Stand and deliver

Energy security and self-interest drive India's Iran policy

Indian diplomats over the last month have demonstrated that they have a good grasp of the Palmerstonian adage that nations never have permanent allies, only permanent interests. By stating unequivocally that the country will heed only United Nations-mandated sanctions on Iran rather than those imposed by a single country or regional grouping, India has sent out a strong signal that it is unwilling to sacrifice its energy security on the altar of global power politics. The routing of payments via a Turkish bank (an option that may no longer be available) had already indicated as much. Now, there are signs of other creative solutions from the negotiating team that has just returned from Teheran: reports suggest that the Iranian central bank could open an account with one of the public sector banks that does not have dealings with the US to settle some of their payments in rupees.

Still, the big test is yet to come. Now that the 27-member European Union (EU) has followed poodle-like in the footsteps of President Obama’s New Year’s Eve sanctions on trading with Iran, the world’s fourth-largest producer of oil, India’s economic diplomacy will be subject to the most rigorous global scrutiny. Already, Japan has chosen to cut purchases from Iran and has asked the US to pressure India and China to follow suit. India is Iran’s largest customer, after China, for the 4 million barrels of oil per day it produces, and Iranian oil accounts for a substantial 12 per cent of India’s oil imports. Both have the power of leverage in the geopolitics of West Asia as two large and still-growing economies and, therefore, significant consumers of crude oil. For India, much hangs in the balance: a free trade agreement with the EU, for one; the continuing supply of critical nuclear equipment and fuel for its upcoming power plants, for another; and, perhaps, the threat of stringent outsourcing legislation in the US. The country has, however, a fairly strong hand from which to play, given that the EU is teetering on the brink of recession and US businesses are unlikely to countenance cutbacks to outsourcing in these tough times. Also, an election year in the US is always a good time to press an advantage.

Economic diplomacy, though, is a skill India has not yet fully grasped, if only because there is little coordination between ministries, politicians and external negotiators — the embarrassing back-down on foreign direct investment in multi-brand retail being a case in point. Although it might be inappropriate for India to flex its muscles in putative-superpower fashion, its foreign policy establishment has recently shown an ability to balance the self-interest of a large nation with realpolitik. In Myanmar, for example, India continued to maintain relations with the ruling junta in the face of US sanctions; a wise decision given that country’s geographical proximity and China’s growing power in the region. In Libya, with which the country had growing public- and private-sector links, India declined to back the Nato move to end the Gaddafi regime — even as it extended help to the Libyan National Transition Council in France. In troubled Afghanistan, India has maintained a benign presence as a force of reconstruction. Iran, however, could be the toughest test yet.