CWA # 56

India External

India between the US and Iran: The Art of Balancing Two States

Ryan Mitra 23 September 2018

Photo Source: TImes of India

India is the second largest importer from Iran. With the US, there is a larger strategic partnership at stake. How can New Delhi address mounting domestic pressure, bilaterally manage India-Iran relations and externally manoeuvre the US diplomatic pressure?

Ryan Mitra is a Research Scholar at the Pandit Deendayal Petroleum University (PDPU)

In light of the latest sweep of sanctions proposed by the United States against Iran, India finds itself in the centre of multiple and major geopolitical decisions.

In May, the Trump administration unilaterally decided to withdraw from an international deal designed to limit Iran's nuclear program in turn for easing pressure on the Middle Eastern State’s shaky economy. Now, this administration has announced plans to reimpose economic sanctions against Iran and has called on other countries to cut their oil imports from the country to zero by early November. A multi-fold consequence matrix has been established, where India needs to balance the demands, wishes and interests of various entities and stakeholders.

India is the second largest importer from Iran. With the US, there is a larger strategic partnership at stake. How can New Delhi address mounting domestic pressure, bilaterally manage India-Iran relations and externally manoeuvre the US diplomatic pressure?

India’s Domestic Concerns

The rapid rise of oil prices in India and the devaluation of the Indian rupee vis-à-vis the dollar has raised serious concerns and is the central talking point in the political and economic sphere. New Delhi is banking on its oil exporting allies such as Iran, Iraq, and Saudi Arabia to help weather the storm. India imports 80 per cent of its oil consumption and is extremely vulnerable to any price shifts due to its heightened dependency.

As already seen, the devaluation of the rupee, along with heightening prices of oil, is significantly burdening the economy and the common man, and with the upcoming federal elections, the Modi government is wanting to address this unsustainable scenario head-on. But the latest outcome of the visit by the US Secretary of State Mike Pompeo might prove to be a spanner in the works. India has already curbed its import from Iran by 45 per cent which is already proving to have a detrimental impact on its domestic setting as Iran provided its crude at a fairly discounted rate compared to other exporters in the region. Further reduction with no clear or viable alternative only adds to the concerns in this issue and further complicates an already complex situation.

The obvious answer to this domestic concern lies internationally, and the escalation of this international issue to a multilateral form dilutes the control India would have wanted, therefore again leaving it vulnerable to quite literally an opportunity cost between two opposing entities.

Iran’s Likely Response

Iran is not likely to see waning support and confidence from its second-highest importer lightly. India has a history of supporting the US in US-Iran disputes; when India voted against Iran in the International Atomic Energy Agency, and encouraging it to abide with the NPT.

India is not a supporter of US’ modus operandi and has denounced the principle of sanctions, but the zero-sum game established by the Trump administration may force India to buckle and gradually halt oil imports from Iran. In consideration of this reality, policymakers in New Delhi will have to account for Iran’s reaction to India’s decisions. A symbolic and emotional relation ties New Delhi and Tehran, and the latter is an extremely valuable strategic partner, as it serves as a corridor into Central Asia and Afghanistan.

In times of such distress for the Iranian government, it is bound to look for support from its allies who have inherently opposed hegemonic display of power and use of foreign economies as a tool of coercion and hard power. India’s compliance with the US sanctions may prove to be detrimental to India’s Central Asian interests, with no clear indication of how long the US expects India to abide with the zero imports policy and whether Iran will continue to abide with the bilateral setting that existed before the sanctions. India has thoroughly enjoyed Iran’s discounted crude, and the strategic positioning it acquired in the Chabahar port, but that status quo is subject to change and overturn in lieu of the latest decisions by US and India.

India’s viable alternatives

India’s exposure to the US financial system may leave no other option other than halting imports from Iran, but this exposure does not negate the oil demands existing within the country. The US agreeing to provide waivers in return for gradual but absolute reduction is a temporary and incomplete relief to a situation that could lead to a significant deficit in the import of economically viable crude.

Post the 2+2 dialogue, government officials are reportedly making it clear that any uptick in the higher US oil imports should not be taken as a replacement for Iranian crude. Looking at India’s oil relations in the MENA region, Iran is the third highest provider after Iraq and Saudi Arabia. Despite the reduction in imports in August, Iran’s contribution to Indian consumption is immense and India needs to diplomatically resolve the impending deficit that is bound to occur once Iranian imports are halted.

Apart from the US waivers, India needs to look to the other two exporters mentioned, specifically Saudi Arabia. Considering the growing relations between the Saudi Arabia and US, and the transactional form of diplomacy adopted by the Trump administration, India needs to construct an avenue where in return for its compliance with US sanctions and demands, the western State facilitates bilateral talks between India and Saudi Arabia, allowing it to tap deeper into its crude at a discounted rate, below the current objective rate, which is set at $80/barrel.

India’s diplomatic cognisance and abilities are being tested to its limits in this current scenario. An environment of multiple demands and interests has placed immense pressure on New Delhi where an axis of domestic and international interests is directly correlating to short and long-term interest within each quadrant applicable to all variables and entities. Even though policymakers have stated India will indeed buckle to US pressure if it continues to pressurize the South Asian State but with union elections looming and no respite being found for rising oil prices, no concrete solution or path can be established until closer to November; when the US sanctions are imposed.

COMMENTS

Sourina Bej

Faced with a similar decision-making situation, in past India had continued to import oil from Iran. In 2009 India maintained it needs of being a strategic alliance with the US by voting against Iran in IAEA and at the same time meeting its economic needs by importing the oil on a CIF (cost, insurance, freight) basis. In contemporary times what happens if India doesn’t buckle?

Aparupa Bhattacherjee

The commentary seems to have gone ahead with the assumption that India would have to stop importing oil from Iran. But what if the opposite is also true and India does manage to import oil and also maintain a clear strategic equidistant from Iran and US. Plus it will be interesting to know whether the change in Iran will have any impact on Sout Asia as a region?