Iran Sanctions: Is India between a Rock and a Hard Place?

Iran Sanctions
Is India between a Rock and a Hard Place?

Interview with Harsh V. Pant
March 2, 2012

In an interview with NBR, Strategic Asia author Harsh V. Pant (Kings College London) argues that while India’s relationship with Iran is under great scrutiny within the country, India seeks to diversify its energy supply beyond Saudi Arabia. He also asserts that the role future U.S. involvement in Afghanistan and Pakistan will play in determining India’s relationship with Iran is underappreciated.

Despite objections from the United States and others, India continues to buy crude oil from Iran, importing roughly 12% of its oil from the country, second only to Saudi Arabia. India maintains that it respects sanctions imposed by the United Nations but will not honor any other sanctions.

In an interview with NBR, Strategic Asia author Harsh V. Pant (King’s College London) argues that while India’s relationship with Iran is under great scrutiny within the country, India seeks to diversify its energy supply beyond Saudi Arabia. He also asserts that the role future U.S. involvement in Afghanistan and Pakistan will play in determining India’s relationship with Iran is underappreciated.

Could you briefly explain India’s foreign policy toward Iran and the primary drivers in the relationship between the two countries?

India’s foreign policy toward Iran is multifaceted and a function of a number of variables, including India’s energy requirements, its outreach to the Muslim world, its large Shia population, and its policy on Afghanistan. There has been a lot of hyperbole about India-Iran ties in recent years, which some Western analysts have described as an “axis,” a “strategic partnership,” or even an “alliance.” The Indian Left has also developed a parallel obsession. It has made Iran an issue emblematic of India’s “strategic autonomy” and used the bogey of toeing an American line on Iran to coerce New Delhi into following an ideological and anti-American foreign policy. A close examination of the Indian-Iranian relationship, however, reveals an underdeveloped relationship despite all the spin attached to it. Where India’s stakes are growing rapidly in the Arab Gulf, India’s ties with Iran remain circumscribed by the internal power struggle and economic decay in Iran, growing tensions between Iran and its Arab neighbors, and Iran’s continued defiance of the global nuclear order.

As noted above, India imports roughly 12% of its crude oil from Iran, second only to Saudi Arabia. How crucial is Iranian oil to meeting India’s energy needs?

India would certainly like to increase its presence in the Iranian energy sector because of its rapidly rising energy needs, and it is rightfully feeling restless about its own marginalization in Iran. Not only has Pakistan signed a pipeline deal with Tehran, but China also is starting to make its presence felt there. China is now Iran’s largest trading partner and is undertaking massive investments in the country, rapidly occupying the space vacated by Western firms. While Beijing’s economic engagement with Iran is growing, India’s presence is shrinking, as firms such as Reliance Industries have withdrawn from Iran, partially under Western pressure, and others have shelved their plans to make investments. Indian oil companies are finding it hard to get vessels to lift Iranian cargo because of Western sanctions. Most recently, Shipping Corporation of India, India’s largest domestic tanker owner, has refused to provide its tankers to the Indian Oil Corporation for lifting Iranian oil.

On the other hand, there is also little evidence that Iran would be a reliable partner in India’s search for energy security. Iran has either rejected or not yet finalized plans due to last-minute changes in the terms and conditions for a number of important projects with Indian businesses and the Indian government. Moreover, both major energy deals recently signed with great fanfare, which also raised concerns in the West, are now in limbo. India’s 25-year, $22 billion agreement with Iran for the export of liquefied natural gas (LNG) has not produced anything since it was signed in 2005. The agreement requires India to build an LNG plant in Iran and would need American components, which might violate the United States’ Iran and Libya Sanctions Act of 1996. The other project involves the construction of a 1,700-mile, $7 billion pipeline to carry natural gas from Iran to India via Pakistan, and it is also currently stuck.

India continues to import oil from Iran despite additional (non-UN) sanctions imposed on Tehran by the United States and Europe. Can you explain what considerations are affecting India’s decision to continue imports of Iranian oil? Similarly, what kind of debate is occurring domestically about India’s relationship with Iran, if any?

The Indian government has asked its refiners to cut their imports from Iran by about 10%–15%, even as Iran has tried to sell extra volumes to those refiners on long credit terms. India has also struggled to find ways to pay Iran after the United States made dollar transactions almost impossible under financial sanctions. New Delhi feels that it cannot replace Iran as an oil supplier overnight, and any drastic step by India to reduce its presence in Iran will only further entrench China’s role in the Iranian oil and gas sector.

India has continued to affirm its commitment to enforce all sanctions against Iran, as mandated since 2006 by the UN Security Council, when the first set of sanctions was imposed. However, much like Beijing and Moscow, New Delhi has argued that such sanctions should not hurt the Iranian populace and has expressed its disapproval of sanctions by individual countries that restrict investments by third countries in Iran’s energy sector, such as those imposed by the United States.

Presently, India’s relationship with Iran is under great scrutiny in India, with some arguing that given its regional interests, India should continue to maintain close ties with Iran. Others have suggested that India has far greater stakes in the Arab world and should side with them in more forcefully opposing Iran, especially as further proliferation of nuclear weapons in India’s extended neighborhood is not in Indian interests. This is a period of political flux in India with important regional state elections taking place. The government is involved in a high wire balancing act but cannot be seen as jettisoning Tehran, as New Delhi fears that its opponents would use that to portray it as caving under American pressure.

The United States is increasing pressure on Asian countries who continue to rely on energy supplies from Iran, including India, Japan, China, and South Korea, and may offer to help India find sources to replace Iranian crude by brokering deals for supplies of Saudi and Iraqi oil. This is in addition to a Saudi offer in mid-February to export additional crude oil to India. Should India continue to import Iranian oil, how might this decision affect both its relationship with the United States and its desire to develop as a global power, including its bid for a permanent seat on the UN Security Council?

India would like to keep a diversified oil basket and is reluctant to rely solely on Saudi Arabia as its source for energy. Riyadh is the chief supplier of oil to India’s booming economy, and India is now the fourth-largest recipient of Saudi oil after China, the United States, and Japan. India’s crude oil imports from the Saudi kingdom will likely double in the next twenty years, and Riyadh has repeatedly emphasized its commitment to uninterrupted supplies to a friendly country such as India, regardless of global price trends. However, Riyadh’s traditionally close ties with Pakistan and its support for radical Islamist forces continue to stifle New Delhi–Riyadh relations and remain a major reason why India is not very comfortable with relying solely on Saudi Arabia.

There is no doubt that if India continues to be one of the last major powers providing succor to the regime in Tehran, the West and Washington in particular would find it difficult to support India’s UN candidacy. New Delhi hopes that the gradual steps it is taking to reduce its reliance on Iran will ameliorate some of these concerns.

Some in the international community have hoped that India could use its close relationship with Iran as leverage toward shaping a positive outcome on the Iranian nuclear issue. How realistic is this? What factors might impact India’s calculus?

This is not at all realistic. The nuclear issue is very complex for Indo-Iranian relations. New Delhi and Tehran have long held significantly different perceptions of the global nuclear order. Iran was not supportive of the Indian nuclear tests in 1998, and it backed the UN Security Council Resolution asking India and Pakistan to cap their nuclear capabilities, by signing the Nuclear Non-Proliferation Treaty (NPT) and the Comprehensive Nuclear-Test-Ban Treaty (CTBT). Iran repeatedly has called for universal acceptance of the NPT, much to India’s chagrin. Although Iran has claimed this was directed at Israel, the implications of such a move are far-reaching for India. After the conclusion of the U.S.-India civilian nuclear deal, Iran had warned that the pact endangered the NPT and would trigger new “crises” for the international community.

India’s position on the Iranian nuclear question is relatively straightforward. Although India believes that Iran has the right to pursue civilian nuclear energy, it has insisted that Iran should clarify the doubts raised by the IAEA (International Atomic Energy Agency) regarding the country’s compliance with the NPT. India has long maintained that it does not see further nuclear proliferation as being in its own interests. This position has as much to do with India’s desire to project itself as a responsible nuclear state as with the very real danger that further proliferation in its extended neighborhood could endanger its security.

Is there anything else that is important to understand about India’s relationship with Iran?

It is not often appreciated how important the “Af-Pak” issue is to India’s future security, its strategic planning, and its relationship with Iran. The uncertainty surrounding the future of Afghanistan is forcing India to re-evaluate its policy choices. Though the United States may have no vital interest in determining who actually governs in Kabul so long as Afghan territory is not being used to launch attacks on U.S. soil, the issue is important to India. If Washington were to abandon the goals of establishing a functioning Afghan state and seeing a moderate Pakistan emerge, that would put greater pressure on Indian security. To preserve its interests in case such a strategic milieu evolves, India believes that it should coordinate more closely with Iran as a contingency plan. If the United States does decide to leave Afghanistan with Pakistan retaining its pre-2001 leverage, New Delhi and Tehran will likely be drawn closer together to counteract Islamabad’s influence in Kabul that has been largely detrimental to their interests in the past.

Harsh V. Pant (PhD, University of Notre Dame) is a Reader in International Relations in the Defence Studies Department at King’s College London.

This interview was conducted by Sonia Luthra, Assistant Director for Outreach and Allen Wagner, an intern at NBR.