India’s Iran Dilemma
Chabahar Port, Iran. (Photo: www.rferl.org)
By Aditi Bhaduri

India’s Iran Dilemma

Jun. 24, 2019  |     |  0 comments


Now that a new government is in charge in New Delhi, its task is cut out for it. Most analysts concur that it will be to navigate the choppy waters of the numerous rivalries that the world is currently riddled with — US-Russia, Saudi-Iran, US-China and so on, and most of them are important partners for India in one sphere or another. One of the major tasks is to forge a response to the US-Iran crisis.

 

The importance of Iran for India cannot be overstated. India is Iran’s second largest crude importer, after China. As the world’s fifth largest economy, India is the world’s third largest energy consumer — a need that is only projected to grow. India sources almost 10 percent of its energy needs from Iran. And that too at concessional rates over longer credit period. Most of India’s refineries are also geared to processing Iranian crude. Though in recent times India has sought to diversify its energy sources, looking to countries like Nigeria and Venezuela amongst others, Iran nevertheless fulfilled an important requirement.

 

Under earlier US sanctions, India had given into US pressure and significantly reduced its oil imports from Iran, something the Iranians have not forgotten, and also withheld payments. It heaved a sigh of relief with the lifting of the sanctions and the adoption of the Joint Comprehensive Plan of Action (JCPOA) in 2015 by the P5 (namely China, France, Russia, the United Kingdom, and the United States) and the European Union. Trade between India and Iran had increased by almost USD 4 billion over the last one year, according to Iranian news agency IRNA.

 

However, tensions over Iran’s nuclear and missile program this time around, and the re-imposition of sanctions by the US, have created another round of problems for India. Since November 2018, when the US re-imposed sanctions on Iran, after pulling out of the JCPOA, it allowed waivers for 8 countries importing from Iran — India, China, Turkey, Taiwan, South Korea, Japan, Italy and Greece were given an exemption to import reduced volumes of oil for 180 days. India enjoyed these waivers till recently, when in April 2019 the US announced it was not going to continue with the waivers anymore. Under the waiver India could import up to 300,000 bpd of Iranian oil

 

Soon after, Indian energy minister Dharmendra Pradhan tweeted “Govt (sic) 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.” US sanctions have more than halved Iran’s oil exports to 1 million barrels per day (bpd) or less, from a peak of 2.8 million bpd in 2018, reported Reuters.

 

Iranian Foreign Minister Mohammed Javad Zarif visited New Delhi on 13-14 May, 2019, holding talks with his Indian counterpart Sushma Swaraj and with Indian National Security Advisor Ajit Doval. The visit, planned at a short notice, came as part of his broader outreach to regional allies as tensions ratcheted up between Iran and the US, with attacks on oil targets in Saudi Arabia and the UAE, something the US and its Arab allies have hinted is the handwork of Iranian proxies.  

 

On the eve of his departure to India, Zarif told the Iranian media that India was one of ‘Tehran’s close partners” and “For this reason, we have always consultation with Indian partners in various fields that I will follow these consultations on this trip.” After his meetings in Delhi, Zarif tweeted “Just had excellent talks in Turkmenistan and India. Those who actually live in our fragile neighborhood have a real national security interest in promoting peace, stability, cooperation and connectivity”, stressing that “Iran remains a most accessible, efficient, sustainable and secure partner.”

 

However, he was told in no uncertain terms by his Indian counterpart that the Iran would have to wait for the new government to take any decision regarding imports, clearly passing the ball to her successor. India was in the throes of parliamentary elections during Zarif’s visit.

 

Ratcheting up tensions further, the US has also deployed B52 bombers in Qatar and an aircraft carrier towards the Persian Gulf as part of a military buildup to counter unspecified Iranian threats to “American interests” in the region, alluding to the tanker attacks in the Kingdom of Saudi Arabia (KSA) and the United Arab Emirates (UAE). Israeli energy minister Yuval Steinitz had also said, the Israeli media reported, that “Iran may fire rockets at Israel.”

 

With its strategic partnership and enormous trade and defence interests with the US, India is in a bind. All the more because the US had recently rendered assistance to India to get Pakistan-based terrorists sanctioned by the UN, by forcing China — which had always obstructed the sanctioning by citing technical issues — to acquiesce by threatening to take the issue to the Security Council. At the same time, even as India looks to the US to balance China’s assertiveness in the Indo-Pacific Region, it is embroiled in trade differences with the US which has removed India from the General System of Preferences list of countries. India was the largest beneficiary of the program in 2017 with USD 5.6 billion worth of exports to the US being given duty-free status. Furthermore, India is also committed to defense purchases from Russia, which runs the risk of invoking the Countering America’s Adversaries Through Sanctions Act.

 

Less discussed is the fact that equally important for India are its relations with the KSA, the UAE, and Israel, all of whom have been at the forefront of the opposition to the JCPOA, with more recent attacks on oil installations in the first two. India’s stakes in its partnership with these countries are also extremely high, especially with KSA and UAE.

 

Almost 7 million Indians live and work in the different Gulf Cooperation Council (GCC) countries, which makes them the largest expatriate community in the region, sending back hefty foreign remittances to India. In 2018, for instance, the India was the top destination for remittances from the UAE.  

 

Moreover, India has close energy cooperation with UAE and the KSA, both of whom are active participants in India’s energy security. While Abu Dhabi National Oil Company (ADNOC) is partnering with India to build its strategic oil reserves, Saudi Aramco is set to build its largest USD 44 billion oil refinery in western India.



Buckling under US sanctions would mean that India’s opportunity to develop the Farzad B gas fields, which the Iranians were offering at almost USD 4 billion dollars after long and painstaking deliberations, could also be lost.



While India has hitherto done a deft balancing act with all three power centers in the region, with almost back to back visits at the highest levels from all these countries to Delhi and Narendra Modi in his last term visiting Tehran, Riyadh, Abu Dhabi, Tel Aviv, this time around it may not be such a cake walk over the escalating differences.


Equally, Iran is important to India for a number of reasons besides energy security. In the region, Iran is an important partner to contain Pakistan and to reign in the Taliban. During the earlier period of Taliban rule in Afghanistan, India, Iran and Russia had jointly supported the anti-Taliban Northern Alliance in Afghanistan. Currently, with events in Afghanistan taking a sharp downturn with the imminent withdrawal of the US forces from there, and the almost certain ascendancy of the Taliban, Shiite Iran will be an important partner to keep a restraining check on it, suffering as it had in the past from the Sunni Taliban excesses.


Iran is equally important for India to contain Pakistan. Iran has frowned upon the sectarian violence that Pakistan is beset with, with attacks against its minority Shia community which is patronized by Iran. Moreover, Iran has also been a target of cross-border terrorism emanating from Pakistan with the most recent attack in February, 13, 2019 killing 27 members of Iran’s elite Revolutionary Guards near the Iran-Pakistan border. Good relations with Iran ensure that in case of conflict with Pakistan, there will be no threat from Tehran.  


Iran is also important for increasing India’s strategic connectivity in Central Asia. To that end, India has been developing the Iranian port of Chabahar in the southern tip of the country on the Sea of Oman, committing around USD 500 million. This offers India direct sea-land access to Afghanistan, while bypassing Pakistan which had not granted India territorial access to Afghanistan. It also allows Afghan goods into the markets of India and West Asia, bypassing Pakistan, which also reduces its dependence on the latter. Chabahar thus has the potential to help stabilize the Afghan economy, which is so vital for peace. In May 2016, India, Iran, and Afghanistan signed an agreement on the establishment of a Transit and Transport Corridor among the three countries using Chabahar port as the regional hub for sea transportation. So important is Chabahar for Afghanistan that it has been exempt from US sanctions, though there is no clarity how things will proceed further.


Further, Chabahar allows India access to the markets of resource rich Central Asia, and through the International North South Corridor further into Russia and Europe. The port assumes greater significance for India, given that it remains opposed to the other great connectivity project in Asia — China’s Belt and Road Initiative (BRI).


On December 3, 2017, Iranian President Hassan Rouhani officially launched the first phase of the Shahid Beheshti International Port in Chabahar. The annual cargo tonnage of the Shahid Beheshti Port now reaches almost 8.5 million tons. In March 2019, the first consignment from Afghanistan reached India through Chabahar while a consignment from India landed in Afghanistan more recently in May.


Besides, Chabahar port is also strategically important to India, allowing it to offset the Gwadar port in Pakistan that the Chinese have developed. Gwadar is about 72 kms from Chabahar and connects to the China Pakistan Economic Corridor.


However, all these calculations could unravel for India, as Zarif, soon after his Delhi visit, travelled to Islamabad, where he offered linking up Pakistan’s Gwadar port with Iran’s Chabahar. Iran’s Press TV quoted Zarif as saying on the eve of the visit: “We believe that Chabahar and Gwadar can complement each other,” and on his arrival in Islamabad: “We can connect Chabahar and Gwadar, and then through that, connect Gwadar to our entire railroad system, from Iran to the North Corridor…...”


The Indian media did not care to report it but this was undoubtedly signalling to India that it may have to pay a price if it ditched Iran in its moment of need. However, if actualized, it could negate much of India’s aspirations and expectations from Chabahar. It had been negotiating the port development since 2003, but that had to be put on the backburner by the sanctions that ensued then. In 2014, after the Modi led BJP to took charge in Delhi, Modi once again reactivated negotiations regarding Chabahar, which had come to be seen as a success project for India — the only overseas port it operates.


Zarif had earlier also asserted that linking up Chabahar with the BRI would be good for the region. If Gwadar is linked up with Chabahar, then India will end up ceding strategic space to both China and Pakistan.


Buckling under US sanctions would mean that India’s opportunity to develop the Farzad B gas fields, which the Iranians were offering at almost USD 4 billion dollars after long and painstaking deliberations, could also be lost. Moreover, oil prices are sure to increase in India and will have to be borne by the consumer in an already slowed down economy. The government, flushed with its electoral victory, will have to tread carefully in its second term.


Recently, there have been reports saying India would bypass sanctions through the Mumbai branch of Iran’s Pasargad Bank. In Januray 2019, Nitin Gadkari, the Indian Shipping, Road Transport and Highways Minister, after meeting Zarif in Delhi had announced that Iran’s Bank Pasargad will open its branch within the next three months.


Some of India-Iran trade takes place through rupees and even barter and Gadkari had also stated: “They need steel, particularly real steel and locomotive engines, and they are ready to supply urea,” and that barter could also be considered. Now the BJP government is again back in power; given that India’s foreign policy has always been marked by continuity, irrespective of the government is in power, it is expected that India will not give in fully to US demands. Whether it does so will be evident soon.



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