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Business News/ Opinion / The Trump challenge to India Iran ties

The Trump challenge to India Iran ties

The Narendra Modi government has shown signs that it doesn't mean to let Trump's stance on Iran derail the oil trade with it

Iran President Hassan Rouhani and PM Narendra Modi. Oil is not just the biggest trade item, but also the most important Indo-Iran binding factor. Photo: AFPPremium
Iran President Hassan Rouhani and PM Narendra Modi. Oil is not just the biggest trade item, but also the most important Indo-Iran binding factor. Photo: AFP

On 8 May, the US, under President Donald Trump, pulled out of the Iran nuclear deal. The deal, also known as the Joint Comprehensive Plan of Action (JCPOA) is an agreement struck between Tehran and the five permanent members of the United Nations Security Council and Germany (P5+1) over the former’s alleged nuclear weapons programme. Since then, Iranian foreign minister Javad Zarif has visited New Delhi to drum up support for its stance.

This decision by Trump is now expected to open up the possibility of the US Congress legislating more sanctions on Iran. These sanctions, like before, will also bring India-Iran ties to another challenging crossroads.

Oil, expectedly, is going to be one of the most heavily affected commodities for buyers and sellers dealing with Tehran. The US Treasury has highlighted that entities buying and selling crude oil from Iran could be blacklisted, unless waivers are negotiated with the administration. Global companies such as French oil and gas giant Total and Danish shipping conglomerate A P Moller-Maersk have already distanced themselves from Iranian businesses.

To put it in perspective, more than 80% of oil imported by India is carried by foreign oil tankers, as is their insurance, both being highly susceptible to American sanctions.

This situation, however, is not new to New Delhi. It has the experience of having to choreograph an immense diplomatic dance to minimize damage to its relations with a bull-headed, survivalist Iran when the sanctions imposed by the Barack Obama administration to coerce Tehran into negotiations came into play.

Prior to the first wave of sanctions, Iran was consistently in India’s list of top 3 suppliers of oil. Oil is not just the single biggest trade item, but also the most important Indo-Iran binding factor today. Remove oil from the picture, and they have the bare minimum between them when it comes to trade. It is also arguable that the India-led development of the port of Chabahar, marketed as a geostrategic home run, may fizzle out if the billions of dollars in annual oil trade is reduced significantly because of the JCPOA fallout.

During the Obama administration as well, when India had a relatively good relationship with the White House, the US tightened the screws on the Manmohan Singh government—notwithstanding the temporary waivers for India to transfer parts of nearly $6 billion in payments for crude from Iran. While private sector refiners baulked, state entities continued to try and trade to maintain reasonable ties with an increasingly unreasonable and panicked Iran as its economy faltered.

Oil being a globally traded commodity, and the US the prevailing power in international financial systems, critical business institution areas such as insurance and shipping distanced themselves from the Iranian oil trade. While previously, India and Iran jointly ran a shipping company called Irano-Hind, it was shut down in 2013, with talks of reviving it in 2016 during the sanctions period failing to fructify. Such an entity, if preserved then using diplomatic vision, could have been a boon today.

However, despite past Indian experience of balancing the US-Iran circus, the Narendra Modi government may react differently to Iran sanctions than its predecessor had. This time, it is the Trump administration that bears the responsibility for adopting an approach designed to scupper the multilateral effort to find an amicable solution to the Iranian situation. In the effort, it has undercut some of its closest European allies.

The Modi government, while still having good ties with the US, seems to have a more distant rapport with the Trump administration. It has made noises suggesting that it will continue to buy oil from Iran despite US threats. The fact that the US is not just stopping with Iran, but is also threatening Indian entities over doing business with Russia seems to have rubbed New Delhi the wrong way. The recent “informal summits" by Modi with China and Russia, promotion of multipolar narratives and a sudden trip to North Korea by Union minister V.K. Singh may signal Indian displeasure over the Trump administration’s absolutist “US first" approach to diplomacy and trade.

The unpredictable nature of the US president and ad hoc ideas masquerading as policies also make it difficult for India to identify where and with whom it can build bridges and employ pressure points to get its messaging across in Washington DC effectively.

During Iranian President Hassan Rouhani’s visit to India in February, predicting sanctions, both countries decided to install mechanisms that will allow companies to deal in rupees. While this eases fears for currency transfers with regard to certain items, trade such as oil remains deeply embedded in international financial systems and global geopolitics—areas where the US maintains unprecedented capacity for intervention. Despite the upward trajectory of Indo-US ties, the renewed Iran sanctions could make it clear to the Trump White House that New Delhi will not compromise on its independent assessment of the merits of its global ties and trade relations for the sake of staying on Trump’s good side.

Kabir Taneja is a research fellow at the Observer Research Foundation, New Delhi.

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Published: 11 Jun 2018, 02:32 AM IST
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