Bilateral International Relations Prelims cum Mains

The low-down on India-Iran oil trade

The News

  • With withdrawal of nuclear deal and fresh sanction on Iran by US, India finds itself in complex negotiations between India and Iran, and India and USA.


News Summary

Isolate Iran:

  • Over nuclear weapon issue, Trump administration withdrew the multilateral nuclear deal or the Joint Comprehensive Plan of Action (JCPOA) and imposes fresh sanction on Iran.
  • In line with its sanction, US has declared a campaign to isolate Iran and asked many countries to close all trade ties with Iran.
  • Since Iran has always been one of India’s main suppliers of oil (second only to Iraq and Saudi Arabia) and India has been Iran’s biggest buyer after China, India became a target for the U.S.


India’s position:

  • For India, which has been told along with other buyers to take oil imports to zero by the cut-off date, its decisions on procuring Iran oil this point onwards is not so much about securing energy as it is about securing India’s standing in the world.
  • If it rejects U.S. pressure, it risks sanctions as well as incurring the displeasure of its all-powerful friend and defence partner.
  • If it yields, it risks its relationship with traditional partner Iran, access to important trade routes through Chabahar and the International North South Transport Corridor (INSTC), as well as its international reputation.


Historical perspective – A case of 2012 sanction:

  • In 2012, when the Obama administration wanted to maximise pressure on Iran in order to secure the nuclear deal or the JCPOA, it had sent a similar tough message to India, albeit more discreetly than the Trump administration has.
  • India agreed to cut oil imports by 15% subsequently, but asserted its autonomy.
  • However, later, the then Prime Minister of India, even visited Iran to attend the Non-Alignment Summit, despite U.S. objections.
  • Eventually, India operationalised a ‘rupee-rial’ mechanism, under which half of what it owed Iran for oil imports would be held in a Bank account and made available to Iranian companies to use for any imports from India.


Sanction of 2018 vs 2012:

  • The stakes are higher for the government in 2018 than 2012 and ties with the U.S. are under strain over several issues, including U.S. trade tariffs and India’s defence procurement from Russia.
  • Also a major divergence on Iran will exacerbate the problem with India’s biggest trading partner and fastest growing defence partnership.
  • Moreover, in an increasingly globalised world, where Indian companies compete, any U.S. sanctions will make it hard for refiners, insurers and transport companies to facilitate oil trade, even if India wishes to continue it.
  • On the other hand, India’s investment in the Iranian relationship has increased, making a turnaround much more difficult.


Recent development:

  • Relation with Iran:
    • Recently Iran’s President Hassan Rouhani visited India and India committed itself to increasing its oil off-take by 25% this year, as part of easing negotiations for a gas fields India is keen to buy a stake in.
    • India has also committed itself to investing to build berths at Chabahar’sShahidBeheshti Port, and to build a rail line through the Zahedan province to Afghanistan, in an effort to circumvent trade restrictions by Pakistan.
  • Trade negotiation with US:
    • A high level delegation talk will take place between India and US over trade disputes and Generalised System Preferences (GSP) status for India.
    • While US ruled out waivers or licences to any country, it did hold out the hope that some flexibility might be negotiable case-by-case for countries that agree to reduce oil intake from Iran.
    • Recently the 2+2 dialogue between the Defence and Foreign Ministers of both countries postponed abruptly by the U.S.


Future ahead:

  • In the coming months, one can expect complex negotiations between India and Iran, and India and USA. While India’s oil supplies are diversified, its options in this game of diplomatic brinkmanship are narrowing.
  • Iran’s other oil importers, China and Turkey, have said they will not accept the U.S.’s diktat.
  • Mr. Rouhani, who is on a European tour discussing ways to retain the JCPOA, has warned of dire consequences if the U.S. succeeds in having Iran’s oil exports cut, as this is a national security issue.

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