US Arm-Twists India Over Iran Sanctions

New Delhi is scrambling to maintain a delicate balancing act between preserving diplomatic ties with Washington, meeting its energy requirements and safeguarding its national interests in the face of a dire US warning to stop oil imports from Iran or face sanctions,

In May, the US withdrew from the Iran nuclear deal to create pressure against Tehran’s atomic program, giving foreign companies 90 to 180 days to wind up operations with Iranian companies. The first set of US sanctions on Iran is scheduled to kick off from August 6, the second from November 4.

India thus has become the latest of many countries trying to figure out what to do in the face of US threats as US President Donald Trump risks realigning the world trade order as well as the diplomatic one. Both Russia and China appear to be seeking to help Tehran, with Beijing reportedly considering increasing its purchases of Iranian oil. The European Union is contemplating putting measures in place to preserve the landmark agreement shutting down Tehran’s nuclear program while attempting to protect EU companies operating in Iran via a so-called “blocking statute” that would forbid them from “complying with the extraterritorial effects of US sanctions.” The EU has also agreed to allow the European Investment Bank to guarantee finance activities in Iran that the US has vowed to choke off.

“We are not looking to grant licenses or waivers, because doing so would substantially reduce pressure on Iran and this is a campaign of imposing pressure on Iran. ...We are prepared to work with countries that are reducing their imports on a case-by-case basis, but as with our other sanctions, we are not looking to grant waivers or licenses,” Brian Hook, Director of Policy Planning at the State Department told Reuters on July 2, when asked specifically about concessions for India.

India is now in an unenviable situation following Trump's zero tolerance threat over violations of his sanctions by any country. Not only is Iran the third largest oil supplier for India's growing economy – Asia's third largest – but the Middle Eastern country is also tied closely to India's energy security. To boost its sales to India, Iran recently offered virtually free shipping and an extended credit period of 60 days.

Indian Union Minister for Petroleum and Natural Gas Dharmendra Pradhan recently told local media that India sees the US sanctions on Iran as a “challenge” given its close ties with both countries, but will take a “considered and comprehensive” view based on India’s national interest, and find a way to secure its energy needs: His comments come a week before a US expert-level delegation arrives on July 16 and 17, to discuss sanctions with the Indian government.

Highlighting India's quandary, Pradhan added: "We have a special strategic relationship with the US. We have a historic, cultural and civilizational relationship with Iran. Iran is also a factor in India-Afghanistan relationship because of its geographic proximity. Our economic interests are tied to both. The government will take a comprehensive view.”

Although ties have flourished between Prime Minister Narendra Modi and Trump, with the latter looking to Delhi to safeguard its interests in the Indo-Pacific region against Beijing's growing assertiveness, the oil sanctions have created a fraught situation between the world's largest and oldest democracies. They have also considerably shrunk New Delhi's foreign policy options while hitting its strategic interests in the region.

Iran and India share a longstanding friendly relationship with Iran consistently buttressing India's stand on Kashmir in international forums. India is developing the Chabahar Port near Tehran for use for trade with conflict-ridden Afghanistan and Central Asia as well as to bypass Pakistan, which does not allow Indian goods to pass through its territory.

Chabahar Port in the Indian Ocean – into which India has pumped US$500 million – is Delhi's counterpoint to Xi Jinping's ambitious Belt and Road's standout project, the China-Pakistan Economic Corridor. Designed to link the country to Afghanistan and Central Asia, the agreement signed two years ago committed US$21 billion: US$9 billion for the whole Chabahar project and the rest for developing Afghan iron ore. India is also setting up the Chabahar-Zahedan railway.

With so much at stake for India in having cordial relations with Iran, New Delhi is holding back on its decision to slash oil imports from Tehran as demanded by Washington even while bracing for more arm-twisting in the coming weeks. The Petroleum Ministry is also worried about rising crude prices and its impact on the US dollar as well as on the domestic price situation.

In a respite, however, US officials have given “informal indications” that they understand India’s reasoning for progressing on its Chabahar port and railway project. According to sources, though US envoy to the UN Nikki Haley said rather undiplomatically that India should snap trade ties with Iran, the US is still willing to discuss the impact of sanctions on Delhi’s engagement with Iran.

However, analysts point out that the US should be mindful of putting too much pressure on India as Washington too has much at stake in maintaining friendly ties with Delhi. With a full-blown trade war in progress with China, and Trump more or less withdrawing from a rules-based trade order in Europe, Washington needs Delhi for its markets as well as for a strategic balance in the Indo-Pacific landscape.

To safeguard its interests in the region, the Trump administration has proposed joint patrols in the Pacific to encourage India to be more active in the region. Washington has also signed various big-ticket deals with India including a far-reaching military logistics agreement making it clear that Delhi is Washington’s latest ally.

Analysts say too much pressure on India may also backfire as Indian governments have a history of not honoring sanctions slapped unilaterally by any country. Only sanctions which are endorsed by the UN Security Council are followed by Delhi. As India’s External Affairs Minister, Sushma Swaraj, said after meeting with Iranian Foreign Minister Mohammad Javad Zarif in New Delhi: “Our foreign policy is not made under pressure from other countries…We recognize UN sanctions and not country-specific sanctions. We didn’t follow US sanctions on previous occasions either.”

Besides, as some analysts have pointed out, pressure from the US on India to scale back engagement with Iran is hardly a novel development. The George W Bush administration too sought to pressure India into doing the same when Washington was targeting Iran for its nuclear program in 2003.

All eyes are now on the twice-deferred two-plus-two dialogue between the foreign and defence ministers of India and the US which is expected to take place in early September, with both sides seeking closure on foundational communications, compatibility and security agreement at the meeting.

The delegations were to meet first on April 18 and senior Indian officials were on their way to Washington for preparatory talks when Trump fired Secretary of State Rex Tillerson and replaced him with Mike Pompeo. Set to take place in Washington on July 6, the dialogue was again postponed because Pompeo had to visit North Korea.

New Delhi and Washington will seek to work their way around the Afghanistan peace process, terrorism, and maritime security in the Indo-Pacific region. The US policy towards countries that do business with Iran and Russia (India buys oil from Iran and Russia is a key supplier of defence equipment) will also be discussed to seek a broad convergence on the issue.

Neeta Lal is a New Delhi-based editor and journalist who tweets at @neeta_com