The American Sanctions on Iran and Implications for India: Part 1

Author: Rajesh Soami*

Date: 09 May 2019

The decision of the Trump administration to end waivers for the import of Iranian oil to India has ended the almost 12 year-long diplomatic tightrope that India has been walking since  sanctions  were  first  imposed  on  Iran  through  UN  resolution  1737,  in  December 2006.   The ‘on again off again’ nature of the sanctions had provided India the breathing space it required to maintain its ties with both Iran as well as the United States, the latter being the major driving force behind the curbs.   The occasional waivers granted to India by the US helped along the way.

After 01 May 19, however, India can no longer import Iranian oil without  adverse economic  consequences.    According  to  statements  emanating  from  the  Government  of India, it intends to comply with the sanctions.  If correct, this will be a first for the country. In the past, New Delhi has never supported Western non-UN-mandated sanctions against individual States.

This development should come as no surprise.  Ties between India and the US have been growing stronger since the start of the millennium.  The two countries now agree on a  host  of  issues,  including,  but  not  limited  to  China,  Afghanistan  and  international terrorism.   The  US  has  helped  India  become  a  de  facto  nuclear  power  through  the  ‘123 agreement’.    It  has  also  helped  Delhi  join  the  Wassenaar  arrangement,  the  Australia Group,  and,  the  MTCR  (Missile  Technology  Control  Regime).    India,  for  its  part,  has signed three of the four foundational military cooperation agreements with the US.   The latest one was the COMCASA, signed last year (in 2018).

However, American hostility towards Iran puts India in a serious bind. The importance of Iran to New Delhi rivals that of the US. The geographic location of Iran is itself a major factor. A difficult relationship with Pakistan means that India is compelled

to access Central Asia through Iranian territory. India also intends to connect itself to countries in West Asia, the Caucasus, and, Eastern Europe, through its International North South Transport Corridor. Iran is at the centre of all such plans.

Secondly, Iran is also a vital source of petroleum imports. The Indian economy depends heavily upon both, the import of raw crude and the export of processed petroleum products, to fuel its rapid economic growth. After coming under pressure from American sanctions, Teheran has been offering deep discounts to buyers of its oil. India has benefitted from these. Moreover, some refineries in India are designed to handle only Iranian sour crude. The US sanctions mean that these refineries will now have to make technical changes to crude from other countries, thereby incurring extra cost.

Despite these issues, India is gearing up to comply with the US sanctions. The Minister for Petroleum and Natural Gas, Dr Dharmendra Pradhan, said on Twitter:

“Govt has put in place a robust plan for adequate supply of crude oil to Indian refineries. 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”

 

In the last decade, India has markedly improved its relations with other oil producing countries in West Asia. This was evident when recently, Prime Minister Modi was awarded the Zayed Medal, the highest civilian honour of the United Arab Emirates. Saudi Arabia, the largest oil producing nation in the world, has also become friendlier to India. The two States are cooperating on the anti-terrorism front. Riyadh has also promised to build a refinery in India with an estimated investment of $44 billion. These developments suggest that India may, indeed, manage to get supplies from other countries as Dr Pradhan has stated.

However, Indian compliance with the American sanctions on Iran are almost certainly going to lead to its deterioration of ties with Tehran. India already has the image of an unreliable friend within Iran. This is due to the partial fulfilment of American sanctions in the past, by way of reduced oil imports. From the Indian point of view, it is Iran that has acted with little concern for Indian sensitivities. Despite an Indian consortium discovering gas deposits at Farzad B gas field, Iran has dithered on giving exploitation rights to Indian companies. This prompted New Delhi to instruct its oil

importers to reduce their take from Iran in 2017.  In the past, Iran has also criticised India on its policies in Kashmir, which has not been seen positively in Delhi.

The mutual disillusionment between Iran and India is likely to lead to geopolitical challenges for both States. Iran has, in the past, threatened to revoke special ‘privileges’ to India if its oil is replaced by those of other countries in West Asia. This did not go down well with New Delhi. Truth be told, Iran does have leverages it can exploit. The Indian investment in Chabahar could be put under pressure. In the past, Iran has changed the terms of the Indian investment in Chabahar, causing delays. A sizeable portion of Indian investments in Afghanistan, both capital and material, would be endangered if Iran pursues this path.

Moreover, if and when sanctions are lifted, India may not be offered favourable financial terms by Iran for the purchase of Iranian oil. Considering the very large volumes India requires to sustain its robust growth, this could have significant financial implications.

This is not to say that the Indian decision to comply with American sanctions is incorrect. As the sole superpower, the US wields enormous influence around the world. States, big and small, have faced economic problems when they have ended up on the wrong side of American policies. Turkey, Pakistan and Russia are relevant examples. It would not be too prudent for India, whose ties with the US are growing fast, to alienate the US for the sake of its ties with Iran.

That having been said, India must try to convince the US of its need to keep Iran engaged. Although, Delhi cannot expect waivers of the kind it has received in the past, it must talk to the Americans to allow for import of some oil from Iran. A correct (even if token) amount will not change the effect of sanctions very substantially. At the same time, it would enable India to continue managing its goodwill in Teheran, which is necessary for other projects both at present and in the future.

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*Rajesh Soami is an Associate Fellow at National Maritime Foundation, New Delhi. The views expressed in the article are his own and do not reflect the position of the NMF. He can be reached at rajesh96_isg@jnu.ac.in

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