The Iran Dilemma
Amb Kanwal Sibal

US policy towards Iran constitutes a big diplomatic headache for India. Iran cast a shadow even on the negotiations with the US on the nuclear deal. The US legislation enabling cooperation with India’s civilian nuclear sector gratuitously called for an alignment of India’s policy on Iran with that of the US. Since then US interlocutors have persevered in persuading India to see the Iranian reality through their eyes and downgrade ties with that country. They presume that India needs to reciprocate US’s strategic initiative on the nuclear deal by being receptive to American demands on the Iranian question. In this background, it should not cause any surprise if in further sanctioning Iran, the US disregard India’s interests there.

India has to give priority to its energy security, particularly as it already imports 70% of its oil and gas needs and this figure will increase to 90% in the years ahead. While it has diversified its sources of oil supply, Iran remains its second largest supplier after Saudi Arabia, providing about 12% of its annual requirements worth about $12 billion. Iran has the second largest reserves of gas in the world and can also be a source of either pipeline gas or LNG if pipeline security issues can be resolved and Iran can have access to embargoed LNG technology. With Iran geographically located virtually next door it makes no sense for India to compromise its long term interests there by cutting off or reducing oil purchases from that country for extraneous political reasons.

We have to worry additionally about competition from China which needs massive oil imports to fuel its frenetically growing economy. China has already out-competed us in a few countries in the oil sector, though in some cases our companies have entered into collaborative arrangements to avoid under-cutting each other. It is believed that the Gulf region will be the major source for meeting India’s and China’s future needs, with falling US dependence on oil and gas from this region. China already has a big head start over us in securing its oil and gas needs from the Gulf region and Central Asia. In Iran it is now solidly entrenched. As member of the Security Council and possessing enormous financial resources, China has bargaining power that we lack. It can defy US and EU sanctions more easily than us, while its massive exports to the global market gives it the capacity to enter into barter arrangements with countries like Iran. We are floundering when it comes to paying Iran in dollars or euros for the oil we buy, whereas China has worked out a barter system based on transactions in yuan. India has now reached an understanding with Iran to pay for 45% of the oil bought in rupees which will be used for Indian goods and project exports to that country. With India reluctant to amass huge rupee funds and Iran concerned about exchange rate fluctuations of the rupee. there are issues to be worked out still, but this seems to be the most practical way out. In any case, India still would still be facing the challenge of paying for 55% of its purchases in hard currency.

Even before the enhanced US and EU sanctions, India had problems in investing in Iran’s petroleum sector because of concerns about potential application of the 1996 Iran-Libya Sanctions Act of the US restricting investment in Iran’s oil sector to $20 million a year. For that reason we have not been able to take hard decisions on investing in the off-shore Farsi block (which would require almost $ 5 billion of investments over seven-eight years) and the huge SP-12 gas field. While the government is opposed to the extra-territorial application of US laws, it is also reluctant to enter into a political conflict with the US at a time when the relationship is progressively shedding the inhibitions and suspicions of the past and entering into a new phase. Moreover, our banks are unwilling to jeopardize their US operations or risk being denied access to the US financial sector if they disregard US sanctions, with the result that de facto India observes them. All this points to the need to have a clearer policy in practice to preserve our equities in Iran and not lose ground there irretrievably to China.

US-Iran tensions are hurting India in other areas too. As India is unable to get access to Afghanistan through Pakistan, Iran provides a logical alternative. India, Iran and Afghanistan should have a shared interest in reducing Afghanistan’s dependence on Pakistan by giving the former an alternative access to the sea. India took the strategic decision to build in Afghanistan the Zaranj-Delaram section of the road directly linking the Chabahar port in Iran to Kabul. India and Iran have discussed this project several times but progress has been tardy, with Iran slowly working on upgrading the port facilities and building the necessary rail links in the hinterland. India would be willing to invest in infrastructure at Chabahar but without the port declared a Free Trade Zone potential investors think the economics may not be favourable. Even earlier, Iran’s tense relations with the West were problematic for large scale investments in the country, but now with the situation further deteriorating and the West engaged in economic warfare against Iran, the appetite for such investments has got reduced. For India the Chabahar route acquires even more importance in the context of its planned investments in the Hajigak iron ore project in Afghanistan. Beyond transit to Afghanistan, the heightening tensions in the region will also delay plans to develop transit facilities through Iran to Central Asia and Russia(the North-South Corridor), from which India and other countries could have benefitted greatly.

India’s strategic interest in maintaining a productive relationship with Iran conflicts with US’s strategic interest in a regime change there. India’s political and economic interests in Iran are apparent, whether they relate to energy security, easier access to Afganistan, countering Pakistan-backed Taliban in Afghanistan, profiting from contradictions between Iran and Pakistan and maintaining a balanced posture on the Iran-Saudi Arabia and the developing Shia-Sunni divide in West Asia etc. India is not playing any anti-western game in Iran or putting nonaligned solidarity ahead of its improving ties with the US. In fact, barring sourcing oil supplies, which, incidentally, are indispensable for the Mangalore refinery, India’s overall relationship with Iran is modest in scope. India has not proceeded with existing petroleum sector projects, considered very attractive by ONGC/OVL, because of a reluctance to fall afoul of US sanctions.

On the sensitive nuclear issue, India has already annoyed Iran by voting against it in the IAEA in the past. This was criticized domestically as our step was imputed to US pressure. India has expressed public opposition to any Iranian nuclear weapon programme and, while recognizing its right to peaceful uses of nuclear energy, has asked Iran to comply with its NPT obligations and respond to the queries raised by the IAEA about some of its nuclear activities. India is cognizant of the adverse regional consequences of Iran going nuclear. We would want stability in the Gulf region where we have vast energy and trade interests and where several million expatriates reside, remitting home annually billions of US dollars.

But we can neither make common cause with the US against Iran on the nuclear issue nor share its apocalyptic view of Iran’s nuclear ambitions. India itself has long suffered from US-led international sanctions targetting our nuclear programme. Worse, the US has tolerated nuclear and missile cooperation between China and Pakistan as it strategically balanced Indo-Soviet ties in the Cold War era. Pakistan’s nuclear capability was seen as India-centric, not a regional problem. Even today the US is unwilling to make an issue of China’s continued support to Pakistan’s nuclear programme in violation of the NSG guidelines. The frenzied western opposition to Iran’s nuclear programme contrasts with the attitude to Pakistan’s programme. even though under cover of its nuclear capability Pakistan has used terrorism as an instrument of state policy, earlier against india and now even against US interests. Pakistan not only escapes sanctions despite its rogue conduct, it continues to be engaged as a matter of policy, ironically for the reason that pressuring it may result in its collapse as a state and its nuclear weapons may fall into the hands of extremists, making the situation worse. With Iran the approach is openly coercive, with military threats evoked from time to time to prevent it from going nuclear. Simply because the Pakistani leadership does not rant against Israel and the reality of the Holocaust does not make Pakistan less disruptive of regional stability, or less an incubus of extremist religious ideologies with their terrrorist links that endanger peace and development.

A strategic partnership should have an element of reciprocity. If India is to take cognizance of vital US strategic concerns, the reverse should be the case too in some measure. If the US does not consider Pakistan a black and white case and therefore its Pakistan poilcy has to be inserted into a regional famework, the same considerations apply to Indian policy towards Iran. In fact Pakistan threatens India’s security directly, without this inhibiting the US from arming it, whereas Iran threatens US’s extended regional interests and not its territory directly.

The US should therefore take cognizance of India’s legitimate interests in Iran that transcend the present situation. US electoral pressures should not affect the barometer of tensions in the Gulf, nor should India be expected to accept without demur the narrow, domestically-driven, Israel-incited US concerns about Iran. The US should not put serious constraints on India’s oil purchases from Iran as the latter’s nuclear defiance cannot be countered by undermining India’s energy security and its broader regional interests.

It is politically simplistic to suggest that India can buy more oil from Saudi Arabia in case Iranian supplies get disrupted. Saudi Arabia has announced that it will increase its output to compensate for non-availability of Iranian oil in the international market, to which Iran has responded sharply. Indian oil supplies from Iran have in any case got reduced because of payment difficulties compared to volumes imported a couple of years ago. Our private sector players could well reduce their purchases further. India can react appropriately to commercial exigencies but we should not become an engaged party in political manoeuvres against Iran on oil supplies.

Our effort should be to avoid getting entangled in the mounting Iran-Saudi Arabia rivalry as much as possible as there is a deepening sectarian basis to it. Saudi Arabia fears rising Iranian power may make the Shias in Arab countries more restive against oppressive Sunni domination, threatening the power of the elites in the Gulf countries. India’s productive relations with Saudi Arabia and other Gulf monarchies in the field of energy supplies, trade, investment, manpower and remittances have, of course, to be preserved. However, India, with its own large Muslim population composed of Sunnis and Shias, should not be seen getting caught in the sectarian politics of West Asia. We should maintain a dynamic balance between our interests in the Arab world and Iran. US alignment with Saudi Arabia and the Gulf countries against Iran is not sufficient reason for India to tailor its policies accordingly. This would be common sense, not the lingering influence of nonalignment in india’s thinking.

India is accused by foreign as well as domestic critics for being a fence-sitter, of avoiding hard choices, of unwillingness to accept, as a rising global power, responsibilities at the global level that come with an enhanced international status. India would presumably pass the test of acting responsibly if it sided with the US and the West on Iran, Libya, Syria and, earlier, on Myanmar. We have to be careful about such arguments. It is well to remember that countries make decisions in the light of their national or alliance interests, not on the basis of abstract principles. When interests and principles are in harmony, principles can be invoked to give a moral cover to self-interest, but when principles and interests collide, principles are often abandoned. Protecting human rights and promoting democracy are unexceptionable principles but are applied selectively in practice in consonsance with self-interest. The principles of non-intervention in the internal affairs of countries and respect for national sovereignty are being violated by powerful countries in order to shape the international or regional environment to their advantage. India’s enhanced international status does not require it to give up independence of judgment or endorse western policies on the presumption that they are necessarily right. Assuming responsibilty at the global level should actually mean supporting or opposing western policies as necessary for the equitable functioning of the international system. If India gives weight to its own interests in crafting its policy towards Iran, just as the West does, it does not mean India is shirking its global responsibility. It means that India favours a less one-sided international view of the complex Iranian problem.

It is not the money Iran earns from sale of oil to India or others that will determine its nuclear decisions. Much more important is Iran’s political judgment on the advantages and disadvantages of going nuclear. As it is, political developments have moved in its favour after the empowerment of the Shias in Iraq. The so-called Arab spring has kindled the Shia communities of West Asia, generating pressure on Sunni regimes. Does Iran need to go nuclear to consolidate its political advantage? On the face of it, Iran is being pushed to the limit to go nuclear by western policies of economic warfare and miltary intimidation. The remarkable patience they are showing in the face of threats of regime change could either reflect lack of domestic consensus on the subject or technical inability to develop a nuclear weapon at this point. It is not clear whether the networks that A.Q. Khan exploited for Pakistan’s clandestine acquisition of nuclear weapon technology have been uprooted to the extent that Iran cannot use them. Can China, which is still supplying nuclear and missile technolgy to Pakistan, be relied upon to behave “responsibly” in this regard?

On the whole, the government has shown political grit in resisting US pressure to dilute even our energy relationship with Iran. The Finance Minister has expressed most recently in Chicago India’s inability to drastically reduce its oil supplies from there. We have stated our willingness to abide by UN sanctions on Iran but not those by individual countries. Iran is not an easy partner and its conduct is questionable on many counts. Its decision making processes are convoluted and its postures on Israel and the Holocaust are needlessly provocative. India is playing its difficult hand on the Iranian question as well as it can. The US should show better understanding of India’s stakes in Iran. India cannot ask the US for exempting it from the application of its latest sanctions as it would mean accepting the extra-territoriality of its laws. India should do what it must do and hope that the US will take into account its developing strategic relationship with India to decide what it should do.

Published in Defence and Security Alert (DSA), March issue

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