Iran to remain integral part of India’s foreign policy

India can live without Iranian energy, but Iran will remain an important part of Indias foreingn policy. As the US under Donald Trump takes an extreme view of Iran sanctions, it promises to constrain India’s manoeuvring space significantly if India is not careful.

1 July 2018
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Iran moved back into third place as a source of energy in 2016, soon after the JCPOA unshackled global engagement with Tehran. A sizeable number of Indian refineries are configured to working on Iranian crude. But with the US openly calling for a “zero” by November 4, things begin to look difficult. Notwithstanding Indian government’s brave words, Indian companies, banks, even India’s oil PSUs, are scaling back faster than you can say Hassan Rouhani.

The world is awash in oil, so that’s not the problem. Between Iraq, Saudi Arabia, Nigeria, even Equatorial Guinea and now US, India is not short of suppliers. Prices will be an issue for a while, but energy experts expect a levelling out once production ramps up again.

Iran does not see things in the same way — Iranian officials have responded to US’ “zero” demand by saying, “This big claim (of cutting Iran oil supply) is not feasible because last month Iran exported 2.8 million barrels of crude oil and condensate per day.”

During the earlier round of sanctions, India, like China and Japan, got a sanction waiver, because they “demonstrated” significant reductions (about 20 per cent every 6 months). India moved Iran transaction from dollars to euros, and even after Turkey’s Halkbank refused to process Indian payments, a rupee-rial deal was worked out. The trouble with buying Iranian oil in Indian currency remains the same — while Iran has tons of things it wants to buy from China, there’s very little it wants to buy from India beyond basmati rice and some pharmaceuticals. Post sanctions, the rupee-rial deal has not yet taken off.

A bigger issue will be connectivity. Energy dominated the discourse in the last round of sanctions, but this time the focus is multi-modal connectivity. India needs Iran for keeping it connected to Central Asia and Russia. The joint statement issued after Hassan Rouhani’s visit here in February 2018 focused mainly on connectivity, with energy taking second place. India wants to use the Chahbahar port not only as an access point for Afghanistan but link it to the International North-South Corridor (INSTC). India’s connectivity ambitions were made clear after New Delhi signed on to the TIR Convention and the Ashgabat Agreement. During Rouhani’s visit to Delhi, Iran also asked India to build a new extension of the rail link at Zahedan (which connects to Afghanistan as well as to Iran’s national network) to Mashad, and thence to central Asia. Nitin Gadkari has promised to make Chahbahar fully operational by 2018, but now that’s uncertain. This is a win-win — it connects India but also provides a viable alternative to Pakistan as a route.

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