No US Waiver for Iranian Oil: What India Stands to Lose

In the dog-eat-dog world of global politics, which the United States has mastered and carries out by flexing its muscles, unilateral sanctions and setting redlines are becoming a norm. In a blunt message to the Indian government, the US administration has conveyed that it expects India to reciprocate US support to India post-Pulwama and for listing Masood Azhar as a ‘global terrorist’ by backing US policy to disrupt the Iranian oil economy. In other words, the downside of the ballistic propaganda launched by the Narendra Modi government now stares at India. By raising the stakes so high for the US merely backing the status of a global terrorist, the absurdity of the ruling Bharatiya Janata party (BJP’s) national security pitch becomes apparent.

All the tall claims being made about the Narendra Modi-led government having made India stronger and respected, sound so much like hot air with the US announcing that it is not going to renew waiver granted to India, China and other countries dependent on Iranian oil.

Predictably, the corporate-owned media has urged the Modi government to end oil imports from Iran because ties with the US are of strategic significance, unlike relations with Iran. Meanwhile, the BJP government and its acolytes offer unconvincing reasons why India will not be adversely affected since the government has alternate plans ready. Another spin being offered is that the Modi government is engaged in finding a “right balance” between Iran and the US.

India imported 23.6 million tonnes (mt) of Iranian oil in 2018-19 (up to February) or 11% of India’s total oil imports of 207.3 mt (up to February). India’s oil bill has been rising from $64 billion in 2015-16 to $70.1 billion in 2016-17, $87.8 billion in 2017-18 and $102.9 billion in 2018-19 (up to February). The total bill is likely to cross $120 billion by March end.

The attraction of Iranian oil is on two counts. First, as credit rating agency ICRA pointed out, India stands to lose Rs 2,500 crore if it ceases to import crude from Iran. The reason is the lucrative terms offered by Iran which includes discounted oil price, up to 60-day credit and free insurance. Second, Iranian oil (along with Venezuelan) is considered “sour”, so refining margins are very attractive in contrast to “sweet” crude from Saudi Arabia or the United Arab Emirates. Finding replacement for Iranian “sour” crude is also necessary, otherwise refineries will have to incur expenses to make changes in their plants for switching from refining “sour” to “sweet” crude oil.

While the US has, as a softener, offered not to extend sanctions on development of Iranian Chabahar port in which India is heavily invested, it is unlikely that Iran would sit by and allow the US to point a gun at it and get away. Indeed, while the US, even as a declining superpower, boasts huge military presence, stationed across 800 bases in over 50 countries, any attempt by it to prevent Iranian ships carrying crude from plying can trigger a conflict in the Strait of Hormuz, one of the most vital oil trade routes in the world.

What is little discussed is that by succumbing to US diktat, India stands to lose, for good, acquiring a stake in Iran’s Farzand B gas field with an estimated reserve of 21.7 trillion cubic feet. Besides, US sanctions will also prevent India from carrying out its ambitious plan for the International North South Trade Corridor, which aims to link Indian and Pacific Ocean to Eurasia. While one node extends to Central Asian republics, the other goes to St Petersburg through Bandar Abbas (Iran) to Azerbaijan and then to Astrakhan in Russia and then on to the European part of Russia. US sanctions on Iran have made banks “jittery” about extending loans because anything in which Iran figures, invites US sanction, even if goods-are-in-transit.

The predicament for the Modi government is that if it succumbs to US arm-twisting, it would present itself as a wimp. And if it defies US, it faces the prospect of incurring US displeasure. This at a time when the sword of CAATSA (Countering America's Adversaries Through Sanctions Act) already hangs over India for buying S400 SAM (surface to air) systems from Russia.

On the other side, the seminal lapse in the government’s foreign policy is that it has no regional perspective that encourages trade and travel within South Asia as a long-term counter-weight to hostile relations. It is common sense that relations with Pakistan require patience and tact, not miracles, where two Right-wing potentates work for rapprochement. However, the current Indian political dispensation’s obsession with Pakistan blinds them to pursue other approaches even when hostilities prevail between the neighbours.

Unlike China, which has invested in an overland pipeline in Central Asia to reduce dependence on sea-borne crude oil imports, India is entirely dependent on the sea route for its oil imports. Principally, because successive Indian governments gave up enlightened self-interest and instead of pursuing a pipeline linking India, Pakistan and Iran, let hostile relations with Pakistan distract the country.

An argument is made that in a period of transactional relations, India would be compelled to accept the US diktat on Iranian oil, even if reluctantly. However, relations with neighbours and extended neighbourhood are of great importance, and of abiding interest. To believe that the US needs India to contain China and will do anything to get India aboard its strategic gameplan, has worn thin. The Modi government’s power of persuasion has failed to make the Donald Trump administration exempt India. India’s bargaining capacity vis-a-vis the US, contrary to propaganda in India, is rather low. And it is precisely in keeping with transactional relations that the US has demanded quid-pro-quo for its efforts to get Masood Azhar listed as a ‘global terrorist’.

In other words, in order to get one criminal listed, the Modi government has created the ground for India surrendering to the US diktat of reducing/restricting ties with Iran, as India ceases to import crude oil and probably withdraws from Farzand B project of the fully-owned subsidiary of ONGC, which was prepared to invest there. Not to forget that the International North-South Transport Corridor is pushed to the background, further preventing India from charting a long-term course correction towards Eurasia.

So, if the Modi government believes that India has plenty of options and that its frenetic diplomatic moves have raised India’s profile and created more opportunities, think again. In the season of general elections, the Modi government tom-tomming India’s strong “national security” needs to explain its kowtowing to the US and giving in to its arbitrary and criminal demands in exchange for getting Azhar listed as a global terrorist.

In other words, it is not just succumbing to US arm-twisting that afflicts the Modi government. Its narrow self-interest in order to garner votes in the name of Pulwama and Balakot has restricted the room for manoeuvring. So, what confronts Indian people in the midst of general elections is a Modi government that is jeopardising India’s strategic autonomy and independent foreign policy.