Opinion World

All Crown and No Filling

India is talking big about resisting the Iran sanctions imposed by the US, but is buckling under pressure.

Despite making brave noises that it does not recognize inter-country sanctions — the kind imposed by US against Iran — the Indian government has begun the process of weaning itself off Iranian oil before the November 4 deadline set by the United States government. In June alone, it had reduced the oil purchase from Iran by 16% following perhaps the formula devised during the earlier sanctions imposed during Obama administration to reduce its exposure to Iranian oil by 20% every six months. New Delhi, though, hopes that it will get a waiver to buy oil from Iran — though at a lower scale — and to remain invested in Chabahar–Iran’s southeastern port that allows India to sidestep Pakistan to reach land-locked Afghanistan and Central Asia. If these waivers do not come, then the Indian economy and its foreign policy could be in serious trouble.

The US government has made it clear that it will not relent in its demand from countries to bring their relationship — including its imports from Iran — to zero by November 4. This is worrying for India, which has been living under the mistaken belief that its investment in Chabahar enjoys US support. Last year, when Rex Tillerson visited New Delhi in the capacity of US Secretary of State, he made it clear that his country was not averse to Indian investment in Chabahar. A week after his visit, India promptly sent the first wheat consignment to Kabul through the Iranian port. heralding its activation. Tehran tried to disabuse the impression that its connectivity deal signed with India and Afghanistan was against Pakistan.

No one was fooled by these disclaimers, as the development of Chabahar was presented as a strategic coup not just by New Delhi, but also by Kabul, which had been at the mercy of Pakistan and its trade and transit treaty that prevented it from accessing India. The US was also shown as a beneficiary of this deal as it could send its military supplies inexpensively to its troops in Afghanistan if Taliban or other brigands blocked their road journey from Karachi port. India is hoping that this compelling logic would sway Trump administration that has sworn to impose the most claustrophobic sanctions that Iran has experienced till now.

Though India has progressed slowly in Chabahar and in negotiating the Farzad-B oil field with Iran, cognizant of US President Donald Trump’s professed antagonism, it is looking at European countries that signed the Iran nuclear deal, and Russia in how they deal with the sanctions. French and German leadership is holding firm to the nuclear deal, finding nothing wrong with it. These European powers, as well as Russia and China, are looking at ways to trade with Iran in their local currencies. If that happens, then it would be a big rapture in the Atlantic alliance that has held sway since the second world war. During the earlier sanctions regime before the nuclear deal was signed, India had partially traded in rupees. It is hoping to do the same again, but Tehran is using the lessons of the past to put pressure on India to stay the course, in its ties and pay as much as possible in hard currency.

India imports about 2 million tonnes of oil every month from Iran, and is hoping to find a quick replacement of supplies from Iraq, Saudi Arabia, Russia and the US, if it is forced to dump supplies from the West Asian nation. This writer spoke to the Iraqi ambassador to India who was confident that his country would take care of any shortfall once India turns the tap off Iranian oil. But oil experts are not convinced by these assurances. Saudi Arabia has been told by the US to increase its production by another 2 million tonnes to bridge global supplies, Russia also promises to chip in, but oil experts believe that Riyadh would find it difficult to pump more oil from the existing wells. The collapse of the Venezuelan and Libyan oil supplies has compounded the nightmare of oil scarcity. Be that as it may, what is apparent to India is that the replacement for Iran oil will come at a hefty price.

Due to the turmoil in oil markets, the specter of US$100+ price per barrel has begun to loom on the world economy again. India, like many other economies, had benefited from the price collapse to a low of US$25 per barrel in 2014. This fall in prices had lent some kind of stability to the Indian economy despite PM Narendra Modi’s mercurial policies, that included demonetisation of large denomination notes and imposition of GST. Now petroleum prices have been on the rise for more than a year after Russia and Saudi Arabia struck an agreement to cap oil supplies, but they have not hurt India’s macro-economy. The country’s GDP, after some tinkering with its methodology, continue to grow at a fast clip of about 7% — perhaps the fastest amongst BRICS countries.

Ignoring protests, the government had not brought down the retail price of fuel commensurate to the fall of oil, but was prompt to hike it when it began to snake up again. The Centre claimed that the windfall accruals from a high oil price regime allowed it to fund its ambitious infrastructure programs. The jury is still out on whether these gains have been judiciously deployed, as the cash reserves of domestic oil producing and retailing companies have been used to fund bizarre projects like building large statues of historical figures to create a new nationalist narrative. Nearly all economists agree that things could get difficult for the Indian economy after the US sanctions against Iran come into effect. The talks of early national elections to be held along with polls to three state Assemblies are also linked to the possibility of an impending economic slowdown.

The bigger worry for India remains the setback that it will experience in the realm of foreign policy, especially with respect to its investment in Chabahar port. If India disengages from this Iranian sea port under US pressure, then it will have to abandon the strategic autonomy that it was trying to exercise, and depend again on the US to sort out many of its troubles.

All its recent attempts to disengage itself from over-reliance on the US and to work closely with other powers like Russia and China would come to a naught. What could upset India more is that its efforts to bypass Pakistan and to reach out to Afghanistan and Central Asia through Chabahar would also come short. Pakistan, on the contrary, led by the former star cricketer Imran Khan, would seek to reclaim its lost influence with Afghanistan and stitch together a new policy towards India. However, much of what transpires between the two countries would depend on how India’s difficult conundrum with Iran plays out.

About the author

Sanjay Kapoor

Sanjay Kapoor is the Editor of the Delhi-based Hardnews Magazine, which is the South Asian partner of French Publication, Le Monde Diplomatique.
Sanjay follows South and West Asia closely. He has authored a book on corruption and is a regular commentator on Indian and foreign TV channels.