Get Iran on board again

The interim agreement reached between Iran and six world powers on Sunday in the Swiss city of Geneva is significant in many ways.

Arguably the most significant foreign policy achievement of US President Barack Obama so far, the deal, which seeks to curb Iran’s nuclear programme in exchange for a modest relief in sanctions, could boost global crude oil supply and even alter the geopolitical environment in West Asia.

But the key question Indian analysts and media have been trying to answer is how the deal is going to impact the country, which, till recently, was the second largest buyer of Iranian crude.

To be sure, it will immediately make oil trade with Iran easier as it removes two major hurdles Indian oil companies now face — payment route and reinsurance cover. Since July 2011, India had been paying in euros to clear 55 per cent of its Iranian oil through a Turkey-based bank.

The remaining 45 per cent is remitted in rupees in accounts the National Iranian Oil Company opened in Kolkata-based UCO Bank.

However, tougher sanctions halted the euro payments since February this year, while India continued to make the rupee payments. Now, with the deal set to reopen the euro channel, India can start remitting to Iranian companies.

(In 2006, the UNSC imposed sanctions on Iran banning the supply of nuclear-related materials and technology, and freezing the assets of key individuals and companies related to the programme. European Union sanctions, which had the most crippling effect on Iran's oil trade, came into force in July 2012.)

The lifting of a European Union ban on insuring ships carrying Iranian crude is another piece of good news for India.

Frayed Ties

The ban had crippled many nations’ oil trade with Iran as the ships are covered by rules under European law.

Of late, India had been considering setting up a dedicated fund to help cover imports. Now that the restrictions are gone, Indian tankers can carry Iranian oil with adequate international cover.

These measures are, of course, going to help the energy-hungry, inflation-stricken Indian economy.

Though there won’t be any significant jump in the volume of trade in the coming six months when world leaders will be negotiating a comprehensive deal with Tehran, India can at least meet its import targets without much hassle. But is that all? Or is that enough for India?

New Delhi has always maintained that ties with Iran are important even though there’s a major shift in its approach towards the Persian Gulf country. India’s decision to vote in favour of an International Atomic Energy Agency resolution censuring Iran’s nuclear programme in 2009 was a setback to bilateral ties. India’s subsequent decision to reduce crude oil imports from Iran has endorsed this weakening trend.

While Iran was India’s second largest oil supplier when the government at New Delhi began its term, it now stands at seventh or eighth spot. India imported 18.1 million tonnes (mt) of crude in 2011-12 from Iran, which was slashed by 26.5 per cent to 13.1 mt in the last financial year.

This year the import target is 11 mt. Besides, India has also withdrawn from an ambitious pipeline project which would have brought Iranian gas to India through Pakistan.

The Prime Minister’s former special envoy to West Asia, Chinmaya R. Gharekhan, recently quoted an Iranian expert telling him, “(India) was anxious not to make the US unhappy”. And it has left deep wounds in Tehran.

Though there were whispers among diplomatic circles about Iranian dissatisfaction with India’s changed approach, the fault lines were revealed in August when Tehran refused an Indian request to make full payment in rupees. India pushed this proposal when the domestic currency was falling amid economic worries at home.

Almost at the same time, Iran seized an Indian cargo ship on the charge of polluting its waters.

Desh Shanti , a double-hull tanker, was travelling from Basra in Iraq to Visakhapatnam carrying crude for the state-run oil refiner Hindustan Petroleum Corp Ltd when it was seized on August 12 and forced to anchor at Bandar Abbas port. India denied the pollution charges.

The row continued for around three weeks and the ship was allowed to leave the Iranian port only after the Shipping Corp of India Ltd, which owns Desh Shanti , gave the necessary undertaking for the tanker, guaranteeing payment towards clean-up operations if an oil spill was proved.

Iran allowed partial rupee payment after sanctions cut short its trade with other countries. If a comprehensive agreement is signed on the nuclear crisis and trade embargoes are lifted, a resurgent Iran will storm into the global oil market.

Strategic imperative

In such a scenario, there is no guarantee that India will be able to preserve even the partial rupee payment option.

If Iran asks New Delhi to make full payment in dollars, it will seriously affect the country’s current account deficit, which stood at a record 4.8 per cent in 2012-13.

Even without this option, Iranian oil is important for India at a time when the country’s oil companies are scrambling overseas to secure energy resources to meet the high demand at home.

According to the Petroleum Ministry’s estimate, the country’s energy demand is expected to more than double by 2035, from less than 700 million tonnes of oil equivalent (mtoe) today, to around 1,500 mtoe.

Besides, the changing geopolitical dynamics in South and Central Asia also make strong ties with Iran a strategic imperative for New Delhi.

Neither India nor Iran want Afghanistan to fall back into the hands of the Taliban once the Americans leave that country in 2014.

Also, Iran has offered India an alternative access route to Afghanistan, bypassing Pakistan, through its Chabahar port.

So India should look beyond the immediate gains the Geneva deal will bring to the table. Rather, it should grab this opportunity to reverse the recent downward trend in bilateral relations, which, if left unchecked, could set back India’s vital long-term interests.

The IAEA vote and withdrawal from the gas pipeline were examples of bad diplomacy.

India failed to find a strategic equilibrium between its warming up to the US and maintaining strong ties with Iran, a traditional friend.

The Geneva deal, which signals a change in the West’s approach to Iran, offers India a second chance.

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