India Seeks to Keep Iran Crude Option Open

India is caught in an unenviable crunch between the western powers and Iran, quietly attempting to keep its back channels open for oil imports despite increasing efforts by the United States, Israel and the European Union to block exports from the Islamist republic.

In recent weeks, Israel’s truculent prime minister Benjamin Netanyahu has goaded the reluctant western powers closer to attempting militarily to take out Iran’s fledgling nuclear weaponization program. The western powers have continued to tighten the screws on Iran’s oil exports, attempting to cut the country’s biggest export lifeline. Earlier this week, the United Arab Emirates and Bahrain also said they had confiscated shipments of items that could have uses in the country’s nuclear program.

The US-EU sanctions have thus put India in a difficult position. The world’s fourth-largest oil importer, India imports more than 80 percent of its crude and remains Iran’s biggest oil customer after China.

Conversely, India has close and growing relationships with Israel, Iran’s most implacable enemy. New Delhi is the largest buyer of Israeli military equipment, accounting for nearly 50 percent of Israeli defense sales. It is also Israel’s second-largest Asian trading partner. The two countries have growing relationships in agriculture, research and development and tourism in addition to defense technology.

India’s energy imports from Iran have fallen considerably in line with Washington’s demands because of Tehran’s continuing insistence on pursuing an independent nuclear program. However, recent events highlight that New Delhi is seeking to maintain its long-standing engagement with Tehran.

The country has continued to occupy a major space in India’s energy import basket although at a lower level as a supplier of crude. Among other reasons, India doesn’t want to depend too heavily on Saudi supplies, which could weaken New Delhi’s position in future price negotiations. It is, however, also apparent that India’s foreign policy stand on America and Iran is to try to back away from an extreme view or stand for or against either side.

Apart from the need to keep superpower America happy on this issue, India’s interests with the US run the gamut from defense procurement to atomic energy and, more recently, the transfer of know how in shale gas exploration.

India has thus so far kept away from the India-Pakistan-Iran gas pipeline that Tehran and Islamabad continue to pursue. New Delhi has also made it a point to side with USA and Europe in taking a tough stand against Iran at international forums against its atomic efforts while at the same time it doesn’t want to eliminate Iran from its energy equations, given its rising needs to sustain a growing economy.

India’s Prime Minister Manmohan Singh thus made it a point to travel to Iran for the 16th Non-Aligned Movement (NAM) summit, met the Iranian top leadership there and emphasized the need to enhance business relations between the two nations. Back-channel activities and meetings between officials also underlined the keenness of the two nations to engage.

That could include the possibility of setting up a barter mechanism to maintain the bilateral US$15 billion trade levels with Indian imports a big US$12 billion and mostly oil. Under the system, India could pay in kind in the form of goods, commodities, investments in infrastructure projects in exchange of oil imported.

This is because finance and payment problems via usual channels have become difficult as banks fear being slapped with sanctions. Logistical bottlenecks linked to insurance of cargo and availability of ships for hire are also creating issues.

It is in this context that India and Iran re-focused attention on exploiting the Chabahar port in southeast Iran that would give India access to Central Asia and Afghanistan, bypassing Pakistan overland, where security is a major concern.

A significant trilateral meet ahead and on the sidelines of the NAM summit involved top officials from India, Iran and Afghanistan discussed ways to commercially exploit the Chabahar facility.

A joint press statement said: “the objective of the meeting was to explore ways to expand trade and transit cooperation starting with the Chahbahar Port. A Joint Working Group will meet within next three months to take the discussions forward.”

The English-language daily The Times of India quoted unnamed official sources saying India could invest Rs3-4 billion in the port. “Almost 70 percent of the work in the first phase has been completed. Iran has invested about US$340 million in the venture. Our role would be in the second phase,” a shipping executive was quoted to say. Iran plans to ramp up capacity of the port in five phases to 20 million tonnes by 2020.

Another comment in a top media outfit reads: “India's planned investment in Chabahar port will help Delhi solidify ties with the energy-rich Iran, which already serves as a commercial partner and a bridge for India's trade with Middle East.”

Even though the option of Chabahar is being probed Indian refiners continue to reduce their exposure to Iran to escape sanctions and operational problems in importing such oil. The refiners have been active in seeking new contract from Kuwait, Iraq, Libya, Egypt, Nigeria and Venezuela, among other nations.

Overall, India’s oil imports from Iran fell more than 40 percent in July (201,860 barrels per day (bpd) from June (346,600 bpd). India shipped 338,900 bpd from Iran in July 2011, according to trade data.

Iran stood sixth in the list of India’s suppliers of oil in July, compared to second position earlier this year. India has officially declared its intention to cut Iran oil imports by 15% fiscal year ended March 31, 2013.

In a recent note, the oil ministry wrote to the Prime Minister’s Office saying: “Apart from the difficulties arising from the US and EU sanctions, the delay in operationalizing of rupee payment mechanism has also contributed to reduction in imports.”

While it is difficult to do business with Iran, India does not want the momentum to completely shift away.

(Siddharth Srivastava is a New Delhi-based journalist. He can be reached at sidsri@yahoo.com)