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Editorial: Will Sanctions on Iran Affect India’s Energy Dependency?

Port Wings, 8 May 2019:

With the US’s deadline to stop buying crude from Iran ended last week, there is a big question mark over India’s energy supply. Iran and India have traditionally maintained cordial relations, counting on each other as major security partners.

Both the countries have strengthened their friendship ever since the 1990s when they supported the Northern Alliance in Afghanistan against the brutal Taliban regime. In 2003, they announced the establishment of a “strategic partnership” and have subsequently cooperated on energy, trade, counterterrorism, defense and intelligence operations.

It was after the signing of the Joint Comprehensive Plan of Action — aka the Iran nuclear deal — that Tehran multiplied its oil exports to the Indian subcontinent and became New Delhi’s second biggest oil supplier.

According to media reports, India received about 457,000 barrels per day (bpd) of Iranian crude in the first three months of the 2018 fiscal year. This is in comparison to 279,000 bpd between April and June 2017.

Besides, India has a vital interest in the development of the Chabahar Port in the Sistan and Baluchestan province of southern Iran. As Iran’s only oceanic port, Chabahar is a strategic route that connects Iran, Afghanistan and India and will completely bypass Pakistan. India took over the operation of the port in December 2018.

With the recent announcement by the US that it will not renew waivers for Iran’s major oil clients, including India, to buy Iranian crude, our nation will have a tough job maintaining its longstanding trade and energy relations with Iran.

Under the first six-month waiver granted by the US government (till May first week), India could import up to 300,000 barrels a day. This was about half of what it previously purchased in the period after sanctions were lifted. The recent decision of no more waivers and a sharp reduction in imports will only make it harder for the Indian government to meet its planned imports for the year —an election year, too.

Higher intakes of Saudi or Iraqi oil have not proved enough to replace Iranian crude, which brings with it more favorable credit terms and lower prices than available substitutes. In addition, retrofitting state-owned refineries that process Iranian crude in order for it to process any other kind is an expensive affair. A bulk of India’s refineries are state-owned and this cost would have to be borne by the government.

India mainly exports rice and tea, and Iran’s continued interest in imports is closely tied to India’s decision to continue oil imports. The two states have established a rupee-rial payment mechanism to continue trade under unilateral US sanctions.

In recent years, the Indian government has also invested a lot of energy into its interactions with the Gulf states, particularly Saudi Arabia and the United Arab Emirates, who have stepped up exports to assist India. India has also increased imports from the US in the same period.

As a cascading effect, the development of the Chabahar Port comes under a tremendous pressure for the Indian government by carefully exhibiting a balancing act.

According to reports, US’s denial of an exemption would be viewed negatively in India and termed foreign interference in its strategic interests vis-à-vis Afghanistan and Iran. It will not go down well with the Indian public, and this will matter to the next government, irrespective of who wins the election. The new Indian government would not want to appear as negotiating from a position of weakness in its dealings with the US.

Within few weeks, India will get a new government at the Centre and a lot depends on the government on how to deal with the issue with US Government that will be Achilles’ heel.

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