism grew on tapping Afghanistan’s mineral resources, leading India to see Chabahar as a hub for access not just to Afghanistan’s economy but the central Asia states. New Delhi also saw Chabahar as a means of offering India a strategic toehold in Iran, which has been flooded with billions of dollars of Chinese investments in highways, railways and power plants.

Efforts to establish a stable government in Afghanistan, though, went nowhere—and, in the cold light of day, it became clear some of the assumptions underpinning Chabahar’s role as a transit hub were questionable.

Prime Minister Modi, in 2016, argued routing cargo from India to Europe overland through Chabahar could “bring down the cost and time of the cargo trade to Europe by about 50 per cent”. From the experience of Chinese trains to Europe, though, it became clear this might not be true. Though trains took as little as 15 days to travel from Europe to China, half the time taken by the sea, oceanic cargo cost only a third as much—and companies proved unwilling to pay the higher costs.

In 2014, a study by the Federation of Freight Forwarders’ Associations of India tested the land routes to Europe and Central Asia through Iran’s Bandar Abbas. It costs $3,132, and took 33 days, to shepherd a 20-foot container from Mumbai to Baku in Azerbaijan—more expensive, and not much faster, than sending cargo through Rotterdam, in Holland.

The bottom line is this: for all the effort and cash, India has ended up stuck between the competing ambitions of Iran and Saudi Arabia, unable to either significantly influence events or insulate itself from their outcomes. Chabahar was a reasonable, win-win template for diplomacy—in a part of the world where there’s no great market for either of these virtues.

It isn’t as if India’s foreign policy establishment is unaware of the fraught world it inhabits. An Iran-Saudi Arabia war, or an Islamist-led uprising against the kingdom, or protracted civil strife in Gulf Cooperation Council states, are all remote possibilities—but not so remote that India, dependent as it is on oil and expatriate revenues, can afford to imagine they don’t exist. The thing is, New Delhi just doesn’t have the resources and tools it needs to protect its own interests.

Fearing blowback, New Delhi has been hesitant to involve itself even in multinational interventions in West Asia, as the war against the Islamic State—even in a humanitarian role. Even as Beijing has moved to cultivate military partnerships in Iran, and Moscow in Syria, New Delhi has—wisely or otherwise—stood on the sidelines.

In 2009, then army chief General Deepak Kapoor had initiated a discussion between army commanders on out-of-theatre deployment capacities and expeditionary warfare—but the discussions have gone nowhere. And in spite of the humiliating experience of being without either intelligence or political resources through the Iraq expatriates’ hostage crisis, there have been no significant efforts to build capacities.

The events following the killing of General Soleimani should serve to show this can’t last: India might not have the luxury of sitting in the stands as the next West Asia crisis plays out. The real price for cheap oil is blood—and it might just have to be paid.