India’s relations with Iran have hit a new air pocket. India has suspended a long-established mode of settling trade accounts with that country. It is only the latest in a series of incidents that have hit relations between the two countries.
Last Friday, the Reserve Bank of India (RBI) suspended payments for oil imports made by Indian companies from Iran that use the Asian Clearing Union (ACU), a clearing house established in 1974 to process multilateral payments between South Asian countries and Iran. ACU is headquartered in Tehran.
India imports close to $12 billion worth of crude oil (roughly 400,000 barrels per day, or bpd, of Iran’s two million bpd exports) every year. After payments through ACU were suspended, Indian companies asked the National Iranian Oil Co (NIOC) to nominate a European bank through which payments could be made. NIOC has refused to accept payments outside the ACU.
While talks are on between officials of the Iranian central bank and RBI and the matter may be resolved at some point, there are other issues at hand. Why did RBI take the step?
There is no doubt that some US influence is at work here. Otherwise why would India take a step that is clearly counterproductive in more than one way? For example, if the issue is not resolved, India will have to search for alternative oil sources. This search, apart from having costs, would lead to some frictional rise in oil prices both within the country and in the international spot oil market. In both cases the cost would have to be borne by the Indian consumer. And in an inflationary situation (fuel inflation stood at 11.63% on an year on year basis in the week ending 18 December) this means more misery.
More than these short-term issues, for these can be sorted out by careful official engagement, the problem is about India’s long-term interests. Here, our relations with Iran are adrift. Under constant American pressure, New Delhi has needled Iran for long: from votes at the International Atomic Energy Agency to foot-dragging on various bilateral matters, India has toed the US line. This does not serve us well. Iran is one of the few West Asian countries with which we have, or at least had, an all-weather friendship.
Closer home, India needs to tie up with Iran for ensuring that a post-US Afghanistan is not inimical to our interests. The other axis in that equation, Pakistan allied with certain other West Asian countries, certainly has ill will towards us. By hurting trade and political ties we are making life difficult for us in more than one important theatre.
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