Tehran via Ankara

India has done well to continue sourcing Iranian oil

India’s decision to route payments for oil imports from Iran through Turkey’s Halk Bankasi (Halkbank) ends seven months of an impasse between the two countries following the Reserve Bank of India’s decision (under US pressure) to terminate the Asian Clearing Union as a conduit for payment. Under the latest agreement, Indian refineries which import directly from Iran will make rupee payments to the Union Bank of India, which will in turn route payments in euros to Iran through Halkbank. While this avoids the use of the dollar, it remains to be seen how sustainable this arrangement is, given the United States’ implacable opposition to any large-scale commercial dealings with Iran.

Iran is India’s second-largest oil supplier, providing over 20 million tonnes annually, worth $12 billion at prevailing prices. This supply link should be preserved. The economic relationship between the countries is multi-faceted and has a strong geo-strategic dimension as well, which would call for well-calibrated diplomacy. For example, annual engineering exports from India to Iran are of the order of $2 billion and can easily be three times as high, according to the Engineering Export Promotion Council of India. The Chabahar port and the road link to the Afghanistan border, when completed, will allow India to step up its economic engagement with Afghanistan and central Asia, without being held hostage to Pakistan’s whims.

This is as good an opportunity as any for India to signal its determination to protect its interests. It has already forfeited many opportunities, particularly in the oil and gas exploration space in Iran, by succumbing to US pressure. Recall the withdrawal by India’s oil and gas exploration firms from the bidding for exploration rights in the Pars II field in the Persian Gulf, one of the world’s richest gas fields. Chinese state-owned firms, impervious to US pressure, bagged these rights with no evident repercussions. India must adopt the same single-minded approach. To that extent, India’s persistence in seeking a resolution to the payments imbroglio is commendable. Equally noteworthy is India’s decision to decline Saudi Arabia’s offer to “compensate” India for any shortfall in oil supplies from Iran. On the other hand, given the uncertainty linked with future oil supplies from Iran, Indian refiners are doing well to pragmatically diversify their sources, looking as far afield as South America.

All said, India cannot afford to be fighting other countries’ battles, especially with a country as important in the neighbourhood as Iran and on matters as crucial as energy supplies. India and Iran have mutual interests in the region, not least in Afghanistan after the projected withdrawal of coalition forces in 2014. India has unilaterally stepped up its involvement in Afghanistan, particularly in the mining sector, by seeking to obtain stakes in that country’s rich iron and copper deposits. Considering that relations with Pakistan are expected to remain tension-ridden in the foreseeable future, Iran could be the conduit to evacuate the ore to India. Healthy engagement with Iran should continue. The consequent awkwardness in relations with the US and Israel is understandable, but not insurmountable. One friendship should not be allowed to determine the course of others!