India faces tough choices as the US sanctions Iran

India faces tough choices as the US sanctions Iran

Salman Rafi Sheikh,

For the Indian policy makers, one of the crucial questions today is of how to walk a balancing act between the US, their prime strategic ally, and Iran, their traditional regional ally and, of course, third biggest supplier of oil.  The question has become even more significant ever since the resumption of US sanctions on Iran after the Trump administration decided to pull the US out of the Iran deal and ‘expected’ its allies to bring their oil trade with Iran down to “zero” by November 4, 2018.

Will India now stand to its self-declared stature of ‘big-power’ or simply yield? What is at stake here is not just Indian reputation and its standing in the world, particularly its claim to a permanent seat in the United Nations Security Council, but also the Chabahar port that India has been investing in to compete two of its prime regional rivals, Pakistan and China.

Pressure is, therefore, building on India, and it has mounted ever since the second consecutive postponement of the US-India 2+2 strategic dialogue.

While the US has ‘clarified’ that the postponement has nothing to do with a ‘plunge’ in relations with India, the fact that this has now happened at least twice and that it has also happened when the US is building pressure on the buyers of Iranian oil to stop buying it and find alternative sources indicates how things are shaping.

India does not only have to decide for what it wants to do, but also has to look how other buyers of Iranian oil, particularly its rival China, are going to handle the US pressure. Clearly, China, which is already engaged in a ‘trade war’ with the US, will not succumb to US. In fact, it has decided to increase its purchase from Iran.

The EU, too, is not likely to yield. It has already allowed European Investment Bank to guarantee finance activities in Iran that the US has vowed to choke off.

Iran, which has special relations with India, has been trying to lure India into its own axis by recently offering free shipping and an extended credit period of 60 days.

But Indian policy makers don’t seem to have been moved by this offer as they continue to look for alternative sources of oil to avoid getting sanctioned by the US.

Already, India has unwittingly found itself in the middle of US-China ‘trade-war’ and it doesn’t seem to be prepared to further distance itself from the US, as also Israel, by continuing to buy Iranian oil.

While India, by toeing the US line of action on Iran, may be able to extract significant strategic benefits and buy some advance war toys, it wouldn’t still resolve its Chabahar conundrum.

Pressure from Iran has started to come in the wake of India signaling its intentions to diversify its oil import. India’ Oil Minister Dharmendra Pradhan in Mumbai said “Our basket (of crude imports) has become multi-country. There may be no country in the world that we have a problem getting oil from. We buy from Latin America, we buy from Brunei. When the US became an exporter, Indian companies were first to buy”, he added.

Unsurprisingly, sensing India’s possible decision to cut off Iranian supplies, Iran has already started to beat the Chabahar drum to force India to pay attention to what it might lose if it stops buying Iranian oil.

Thus Iran’s Deputy Ambassador and Charge d’Affaires Massoud Rezvanian Rahaghi said that they will ‘end the privileges being provided to India’ if tries to source oil from countries like Saudi Arabia, Russia, Iraq, the US and others to cut Iranian oil.

The Iranian anger is due to the 16 per cent cut India has already introduced in its supplies from Iran. India’s monthly oil imports from Iran declined to 592,800 barrels per day (bpd) in June, down 16 percent from May, according to data from industry and shipping sources.

Also, India’s private refiners like Nayara Energy and Reliance Industries Ltd have already decided to completely halt Iranian oil imports.

But India is yet to decided as to what it will do with the Chabahar, which is not only India’s counter-part to Xi’s Gwadar Port of Pakistan, but also has already invested US$500 million, and has promised to commit US$21 billion: US$9 billion for the whole Chabahar project and the rest for developing Afghan iron ore.

While there is no gainsaying that Chabahar is India’s centre piece in its policy objective to connect with Afghanistan and Central Asia directly, bypassing Pakistan, India wouldn’t want to lose that too after it cuts off Iranian oil.

Therefore, keeping in mind Indian diplomatic methods, India might use the Chabahar Port as a bargaining chip with the US and wean the port away from the purview of US sanctions, thus managing to continue to do strategic business with both the US and Iran.

Already, the US officials have given informal indications that they understand India’s cardinal interests vis-à-vis the Chabahar and might be able to swap the port if India snaps its oil trade with Iran.

But the hard part for India is of how to keep Iran in the loop after India cuts its oil.

While India does have a big oil import basket, it certainly doesn’t have any alternative to the Chabahar port, a port which not only helps it connect with other Asian territories, but also largely defines the role it wants to play in the region as a major economic competitor of China and in terms of access to markets.

And, if India fails to convince Iran of continuing business on Chabahar, India’s role in the region may become limited to Afghanistan as a US ally where it would only be deepening its involvement in the murky waters of the “war on terror” in Afghanistan rather than the Indian ocean; while China will continue to increase its own trade volume—a process that is likely to gain pace once Gwadar becomes fully functional with all of trade routes from China into Pakistan being built under CPEC.