US President Donald Trump visited New York this week to drum up support at the United Nations for his sanctions on Iran. So far, the Trump administration’s efforts to line up support for a new round of measures against Iran have focused mainly on Europe, but many countries there are reluctant to re-impose sanctions, fearing they will miss out on economic opportunities in the Islamic republic. However, the fate of Trump’s new sanctions against Iran rests not with Europe or New York but with New Delhi
Most of the Iranian oil exports flow east. While Spain, Italy, France and Greece all import Iranian crude, the amounts are much smaller than those imported by China and India, which make up the bulk of Iranian oil exports. Japan and South Korea are also major importers, but they have already signaled their reluctance to challenge the Trump administration on this one.
“We have told the Indians consistently, as we have told every nation, that on November 4 the sanctions with respect to Iranian crude oil will be enforced, and that we will consider waivers where appropriate, but that it is our expectation that the purchases of Iranian crude oil will go to zero from every country, or sanctions will be imposed,” US Secretary of State Mike Pompeo told journalists on the sidelines of the 2+2 Strategic Dialogue in India on September 6. Pompeo has also made it clear that the US is willing to work with India to reduce its imports.
Indian Prime Minister Narendra Modi first proposed the 2+2 meetings during his June 2017 trip to Washington DC. Originally set to take place in June in Washington, the meetings were rescheduled by the United States due to the situation on the Korean Peninsula. India secretly ramped up its Iranian oil imports by as much as 658,000 barrels per day over the summer months, a move that will make its import reductions look more dramatic than they really are.
India is the second-largest importer of Iranian crude oil, after China. India’s oil imports from Iran steadily rose in January 2013, reaching 150,000 barrels per day, and have subsequently climbed to nearly 750,000 barrels per day, according to some estimates.
Iran has sought to sweeten the deal for Indian importers of its sour crude. Earlier this week, Iran offered Indian oil importers insurance packages and even oil transports to preserve this vital lifeline. Iran will import Indian agricultural goods, pharmaceuticals and healthcare products to avoid international transactions. This will violate the spirit, if not the letter, of the US sanctions
It will take some convincing to assure India that the potential harm done to its economy by new Iranian sanctions is a price worth paying.
Despite its shrinking rupee, India’s oil demand climbed 205,000 barrels per day in the second quarter of this year. According to the energy consultancy Wood Mackenzie, India will surpass China as the world’s largest oil demand growth center by 2024. India only meets 20% of its oil needs domestically.
One Chinese oil import trader told the author said that over some periods, India’s Iranian crude oil imports have rivaled China’s in volume.
While the United States may be willing to give India a waiver on a set number of Iranian imports, there are other areas where India can do more to sever its ties with Iran – but this is a difficult proposition.
Even if it resolves the oil import issue, a close relationship with Tehran remains vital for India. India also receives a significant portion of its oil imports from Iraq, whose government is dominated by pro-Iranian elements. It has also allowed port visits from Iranian warships in recent years.
India has also invested in the development of the upstream oil industry within Iran. An Indian consortium under the control of the state-owned Oil and Gas Corporation discovered Iran’s Farzad B gas field in 2008. It began producing limited amounts of gas in 2013, but India believes in the potential for the field to produce oil as well.
India is heavily involved in the development of Iran’s Chahabar Port. That project will give Indian commercial interests easier access to Afghanistan. Conversely, it will also undermine the growth potential of the Pakistani port of Gwadar. China is hedging its bets by assisting with the development of both projects.
It will be up to the Trump administration to come up with the right package of carrots and sticks to get Indian to buy into a new round of Iran sanctions.
India may be in an accommodating mood following the US decision earlier this week to cancel $300 million in military aid to Pakistan following that country’s failure to take a more aggressive counter-terrorism stance. However, the close relationship between the world’s largest democracy and its largest pseudo-theocracy is not a good look for New Delhi. If India wants to be treated as a great power within the Indian Ocean region and abroad, taking a tougher line on Iran would be an important step in the right direction.