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India and the US: Squaring the Circle on Iran

Dr S. Samuel C. Rajiv is Associate Fellow at the Manohar Parrikar Institute for Defence Studies and Analyses, New Delhi. Click here for detailed profile
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  • May 10, 2012

    India’s continuing energy cooperation with Iran continues to be a prime area of foreign policy divergence between India and the United States. Though India has stated time and again that a nuclear Iran is not in its strategic interests and bad for regional stability, it has not desisted from sourcing much needed energy supplies from Iran.

    Washington, on its part, contends that a prime source of funding for Tehran’s nuclear activities is its oil revenues. This, it asserts, is recognised even by extant UN Security Council resolutions like 1929 of June 2010. Sanctioning three oil companies (Chinese Zhenrong, Singaporean Kuo Oil and Sharjah-based FAL Oil) under the provisions of the Comprehensive Iran Sanctions and Divestment Act (CISADA) in January 2012 for supplying refined oil to Iran beyond the limits set by CISADA ($5 million worth transactions in a 12-month period), the US State Department noted that UNSCR 1929 “recognized the potential connection between Iran’s revenues derived from its energy sector and the funding of its proliferation sensitive nuclear activities.” Earlier sanctioning a Belarussian company in March 2011 under CISADA, the Department charged that Tehran uses its oil revenues to “fund its proliferation activities as well as to mask procurement for the importation of dual-use items.”

    The US further tightened unilateral measures targeting the Central Bank of Iran (CBI) in December 2011. Section 1245 of the US National Defence Authorization Act of 2012, signed by President Obama into law on December 31, requires countries importing Iranian oil to ‘significantly’ reduce their imports within 180 days, i.e. by June 28, 2012, failing which financial institutions in these countries could be the targets of US sanctions. The provisions of the Act targeting the CBI followed the US designation of Iran as a ‘jurisdiction of primary money laundering concern’ in November 2011 in the light of its contention that the money being channelled by the CBI was posing “terrorist financing, proliferation financing, and money laundering risks for the global financial system.” The European Union followed the US unilateral measure by announcing in January 2012 an embargo on Iranian oil to be effective from July 2012.

    On March 20, 2012, the US gave sanctions exemption to 11 countries—Belgium, the Czech Republic, France, Germany, Greece, Italy, Japan, the Netherlands, Poland, Spain, and the United Kingdom—for ‘significantly’ reducing their oil imports from Iran. Apart from these 11 countries which got sanctions exemption for a period of 180 days (which can be further renewed), 12 other energy importing countries primarily in Asia including India, China, South Korea, among others, are currently under the US scanner ahead of the June 28 deadline.

    The visiting US Secretary of State Hillary Clinton, during her interactions both at Kolkata and New Delhi, impressed upon her interlocutors the need to continue to keep the pressure on Iran by helping constrict its oil revenues. At the Delhi press conference with External Affairs Minister S.M. Krishna, she insisted that Iran would not have come back to the negotiating table “unless there had been the unrelenting pressure of the international sanctions. And this pressure must stay on if we want to see progress toward a peaceful resolution.” In Kolkata, Clinton asserted that there were “adequate supplies” in the international market from countries like Saudi Arabia and Iraq (currently India’s second biggest supplier) for India to source its requirements.

    Indian policy makers have been insisting that it is neither feasible nor desirable to cut off energy links with Iran. Prime Minister Manmohan Singh reportedly told Secretary Clinton during his meeting with her on May 7 that though India supports the non-proliferation objectives of the international community vis-à-vis the Iranian nuclear issue, it will be guided solely by its national interests on issues of energy security. On his part, Foreign Minister Krishna insisted at the press conference that “Iran is a key country for our energy needs” and stated that both India and the United States have discussed each other’s “position” and “perspectives on energy security.” He added that the issue was “not a source of discord between our two countries.”

    India’s energy imports from Iran during April 2012 were about 35 per cent less than during the previous month—260,000 barrels per day (bpd) as against about 410,000 bpd in March. During his April 2012 visit to the US to attend the meetings of the World Bank and the International Monetary Fund (IMF), Finance Minister Pranab Mukherjee stated that Indian imports from Iran currently stood at about 14 million tonnes out of total imports of "roughly about 160-170 million tones" annually. From about 13-16 per cent in recent past, this indeed is a significant reduction in the overall share, given that India’s energy requirements have galloped.

    The above aspect was also stressed by Krishna during his joint press conference with Secretary Clinton on May 8, where he stated that “India’s imports are growing on an average by about ten million tonnes annually. Given our growing demand it is natural for us to try and diversify our sources of imports of oil and gas to meet the objective of energy security.” India’s top supplier Saudi Arabia will supply 32 million tonnes in 2012-13, as against 27 million tonnes in 2011-12. Reports also note that Indian refineries processing Iranian crude have been asked informally to cut back on imports from Iran.

    The prospects of India’s interactions with Iran on the energy front being seen as better aligned with US policy objectives/prescriptions will be the subject of further discussions. The ongoing efforts by both the countries to square the circle on the issue will continue when US Energy Coordinator Carlos Pascual visits New Delhi soon to discuss possible ways in which India could further cut back on its energy links with Iran.

    India’s compulsions as an energy-deficient developing country dependent on imports for meeting the majority of its energy needs, as well as its position as an important strategic partner of the United States, should be prominent guideposts for the State Department to make the upcoming June 2012 decision. Any US decision that could be seen as constricting India’s burgeoning energy requirements could not only negatively affect bilateral ties but also create avoidable hiccups in India’s growth story.

    The US pressure on India to cut back on its energy links with Iran is in tune with its ‘dual-track’ policy of “sanctions in pursuit of constructive engagement,” as stated by Secretary Clinton in July 2011. Past experience however shows that as the scope of sanctions increased, Iran’s behaviour became more defiant. Iran, for instance, suspended its implementation of the Additional Protocol (which it had signed in December 2003) on February 6, 2006 after its referral to the UNSC in the February 4 resolution of the IAEA DG. It also went back on its decision to abide by the provisions of the revised Code 3.1 of its Subsidiary Arrangement in March 2007, in the immediate aftermath of UNSC Resolution 1747.

    After talks were re-started in Istanbul in April 2012 after a gap of 15 months—which Clinton affirms is a result of sanctions pressure, the second round of discussions between Iran and the P5+1 is scheduled to be held in Baghdad on May 23. The nature of Iran’s interaction with the IAEA in the aftermath of those talks will indicate whether the US (and EU) strategy of increasingly punitive measures will yield ‘constructive’ results. Given that the Istanbul talks were described as “positive” by all sides involved, it would seem that there is indeed scope for cautious optimism.