India: Walking a US-Iran Tightrope

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One of Indian Prime Minister Narendra Modi's key achievements has been a robust and proactive foreign policy. Over the last four years, he has visited over 50 countries, developing strategic ties and burnishing India's image as an emerging superpower. But with one year remaining in his five-year term, Modi's diplomatic prowess is about to be tested as he seeks a way to balance India's ties with the US, a "strategic partner," on the one hand, and Iran, a "reliable energy partner," on the other. It will be a challenge. Earlier this month, Washington canceled a scheduled ministerial summit between Indian and US foreign and defense ministers for a second time. Although the US said this was due to "unavoidable reasons" not linked to India, analysts saw it as a snub indicating that New Delhi was not a priority for Washington. It was also seen as a move to arm-twist India into complying with US sanctions on Iran, its third-largest crude supplier. Washington's position was made clear by US Ambassador to the UN Nikki Haley at a meeting in New Delhi on Jun. 27, where she reiterated that India must stop buying crude from Tehran ahead of US sanctions kicking in on Nov. 4. "Modi will need to find a way to strike a balance. He'll need to carry out a delicate diplomatic dance that allows him to stay engaged with Iran while not antagonizing Washington," says Michael Kugelman, deputy director of the Washington-based Wilson Center. K.C. Singh, India's former ambassador to Iran, told Energy Compass that India needed to draw a red line with the US, but whether Modi can do that remains to be seen. Trump's decision to unilaterally withdraw from the Iran nuclear accord in May upset import-dependent India by contributing to a surge in crude oil prices that is threatening economic growth and testing key pricing reforms in the oil and gas sector (EC Apr.27'18). India's trade deficit widened to $16.6 billion in June -- a five-year high -- as the country's oil import bill hit $12.7 billion, its biggest since September 2014, when oil prices were around $100/bbl. India officially maintains that it abides by UN sanctions, not unilateral sanctions imposed by any nation or bloc, and that its imports from Iran will be guided by national interests. Apart from energy security, India needs Iran as a gateway to Afghanistan and Central Asia via the port of Chabahar on the Gulf of Oman, which allows it to bypass Pakistan and where Indian companies are doing the lion's share of development work (EC Jun.2'17). The US has told nations to cut imports from Iran and is looking unfavorably at granting exemptions -- this month rejecting European requests for waivers (IOD Jul.16'18). India is Iran's second-largest oil buyer after China, importing some 585,000 b/d during the first half of the year, up 8.4% on 2017, and accounting for 12.7% of total imports, according to Reuters data. A decline in Indian imports from Iran in June -- as imports from the US rose -- quickly drew criticism from the opposition Indian National Congress party, which called Modi a "paper tiger" for giving in to US pressure. "By cutting imports, India has demonstrated that it is willing to work with the US, but it can't completely stop buying from Iran," Neelam Deo, director at Mumbai-based think tank Gateway House told Energy Compass. "Iran also needs to understand that problems in continuing to buy crude from them aren't specific to India. We will have to find a way to continue to make payments to Iran to ensure that crude continues to flow." India's oil ministry has already told refiners to be prepared for any eventuality, while the State Bank of India has informed them that euro payments to Iran won't be available after Nov. 3. Iran is watching India's balancing act carefully. A National Iranian Oil Co. source says Iran is expecting India to keep buying oil, if at reduced volumes. And Iran's Deputy Foreign Minister Seyyed Abbas Araghchi, who was in Delhi for bilateral talks on Jul. 16, said Tehran understood the outside pressures on India, but was counting on the government to make the right decisions in favor of its own interests, The Hindu reported. Iran isn't the only bone of contention between India and the US. The two countries cooperate on defense but are on a collision course on trade (EC Jul.13'18). Modi's so-called "Make in India" policy, aimed at making India the world's leading manufacturing hub, is in direct conflict with Trump's "America First" policy that seeks to revive domestic industry in the US. Each side has levied tariffs against the other on certain goods, while the Trump administration has also imposed restrictions on H1B visas, popular with Indian professionals applying for work in the US. Kugelman says that Modi may have been wrong in assuming that New Delhi would get special treatment due to its privileged status in Washington, which in 2016 designated India a major defense partner. "What appears quite clear now is that the Trump administration won't go out of its way to exempt India from the expectation that all nations will end their engagements with Iran and Russia ... In effect, what New Delhi is learning is that it can't take its growing partnership with Washington for granted," he says. Rakesh Sharma, New Delhi, and Oliver Klaus, Dubai Compass Points • SIGNIFICANCE: The US' Iran sanctions put India between a rock and a hard place. Iran is important for India's energy security, and as a gateway for India to secure access to and project influence in Afghanistan. • CONNECTION: Defense and security ties between India and the US remain strong for now. The two countries conduct regular joint military exercises and the Pentagon recently changed the name of its US Pacific Command to US Indo-Pacific Command. • NEXT: Facing elections early next year, Modi will seek to avoid confrontation with either country. Buying a little bit more crude from the US, and a little bit less from Iran, could be one way to do so.

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