Indian Response to the Re-Imposition of Sanctions on Iran

Indian interests at stake in Iran and the US are much higher now compared to previous times

Despite strong mutual understanding and convergence in their national interests, throughout the history of their relations, India’s ties with Iran has remained volatile. Managing relations with Iran has remained a challenge for the Indian governments particularly because of external factors that either directly or indirectly, by hook or crook, have forced India to reconsider before tightening ties with Iran. Moreover, with the Trump administration’s withdrawal from the Joint Comprehensive Plan of Action and subsequently the re-imposition of unilateral economic sanctions on Iran, no opposition to the past experiences of India’s dealing with Iran is foreseen.

Indian Interests in Iran and the US

Indian interests at stake in Iran and the US are much higher now compared to previous times. On the internal front, India is an energy deficit country and considered as one the largest energy consuming countries. Therefore, the maintenance of safe and secure energy supply is one of India’s top priorities. For India, Iran, one of the top three oil exporting countries, has been playing a significant role. Therefore, shifting the oil import from a country like Iran in a short span is quite shaky. Furthermore, regarding importing oil from Iran, India receives added benefits such as a 60-day credit period, which Iran may extend to 90 days, a freight discount of 100 percent, and shipping insurance provided by Iran for overcoming the insurance problems faced by Indian oil companies after the refusal of United India Insurance for providing insurance coverage for shipments.[1] As per reports, Iran may additionally offer oil to India at a lower price in comparison to the international market rates in the event India continues importing oil from Iran.[2] In shifting the oil import from Iran to other countries, India is likely not only to lose these benefits but also face  a price hike as a result of oil purchase consuming of a larger share of its economy. On the regional front, India is facing isolation and encirclement by the Chinese Belt and Road Project. China in collaboration with Pakistan is not only building a bloc on its northern border but also has started encircling India on its eastern and southern border by strengthening defence and economic relations with Nepal, Bhutan, and Myanmar as well as with Sri-Lanka. In the past, these countries were on amicable terms with India, however, in recent years, the relations with these countries, particularly with Nepal, Bhutan, and Myanmar, are strained and they are going closer to China. Consequently, in addition to providing India a way out from the encirclement by the development and interconnecting of the Chabahar Port with the North-South Transport Corridor, Iran offers an access route to strategically important Afghanistan. Therefore, Iran provides India ample scope and opportunities for energy, trade and economic cooperation, thereby enabling India to gain strategic advantage over rivals Pakistan and China both economically and politically in Afghanistan and Iran.

On the global level, India is working on the objective of building a stature of a big power in global politics, and on that front, it tries to develop strategic cooperation with the big powers, particularly with the US. India’s relations with the US are at a crucial stage after the dispute over tariffs and India is eager to transform it into a “global strategic partnership.” After joining the Missile Technology Control Regime (MTCR), India is seeking permanent membership in the UNSC and the Nuclear Supplier Group (NSG), as well as restricting the increasing influence of China and Pakistan. With regard to defence, India and the US are working very closely and the defence and arms trade between India and the US has shown a rapid increase. From 1999 to 2003 the arms imports of India from the US was only 0.2 percent of its total trade, between 2004-2008 it increased to 1.9 percent and from 2009 to 2013 it constituted 7.4 percent.[3] Presently, India-US relations are broad-based and multi-sectoral, covering defence and security, civil nuclear energy, space technology, trade and investment, mutual-production and mutual-development of defence items under the Defence Technology and Trade Initiative (DTTI), so on and so forth. In 2016, the US has recognised India as a “Major Defence Partner” and committed to technology sharing with India.[4] Moreover, at the end of Obama’s term, the arms trade rose to 14 billion and is increasing with each passing year.

India, Iran and the US Triangle

The triangle of India, Iran and the US has made the choices for the Indian policy-makers quite challenging from the recent past and particularly after the re-imposition of sanctions on Iran on 07 August 2018. With the US withdrawal from the Joint Comprehensive Plan of Action (JCPOA) India returned to its traditional stand and called for diplomacy and dialogue for resolving the nuclear issue.[5] Initially, before meeting with her Iranian counterpart Javad Zarif, the Indian External Affairs Minister Mrs. Sushma Swaraj made the following statement on the unilateral US sanction on Iran:

“We recognise UN sanctions and not country specific sanctions. We did not follow US sanctions on previous occasions either.”

The statement issued after the meeting of the two foreign ministers reads:

“EAM conveyed that all parties to the (JCPOA) Agreement should engage constructively for peaceful resolution of the issues that have arisen with respect to the Agreement.”[6]

However, the hardening stand of the Trump administration and subsequently the recent visit of the US representative to the UN, Nikki Haley, to India in June conveyed a clear message:

“All of us have to rethink who we choose to do business with. I think, as a friend, India should also decide is this a country they want to continue doing business with…. I think for the future of India, future of resources, we would encourage them to re-think their relationship with Iran.”[7]

On the development of the Chabahar Port, she said:

“We know the port has to happen and the US is going to work with India to do that… we know that they are being a great partner with the US in Afghanistan and really trying to assist the US and trying to do more.”[8]

In the meanwhile, Iranian Deputy Ambassador and Charge d’Affaires Massoud Rezvanian Rahaghi warned India that if India stops importing Iranian oil not only the special privileges like 60 days credit for purchase and freight discount would end but the connectivity related interests with Iran would also defer.

Indian Stand and Options

The imposition of the first round of sanctions on Iran, targeting the acquisition or purchase of US dollars by Iran, trade in gold and other precious metals, import and export of graphite, aluminium, steel, coal, software for integrating industrial process, automotive sector, purchase or sale of Iranian rials and buying or facilitating the issuance of Iranian sovereign debt, caused little problem to India. For making future strategy, India’s oil ministry previously called a meeting with the refiners dealing with Iranian oil and urged them to prepare for a drastic reduction or zero imports of Iranian oil from November and to search for alternatives. Under US pressure and avoiding US sanctions, the Indian Reliance Industries Ltd., the operator of the world’s biggest refining complex, has already halted importing Iranian oil.[9] The State Bank of India has also conveyed its inability to handle oil payments to Iran from November onward to Indian refiners and the government.[10] At the official level, the Indian government has maintained the policy of wait and watch and has kept its eyes on the position and stand to be taken by the EU countries.[11] Previously the Indian Prime Minister has talked with the Russian President and German Chancellor and recently India sent a delegation to Europe to access options of continuing trade with Iran. The delegation comprised officials from the Ministry of Petroleum, External Affairs and Ministry of Finance which interacted with government officials, bankers and other sources having knowledge of the development. India is looking at the EU as an option for continuing its energy trade with Iran and currently is making its oil payments to Iran in euros through Germany’s EIH bank. In case the EU joins the US, then continuing business with Iran  will pose a problem for India. In response to the query, the Oil Minister of India refused to talk about the impact of the sanctions on India’s trade with Iran by saying that it too early to say anything.[12] After failing to get a waiver from the US as reports suggest, India is keeping in consideration its past experience in dealing with Iran during the sanctions period under previous US administrations and is looking at other options. Previously India used different alternative mechanisms for making oil payments such as the rupee-rial, the Asian Clearing Union (ACU), Turkish Halkbank, and UCO Bank which does not have any property in the US, as well as the rupee as the mode of payment to Iran. While Iran, on the other hand, has also been considering trade in the recently inaugurated Chinese Yuan-denominated crude oil futures on the Shanghai International Energy Exchange.[13] Furthermore, both countries maintain communication and are making deliberations about the future course of action for overcoming future issues emerging from the imposition of US sanctions on Iran. In July 2018, the foreign secretaries of both the countries met in New Delhi and agreed to explore the means for continuing oil trade and discussed new banking channels. The statement issued by the Ministry of Foreign Affairs of India reads as follows:

“Views were also exchanged on regional and international issues of mutual interest, including the efforts being made by various parties to address issues that have arisen over the Joint Comprehensive Plan of Action.”[14]

Conclusion

In conclusion, the current situation arising from the re-imposition of US sanctions on Iran and making adjustments accordingly is not new to India. India is familiar to such situations and has dealt with and adjusted itself with more difficult situations when all countries favoured the US. In the current situation, there is a bloc of European countries, Russia and China which have opposed Trump’s withdrawal from the Joint Comprehensive Plan of Action and his subsequent re-imposition of sanctions on Iran. Taking these into consideration, India has officially maintained the policy of wait -and-watch and unofficially has been in search of means to deal with the situations in both cases, that is: (a) shifting imports from Iran to other countries, and (b) convincing the US and finding the ways for making oil payments to Iran in case of continuing business with Iran.

The views expressed in this article are the authors’ own and do not necessarily reflect IRAM’s editorial policy.

 

[1] Reuters. Iran offers India oil Cargo insurance, shipping to boost sales. 26/07/2018. Retrieved from https://www.reuters.com/article/us-india-iran-oil-insurance/iran-offers-india-oil-cargo-insurance-ships-to-boost-sales-sources-idUSKBN1KG29X

[2] The Times of India. Modi Government’s Dilemma: TO buy oil from Iran or US. 18/07/2018. Retrieved from https://timesofindia.indiatimes.com/business/india-business/modi-governments-dilemma-donald-trump-or-cheap-iran-oil/articleshow/65035572.cms

[3] Vivek Mishra . India-US Defence Cooperation: Assessing Strategic Imperatives. Strategic Analysis, Vol 42, Issue-1, 2018. https://www.tandfonline.com/doi/full/10.1080/09700161.2017.1420121

[4] Ministry of External Affairs, Government of India. Retrieved from https://www.mea.gov.in/Portal/ForeignRelation/India_US_brief.pdf

[5] The Hindu. India urges dialogue after US withdraws from Iran n-deal. 09/05/2018. Retrieved from https://www.thehindu.com/news/national/india-urges-dialogue-after-us-withdraws-from-iran-n-deal/article23825182.ece

[6] The Hindu. No Sanctions on Iran: Sushma. 28/05/2018. Retrieved from https://www.thehindu.com/news/national/no-sanctions-on-iran-sushma/article24017540.ece

[7] The Times of India. Nikki Haley talks tough on Iran Import curbs, India may fall in line. 29/06/2018. Retrieved from https://timesofindia.indiatimes.com/business/india-business/us-firm-india-may-cut-energy-imports-from-iran/articleshow/64782981.cms

[8] Reuters. US envoy Haley tells Modi important to cut imports of Iranian oil. 27/06/2018. https://www.reuters.com/article/us-usa-iran-india/u-s-envoy-haley-tells-modi-important-to-cut-imports-of-iranian-oil-idUSKBN1JN24K

[9] Indian Express. India Preparing for cut in oil imports from Iran: Sources. 28/07/2018.

[10] Reuters. India’s top Bank top handling Iran oil payments, import may be hit. 16/06/2018.

[11]The Indian Express. Re-imposed US sanctions on Iran kick in- what they are, what it means. 07/08/2018. https://indianexpress.com/article/explained/re-imposed-us-president-donald-trump sanctions-on-iran-kick-in-what-they-are-what-it-means-5294804/

[12] Business Standard. India sends delegation to Europe to assess impact of US sanctions on trade with Iran. 06/06/2018. Retrieved from https://www.business-standard.com/article/pti-stories/india-sends-delegation-to-europe-to-assess-impact-of-us-sanctions-on-trade-with-iran-118060601279_1.html

[13] Shebonti Ray Dadwal. Iran Sanctions: India’s options. Institute if Defence Studies and Analyses. 12/07/2018.

[14] The Economic Times. 16/07/2018

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