India & Iran Need to Recalibrate Ties Amid US Oil Sanctions

Delhi’s response to Nikki Haley’s remarks on India’s reliance on Iran for oil were rather ambivalent.

(Photo: The Quint)

During her recent visit to India (27-29 June 2018), US Envoy to UN, Nikki Haley spoke about the need for India to re-calibrate its relationship with Iran, and urged India to reduce oil imports.

(Iran happens to be India’s third largest supplier of oil after Saudi Arabia and Iraq).

Haley, who met with Prime Minister Narendra Modi and discussed a number of issues (including Iran), did state that she understood the relevance of the Chabahar Project for India.

A State Department Spokesperson, while referring to all countries, including China and India, categorically stated that they would need to reduce oil imports from Iran to zero, or face economic sanctions.

New Delhi’s Response

New Delhi’s response to Haley’s remarks and the statements of the State Department Spokesperson were ambivalent. On the one hand, India stated that it had its own interests, and signaled that it would not kowtow to the US. On the other hand, Oil and Petroleum Minister Dharmendra Pradhan also stated that New Delhi did not bank upon any one country. In fact during the UAE Foreign Minister’s visit to New Delhi, UAE oil company ADNOC committed to investing in Ratnagiri. India’s Petroleum and Natural Gas Minister, Dharmendra Pradhan told media, “State owned refiners IOCL, HPCL & BPCL will have 50 percent stake in the Ratnagiri Refinery. Aramco & ADNOC will have 25 percent stake each.”

After criticism, the Indian government did state that it would take up the Iran issue firmly with the US.

At the same time, oil imports from Iran, for the month of June did witness a drop of over 15 percent. Oil imports from Iran, for June, were estimated at 592,800 barrels per day (bpd) as opposed to 705,200 bpd in May.

Iran’s Strategic Relevance for India & Chabahar Port

One of India’s key interests in Iran is the Chabahar Port, for which New Delhi has provided assistance. During President Rouhani’s February visit, this was one of the important items on the agenda. A lease agreement was signed for Shahid Beheshti Port at Chabahar, between Iran's Port and Maritime Organisation, and India Ports Global Limited. According to the agreement, for 18 months, India would take over the port facilities of Phase 1 of the Chabahar Project.

The port is important for New Delhi, since it provides India much needed access to Afghanistan and Central Asia.

Pakistan, for long, has refused to provide land access to India. New Delhi was also planning to make this port part of the International North South Transport Corridor ( INSTC), and during the joint statement, this point was highlighted.

Dharmendra Pradhan in an interview to the media, highlighted the importance of both Iran and the US:

“... We have a special strategic relationship with the US. We have a historic, cultural and civilisational relationship with Iran. Iran is also a factor in India-Afghanistan relationship because of its geographic proximity. Our economic interests are tied to both. The government will take a comprehensive view.”

Significantly, a senior Iranian diplomat, while speaking at a seminar in New Delhi, warned India that if New Delhi actually reduced oil imports, Tehran would not hesitate to withdraw special privileges. Iran’s Deputy Ambassador and Charge d’Affaires Massoud Rezvanian Rahaghi said, “… If India were to replace Iran with countries like Saudi Arabia, Russia, Iraq, the US and others – for the 10 percent of its oil demand – then it may have to revert to dollar-denominated imports – which mean higher CAD (Current Account Deficit) and deprivation of all other privileges Iran has offered to India.”

Rahaghi also drew India’s attention to the slow progress on Chabahar port. A statement issued by the Iranian Embassy however, clarified that Iran understood India’s challenges, and also that India was a sovereign country which could choose suppliers on the basis of a number of factors. Said the statement:

“Friendly relations with supplier countries, market factors, geopolitical and geo-economical considerations and potentials and reliability of oil suppliers”.

Impact on India-China Ties

First, on the Iran issue, New Delhi can not play the waiting game and remain neutral. It needs to find common cause with other US allies, in Europe and Asia (especially South Korea and Japan) who too are at variance with Trump’s rigid approach to Iran. Only recently, Russian Foreign Minister, Sergey Lavrov, spoke about the decision of France, Germany and UK to carry on Trade with Iran (independent of the US Dollar). Lavrov also said that this decision applied to small and medium size enterprises.

There is no harm in finding common cause with China and Russia.

During the SCO Summit in June 2018, both Russia and China had spoken in favor of the Iran deal, while India adopted a cautious approach, though the PM did mention the Chabahar project.

Second, as India and China are looking at a ‘reset’ in their relationship, it is also time for New Delhi to not just firmly raise the issue of Pakistani terror with Beijing, but also urge Beijing to prevail upon Islamabad to address two important economic demands of India. This includes, Pakistan providing MFN status to India, and land transit to Afghanistan and Central Asia. For long, Pakistan has kept India out of the APTTA (Afghanistan, Pakistan Transit Trade) agreement.

Last year, an offer was made by Pakistan’s Army Chief, Qamar Ahmed Bajwa in a discussion with Afghan President, Ashraf Ghani, but India did not consider this seriously.

In the current situation, this would be all the more relevant, given the fact, that India and China are seeking to work together on a capacity-development project in Afghanistan.

India Needs 2-Pronged Approach to Iran

The proposal to work jointly was first discussed in the Wuhan Summit in April 2018, and then during the meeting between PM Modi and Chinese President Xi Jinping on the sidelines of the SCO Summit in June 2018.

Whether or not India is ultimately granted access to Central Asia and Afghanistan, will largely depend upon the victor in the Pakistan elections, and even more on the inclination of the Pakistan Army. While General Bajwa has made the right noises, it remains to be seen whether he is serious about improving ties with India.

In conclusion, a two-pronged approach is required to counter the likely challenges arising out of Donald Trump’s approach towards Iran.

First, finding common ground with other countries impacted by US’ stance towards Iran. Second, New Delhi needs to press for land transit to Afghanistan and Central Asia, and in this Beijing can play an important role.

(Tridivesh Singh Maini is a New Delhi based policy analyst associated with The Jindal School of International Affairs, OP Jindal Global University, Sonipat. He tweets @tridiveshsingh. This is an opinion piece and the views expressed are the author’s own. The Quint neither endorses nor is responsible for them.)