By Asif Ahmed
India and Iran have friendly relations in many areas, despite India not welcoming the 1979 Revolution. There are significant trade ties, particularly in crude oil imports into India and diesel exports to Iran.
Iran frequently objected to Pakistan’s attempts to draft anti-India resolutions at international organizations such as the OIC and the Human Rights Commission India welcomed Iran’s inclusion as an observer state in the SAARC regional organization. There is a small Indian community in Iran. There is a Sikh Temple (Gurdwara) located in Tehran, as well as small Hindu temples in Bandar Abbas and Zahidan. They were built in the 19th century by Indian soldiers in the British Army. There are also small communities in India who trace their ancestry to Iran. A small number of Iranian students are enrolled at universities in India. The growing Iranian film industry looks to India’s Bollywood for technical assistance and inspiration. The clerical government in Tehran sees itself as a leader of Shiites worldwide including India. Indian Shiites enjoy state support such as a recognised national holiday for Muharram. Lucknow continues to be a major centre of Shiite culture and Persian study in the subcontinent.
In the 1990s, India and Iran supported the Northern Alliance in Afghanistan against the Taliban regime. They continue to collaborate in supporting the broad-based anti-Taliban government led by Hamid Karzai and backed by the United States. India, despite close relations and convergence of interests with Iran, voted against Iran under US pressure in the International Atomic Energy Agency in 2005, which took Iran by surprise. The USA considers support from India – which is on 35-member board of Governors at the International Atomic Energy Agency – crucial in getting a sizeable majority for its proposal to refer the matter to the Security Council for positive punitive action against Iran.
The kind of current response that Iran’s refusal to allow IAEA inspectors into the Parchin nuclear site may provoke from the US-Israel-Europe axis is a matter of speculation. Although many options to curtail Iran’s alleged nuclear weapons ambition are being considered, the use of India’s leverage over Iran is being strongly urged by the US and its allies. India is certainly in a ‘diplomatic bind’ as all those involved in the stand-off are important to its national interest. A diplomatic fine-balancing and the conveyance of a strong message on India’s compelling concerns is the way out of this bind.
Currently there are three strings attached to India’s current diplomatic bind over the Iranian nuclear issue: energy security, pursuit of nuclear non-proliferation, and strategic partnerships with major powers. Should the tryst for energy security gag India when it comes to taking a stand on nuclear weapons proliferation and nurturing India’s strategic partnerships with the US and Israel?
Two straightforward policy options are available: choosing the US-Israel-Europe axis or remaining neutral. Neither way is not toll-free or easy way for all countries. To address the concerns of the West, New Delhi has to abruptly stop 10 per cent of its total crude oil import and the entirety of trade with Iran, which has heavy economic repercussions. Disengaging Iran would also affect India’s presence in Afghanistan and Central Asia as Iran is the conduit that enables connectivity. Any military action by the West will necessitate the immediate repatriation of six million Indians in West Asia. On the domestic front, the Left parties and the Muslim population would up the ante on UPA government’s pro-US foreign policy strategy.
India is walking a precarious line these days, attempting to placate the U.S, with whom it has large trade and strategic ties, while retaining close relations with Iran, a regional friend that’s a source of badly-needed gas and fuel. India’s continuing energy cooperation with Iran continues to be a prime area of foreign policy divergence between India and the United States. India is engaged in an increasingly difficult balancing act. On the one hand, New Delhi is seeking to avoid US penalties and to strengthen its strategic partnership with Washington. On the other, it wants to avoid a complete rupture with Iran, which has been a major source of oil and a potential supplier of gas as well as being an important regional partner.
Though India has stated time and again that a nuclear Iran is not in its strategic interests and bad for regional stability, it has not desisted from sourcing much needed energy supplies from Iran. Given the historical ties between the two nations, India’s surprise vote against Iran in the International Atomic Energy Agency (IAEA) governing board in September 2005 and again in February and March 2006 to refer Iran to the United Nation Security Council (UNSC) for violating its obligations under the Nuclear Non Proliferation Treaty (NPT) shocked Iran. Despite the vote, India is unlikely to abandon its relationship with Tehran or allow the United States to interfere in the same.
India’s position, despite voting against Iran in the IAEA in 2005,2006, and 2009 is that while it backs Iran’s peaceful use of nuclear energy, as a member of the NPT, Tehran must observe its obligations under the treaty and must take the international community’s and the IAEA’s views into consideration. India firmly believes that the issue must be resolve through dialogue and discussion. India’s External Minister Pranab Mukhrajee’s visit to Iran in February 2007, the first by a senior minister since India voted against Iran (at that time) in the IAEA, was aimed at repairing some of the damage as well as to underscore close bilateral ties. Interestingly, Mukherjee’s visit took place soon after Russian President Vladimir Putin’s(at that time) visit to India during which the Iranian issue was discussed at length and both sides agreed to cooperate to find an effective solution to the Iranian nuclear standoff through political and diplomatic efforts. In Iran’s perception, the lack of progress in the Iran-Pakistan-India pipeline is due to the US pressure on India.
Where actually does India stand on this issue related with Energy Security and National Interest? It lacks a definite policy. It has finally succeeded in attaining the status of an internationally acknowledged nuclear power and as such cannot hereafter behave in an ostrich-like manner. Instead of being an opportunistic player we should take a firm stand and act accordingly. Otherwise what is the US Strategic Partnership use for us? US attacks Iran, then installs a puppet regime which will hand over oil fields to US companies to run. Indians have to price for it in terms of increased petrol prices!! Complete lose-lose situation.
While oil and gas projects with Iran are important for energy hungry nation like India and would have gone a long way in mitigating some of its long term energy concerns. After India’s vote Iran’s priority is to cultivate and strengthen relations with Beijing, both due to china’s burgeoning energy market and its permanent membership in the UNSC. Iran is banking on both China and Russia to prevent the United States from succeeding in its anti-Iran campaign in the United Nation, both in terms of economic sanctions as well as military action. In contrast, India, which was earlier seen as a potential mediator in the US-Iran conflict, may now be seen by Iran as less dependable, following its vote against Iran’s nuclear programme in the IAEA.
Remaining neutral would be equally difficult and India’s pursuit of nuclear non-proliferation would be questioned vigorously. Its nuclear energy networking and strategic partnership with the US would be under stress. Defence technology imports from Israel are also bound to be affected. The anti-India lobby in the US would gain momentum, hampering India’s international clout. Is there a way out of this binary option? A fine-balancing of the three – USA, Israel, and Iran – with an innovative diplomatic endeavour should be attempted. More importantly, India must dispatch all party delegations to the concerned state capitals to strongly convey three important messages which are vital to India’s nationhood. In a move to enervate Iran the US has recently imposed fresh economic sanctions that would stifle Iran’s financial institutions.
Unlike in the past the US seems to be keen on persuading key oil importers such as India, China and Japan to implement sanctions against Iran. The proposed sanctions will severely hamper Iran’s oil revenues. While Japan has already decided to reduce its oil dependency on Iran, China has expressed anguish about US’ decision. The Indian position, however, remains unclear. India confronts a policy dilemma in choosing whether to bandwagon with the West or to befriend Iran. India wants to strengthen the strategic partnership with the US and at the same time wishes to maintain good relations with Iran. As a corollary, the inadvertent dilemma now is whether to choose nuclear fuel and loose crude oil or vice-versa. In general, economic sanctions are considered to be an element of coercive diplomacy in international politics. However, in Iran’s case it has proved to be a sign of timid diplomacy. The so-called western approach of ‘carrots and sticks’ has failed to persuade Iran to forgo its nuclear weapon programme. Moreover, neither the E3/EU nuclear diplomacy nor the IAEA negotiations could prevent Iran from pursuing the uranium enrichment programme. Despite the US’ campaign of international isolation and Israel’s sabre-rattling, Iran is brazenly furthering its uranium enrichment programme. Technically, Iran’s enrichment capability illustrates that nuclear weapon is within Iran’s reach. Whether the proposed economic sanction will bite Iran or boost the regime’s conviction is a moot question but the perplexing question is how it impacts India – a traditional friend which turned out to be a situational foe.
The India-Iran-US triangular relationship emerged as an inevitable phenomenon after the Indo-US nuclear deal steering the security dynamics of the region. India’s interest in this complicated trio seems to be driven largely by its energy security interests than other factors. As a third largest importer of crude oil from Iran amounting to 12 per cent of its overall import India will face a tough time ahead if the economic sanctions against Iran are implemented as well if Iran blocks the Strait of Homruz. Therefore, there is no doubt that it will severely upset India’s energy security which is sine quo non for its already sluggish economic growth. India needs crude oil as well nuclear fuel for its fast growing economy. The former is supplied by Iran and the latter is ensured by the US under the Indo-US nuclear agreement.
Thus India is situated in a very awkward position when it is asked to support oil sanctions on Iran. The economic sanctions will jeopardize India’s oil import from Iran. With the raising global oil price, booming inflation and increasing domestic energy consumption India cannot afford to lose oil supply from Iran. At the same time, India cannot stop the US or the west from exercising military option against Iran. India should, in the meanwhile, avoid any symbolic hostility and protect its energy security interests in this unending nuclear impasse. India’s vote against Iran at the IAEA in 2005 was a symbolic gesture to show to the world that it is a responsible nuclear power and also to secure US help to ensure nuclear fuel supply from Nuclear Supplier Group (NSG). Nuclear energy contributes to 3 per cent of its electricity generation. However, crude oil and natural gas have become essential commodities without which the country’s economic engine will cease to function. Securing the supply and production of these energy sources have become top priority for the government in India.
Three future scenarios are likely to emerge in the future: Iran will be air-raided, Iran will test a nuclear bomb and the current nuclear stalemate will continue. None of these scenarios will be favourable to India and rather would endanger India’s energy security. To avoid a stalemate India needs to de-hyphenate its relationship with the US on Iran by articulating its energy security interests. This requires a ‘deft diplomacy’ from the Indian side and the present international security environment stormed by global economic crisis favours implementation of this option. This would help India to overcome a catch-22 situation vis-à-vis oil imports from Iran.
India must convey both to the US and Israel that it “does not fancy a situation in which it might have to choose one nation over the other” by overlooking its national interest. This might in fact give rise to Cold War bloc politics which is completely against India’s foreign policy ideals. A strategic partnership denotes an understanding of each others’ vital national concerns and accommodation in a mutually acceptable manner. India’s strategic partnership with the US is important, and differences of opinion should not derail the evolving cooperation between the two.
The manner in which India chooses to deal with Iran is neither ‘a slap on USA’s face’ nor inconsistent with India’s non-proliferation credentials. Considering US concerns over Iran, India has already reduced its dependence on Iranian crude oil import from 16 per cent in 2008-09 to 10 per cent in 2012. It will further reduce it when alternative options are available; but not abruptly. And if Iran’s nuclear weapons programme is proved, India would undoubtedly condemn and vote against it.
New Delhi has been struggling to cope with the US and EU sanctions on Iran. While officially India has said that it would comply only with UN mandated sanctions and not unilaterally imposed ones, it has cut down its imports of crude from Iran. It has, or has committed to cut, oil imports from Iran by 11 per cent to 310,000 barrels a day (b/d). To compensate for the loss in Iranian crude, India has asked Saudi Arabia for another 100,000 b/d of crude. However, New Delhi is quick to state that the import cuts were related more to payment issues as well as impending insurance sanctions, rather than US/EUpressure.
With regard to the payments issue, after the Reserve Bank of India’s diktat in December 2010 to importers that the Asian Clearing Union (ACU) route that was hitherto used for making payments would no longer be available to them, Indian refineries have been scrambling to find alternative means to pay for Iranian crude. Subsequently, India was making payments to Iran through Turkey’s Halkbank, though this was considered precarious after Halkbank refused a BPCL application. The issue was resolved after Iran agreed to accept rupee payments up to 45 per cent of the value of oil exports through the Kolkata-based UCO Bank, while the rest would be paid in Euros through Halkbank.
India shares the belief that Iranian nuclear ambitions would prove destabilizing for the Middle East. But it does so from a slightly different perspective, it does not see Iran’s nuclear intentions as a response to its rivalry with Israel (as often believed in the West), but as a product of Arab-Iran, and especially Sunni-Shiite, rivalry. The Iranian nuclear ambitions are viewed in New Delhi as a counter to a two-front encirclement of Shiites by Sunni Pakistan and Sunni Saudi Arabia. While the government is publically maintaining that it does not support the US sanctions against Iran and that it will not seek any waiver to the US measures, it has quietly issued informal diktats to state-owned oil refining firms to undertake cuts in oil imports from Iran and diversify the oil importing sources,” reported Hindustan Times. India has over the last three or four years reduced its oil imports from Iran, based on its refineries’ assessment of technical and commercial considerations.
In 2008-09, India imported 21.8 million tonnes of crude, which came down to 21.2 million tonnes in 2009-10, 18.50 million tonnes in 2010-11 to 17.44 million tonnes in 2011-12. The target for 2012-13 has been fixed at 15.5 million tonnes.India’s friendship with Iran could cause trouble with the US. Reuters The Obama administration recently exempted 10 European Union countries and Japan from US economic sanctions while crediting them with “significantly reducing” their purchases of petroleum from Iran. US Secretary of State Hillary Clinton granted waivers to Belgium, Britain, the Czech Republic, France, Germany, Greece, Italy, the Netherlands, Poland, Spain and Japan, meaning that banks and other financial institutions based there will not be hit with penalties under US law for a renewable period of 180 days. Now India, China, South Korea and the rest of the 12 countries have until 28 June 2012 to take similar steps or face sanctions. “Both India and China are now understood to be treading a smart diplomatic path and are working on slashing imports from Iran by 15-20 percent,” the government official told Hindustan Times.
The Indian government is also now weighing several options to manoeuvre around the ever-tightening sanctions, including the provision of sovereign guarantees to oil tanker operators, similar to Japan. At the same time, Indian refineries which are planning to lift around 173,000 b/d for the fiscal year April 2012 to March 2013 from Iran, including state refineries such as MRPL and HPCL (IOC has decided to stop all imports from Iran from July) are also seeking permission from the government to lift cargo on cost-insurancefreight (CIF)) basis as against the current freight-on-board (FOB) basis which is mandatory for state-owned importers. This would allow Iranian shippers to provide insurance cover.
Even though, in theory, domestic reinsurer General Insurance Corporation-Re has stated its willingness to provide $50 million cover per ship, for which it is awaiting permission from the Insurance regulator, IRDA, it is only a fraction of the required $120 million liability provided by the P&I club. Iran’s private tanker operator, National Iranian Tanker CO (NITC), has stated its willingness to provide cover and keep up supplies through the $1 billion insurance coverage it has on its own fleet. NITC is largely owned by Kish P&I, a private company, but which relies on state-owned Central Insurance of Iran as its reinsurer. However, although NITC does own around 39 vessels, and theoretically it can ship around 1.8 mbd—which is more than Iran is currently exporting—more than half of the company’s fleet of tankers has been detailed for storing Iranian surplus crude.10
Moreover, although no restrictions have been imposed on NITC as yet, US pressure groups that are campaigning against Iran’s nuclear programme are mounting pressure on survey companies that supply safety certificates for ships to dock at foreign ports, to terminate contracts with Iran, thereby limiting the number of foreign vessels that are willing to load Iranian oil at Iranian terminals. Even with Asian organisations now stepping in to provide the classification certificates, including the Korean Register of Shipping and the China Classification Society, the political pressure may see the number of Iranian vessels supplying oil coming down in the days ahead.11
In the meantime, Iran is storing crude oil on tankers. According to reports, Iran added about 10 million barrels of floating storage recently with about 17 supertankers and seven Suezmaxes holding crude, with another estimated 25 million barrels being kept in onshore tanks. Nevertheless, the Indian maritime administration is mulling over a proposal to set up an Indian Protection and Indemnity (P&I) Association for coastal ships. The plan is to forman association of owners of small and medium sized ships that are operating on the coast initially and then later cover larger vessels, with a higher premium. The Indian P&I association will provide insurance cover to these ships by collecting a fixed premium, and will go for 100 per cent reinsurance. While theoretically, nothing prevents Indian ship-owners to form their own P&I association, they have a combined 10 million gross registered tonnage, that is, just one per cent of global capacity. However, the government can facilitate the formation of an Indian P&I Club by involving its insurance companies, at least in respect of ships bringing crude from Iran
India can stage-manage the present nuclear stalemate between Iran and the west by suggesting an alternative non-western approach similar to that of Brazil-Turkey initiative to strike a consensual deal with Iran. This would at least prolong the Iranian plan to test a bomb, thus avoid any nuclear domino effect in the region. India needs to emphasize to both the US and EU the limits of sanctions against a nation’s nuclear weapons ambition. This approach has never worked; sanctions and aggressing posturing would only strengthen Iran’s resolve (if any) to acquire nuclear weapons. A technical-legal approach is insufficient to address nuclear weapons proliferation. A sustained dialogue by addressing Iran’s, as well as the region’s security concerns would help de-escalate the West-Iran stand-off. India should prepare for a nuclear weapons-armed Iran.
So far, there is no official statement from India stating nuclear-armed Iran is a threat to its national security. In fact, India would not like to see another nuclear weapons state in its backyard which would make the neighbourhood tenser. It will go to any extent in response to a proxy war against Israel in Indian territory. But when India could live with the nuclear-armed Pakistan, it can simply do the same with Iran. But, securing India’s interests, in case if Iran is attacked is going to be a big challenge for India.
India has consistently failed in the past years in its approach to issues of energy security. Inept diplomacy led India losing out to China and Russia which maintained close and good relations with Iran for their national interests securing energy security. New Delhi also needs to proceed very carefully if it is interested to secure alliance with Iran for energy security.
At this time, India needs Iran to achieve its varied strategic objectives. New Delhi has a history of cooperation with Tehran in opposing the Taliban in Afghanistan and has sought to use Iran as an alternative trade and energy conduit to Central Asia, bypassing rival Pakistan. From Iranian point of view, Iran also needs a good partner like India. This is must in part because of Iran’s increasing isolation in international circles and also in part because India is an emerging country in the region. The US goal is to control the world’s oil supply so that it can control the world. Without the US dollar as the reserve currency the US would be bankrupt and its economy would be worse off the Greece. It is not in Asia’s interests to let the US control the world oil supply. Both China and India are too important for the US to sanction, the US wants to increase trade to these countries especially given that they have fast growing middle classes with lots of money to spend on Americans goods. The only reason that the US sanctioned India in the 1990’s was so that all of its trade partners would walk away and then the US backfilled all of the contracts.
It may be prudent for India to remain engaged with Iran in the matter of oil supplies for economic as well as geostrategic reasons, but reduce its dependence slowly on Iranian oil over an extended period of time. India is uniquely placed to leverage this crisis to its advantage. It calls for continued pro-active diplomacy to secure India’s core national interests, including the possible institution of the position of Special Envoy/Policy Coordinator on the Iranian Nuclear Issue, which could be a useful addition to the policy making process to help coordinate various strands involved to arrive at optimum decisions.
The possibility of war on Iran or Iran testing a nuclear weapon is minimal at least in the short-term due to global economic crisis and the forthcoming national elections in the US and Iran. This provides ample space for India to manoeuvre and exercise diplomatic skills to protect its vital energy security interests in the region. Undoubtedly, along with unique challenges, this occasion has brought India an opportunity to be a forceful stake-holder in an intricate global issue. Instead of choosing one against the other and indulging in somebody else’s war, India must be careful to calibrate close ties simultaneously with the US and Israel, while maintaining delicate ties with Iran, all of which should be diplomatically tenable and pragmatic. This, therefore, is the time for proactive diplomatic posturing to balance the imperatives of India’s energy security, strategic partnerships and pursuit of non-proliferation simultaneously.
1. US, Iran and Israel: India in a Diplomatic Bind by Sitakanta Mishra, Research Fellow, Centre for Air Power Studies (CAPS) & Associate Editor, Indian Foreign Affairs Journal.
2. India’s Iran Dilemma: Nuclear Fuel or Crude Oil? by J Jeganaathan Research Officer, IPCS, #3559, 18 January 2012.
3. Iran Sanctions Forces India To Demand Extra OPEC Oil: Will Rebalance Prices, Lianna Brinded, International Business Times, June 15, 2012, http://www.ibtimes.co.uk/articles/352734/20120615/ energy-oil-iran-india-opec-saudi-arabia.htm.
4. Oil market shrugs at imminemet Ian tanker insurance ban, Reuters, June 18, 2012, http:// in.reuters.com/articles/2012/06/18/us-iran-oi-exports-idINBRE85H05820120618.
5. Indian Diplomacy and Politics of Balancing Relations by Asif Ahmed, 27 May 2012 Published in OnLine Thinker.
6. Iran’s Nuclear Imbroglio at The Crossroads: Policy Options For India, S. Samuel C. Rajiv, IDSA Occasional Paper No. 26. 2012.