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Passage to India

The world’s largest democracy is now the second-largest purchaser of Iranian crude. Why is the West standing by as India exploits sanctions?

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An Indian commuter looks on as a petrol station attendant fills his scooter tank, in New Delhi. (Christophe Archambault/AFP/Getty Images)

On Feb. 13, suspected Iranian agents attached a bomb to the car of Alon Yehoshua, the Israeli government’s defense attaché in New Delhi, India’s capital. When the bomb detonated, Yehoshua’s wife was nearly paralyzed as she was picking up her kids from school.

Under different circumstances, this assassination attempt might be considered an act of war against India and Israel: Whoever planned the attack surely knew that Israel has sold $10 billion in arms to India over the past decade, and that the two countries have cooperated in the development of next-generation weapons systems. But India shrugged off the brazen violation of its sovereignty and internal affairs. Just two days after the attack, Indian Commerce Minister Anand Sharma announced that his country still planned on sending a major trade delegation to Iran—never mind that Iran is the subject of a restrictive American, E.U., and U.N. sanctions regime.

That delegation will travel to Iran next week in a bid to upgrade economic ties between the two governments. It’s not the countries’ only recent attempt at dodging or exploiting Western sanctions. Late last month, Iranian officials met with Indian financiers to hash out a new trade arrangement that would allow India and Iran to purchase each other’s goods without technically violating E.U. and U.S. sanctions.

India sees an opportunity in the West’s isolation of Iran. At a time of diplomatic freeze and economic sanctions, the Islamic Republic needs all the friends—and all the buyers for its embargoed natural resources—that it can get. India, meanwhile, needs a regional partner that can squeeze Pakistan. And all the better if that partner happens to be sitting on deep reserves of crude oil that can help satisfy the growing energy needs of the world’s largest democracy.

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India is the world’s second-largest purchaser of Iranian oil, at over half a million barrels a day—and the Indian government is now trying to bypass financial sanctions on Iran by paying for oil using agricultural staples or Indian rupees, which Iran has no choice but to reinvest in the Indian economy. Of course, these purchases would undermine the Western sanctions regime, which includes an E.U. ban on the importation of Iranian crude. It would also frustrate the attempts of the United States and Israel—countries with which India has deep, mutually beneficial ties—to convince Iran to abandon its nuclear weapons program.

“The economics, the geopolitics, all these things tend to reinforce New Delhi’s calculation that it can play this game in a very complicated way,” said Bruce Riedel, a former CIA officer and current senior fellow at the Brookings Institution. According to Riedel, the Indo-Iranian closeness partly comes down to straightforward regional power politics. India and Pakistan are bitter, nuclear-armed enemies, and Pakistan has supported terrorist attacks inside India for decades. “If you start nuclear retaliation with Pakistan, it could result in Armageddon,” Riedel said in a recent interview. “So, India looks for other ways to squeeze Pakistan. And one of the most effective ways is to build a coalition against Pakistan’s interests in Afghanistan. In the big geopolitical picture from New Delhi, that’s what really matters.” Thus, a car bomb registers as a “small fish” compared to the necessity of keeping Pakistan from exerting its influence over much of central Asia.

So far, India has displayed a remarkable ability to mollify Iranian and Western fears that the rising superpower is no longer decisively on each one’s side. In 2006 and 2009, India voted to sanction Iran over its nuclear program at the International Atomic Energy Agency and the U.N. But India was careful to reassure Tehran that the votes did not threaten the countries’ bilateral relations. Indian Foreign Minister Pranab Mukherjee paid a visit to Tehran in early 2007, while his Iranian counterpart, Manouchehr Mottaki, led a high-level economic and diplomatic delegation to India in November 2009, just weeks before India endorsed sanctions at the United Nations.

India has also sought to convince Iran that it can act independently of the West, despite its close ties to the United States and Israel. Shortly after India finalized its nuclear treaty with the United States in 2008—a controversial agreement in which the United States required increased monitoring of India’s nuclear technology, while endorsing the country’s exemption from the decades-old nuclear nonproliferation regime—its navy engaged in a major joint exercise with its Iranian counterparts.

“The fact that the U.S. went through with the nuclear deal while India was doing a naval exercise with Iran shows our ability to stomach it,” according to Georgetown Professor C. Christine Fair. The annoyances of the Indo-Iranian relationship, she argues, pale in comparison to what the United States gets out of its friendship with India. As a nuclear-armed democracy with relatively benign regional and global ambitions, India is a potential counter-balance to China. Better still, it has a middle class of 300 million potential consumers of American products.

India has also reaped tangible strategic benefits from this diplomatic balancing act, particularly regarding its rival on the country’s western border. “Iran is a very important player in [India’s] geopolitical rivalry with Pakistan,” said Riedel. The Indians and Iranians have cooperated on infrastructure projects in Afghanistan aimed at decreasing Pakistani influence in the country, most notably a proposed road and parallel railroad line connecting Afghanistan to the Iranian highway system. This would allow Afghanistan to easily export its untapped mineral resources, which the U.S. Department of Defense believes to be worth as much as $1 trillion, through ports other than Karachi. “Pakistan sees India, Afghanistan, and Iran colluding against them, and this pushes every single one of their conspiracy buttons,” Riedel said. “And it’s safe to assume the Indians like it that way, since Pakistan pushes a number of their paranoia buttons all the time.”

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So, what is Israel—a country that derives incredible strategic and economic benefits from its relationship with India, but has the most to lose from a strong, nuclear-armed Iran—supposed to do about all of this?

Maybe nothing. When asked about possible Israeli concern over India’s trade delegation to Iran, an Israeli official emphasized the progress in Indo-Israeli relations over the past few decades. India, the official pointed out, had once helped found the Non-Aligned movement, a group of third-world countries hostile to Israel that refused to openly place themselves in either the American or Soviet camp. And 20 years ago, the official reminded me, the Jewish state was the only country that Indian passport holders weren’t allowed to travel to. In other words, although Indian oil purchases certainly aren’t constructive from an Israeli standpoint, they are a small matter compared to the stunning overall improvement in Indo-Israeli relations.

Plus, there’s already some evidence that Western sanctions are slowly prying Iran and India apart. Last week, Reuters reported that an oil delivery to India was canceled when a European insurance company refused to insure the shipment. The Indian government is already looking for other means of insuring oil shipments. But thanks to Western sanctions, trading with Iran isn’t quite as straightforward as it once was.

India has also been savvy in supporting the West’s isolation of Iran when it serves Indian interests. In December 2010, for example, India announced that it would no longer be using the Asian Clearing Union, an organization that facilitates transfers between Asian banks, to process transactions with Iranian financial institutions. According to Patrick Clawson of the Washington Institute for Near East Policy, this was a power play by India over its Iranian allies. It allowed India to prevent its banks from doing business with Iranian companies on the U.S., U.N., and E.U. sanctions list. At the same time, it forced nearly half of all transactions for Iranian oil to be performed inside of India (as compared to 20 percent before the announcement), using Indian currency and goods. “The trade delegation going to Iran is saying, now that you have to spend 45 percent in rupees you’ll have to start buying our products,” said Clawson. Thus, the sanctions regime hasn’t killed off Indian trade with Iran—but it has given India unprecedented economic leverage over the Islamic Republic.

India might gain even more of an upper hand given the Brussels-based Society for Worldwide Interbank Telecommunication’s (SWIFT) announcement last month that it would ban all Iranian financial institutions from using its services. Because of sanctions, Iran can no longer process oil payments using SWIFT or the Asian Clearing Union, two formerly crucial means of transferring billions of dollars across borders. “The Iranian oil is going to continue to flow,” Clawson said. “And if the net result of all of this is that Iran exports oil to India, but they have to use a fair amount of money to buy stuff in India, that’s not so bad. It’s like a tax.”

But even if Western sanctions have tilted the balance of power decisively in India’s favor, the upcoming trade delegation is a fairly transparent bid to continue doing business with Iran despite the sanctions regime. Neither international pressure nor a terrorist attack against foreign diplomats in the streets of its capital has been enough to convince India to fundamentally alter its relationship with the Islamic Republic. For the foreseeable future, the world’s top purchaser of Israeli weapons will also be one of the world’s top purchasers of Iranian oil.

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Lynne T says:

Obama is insisting that the sanctions are working and should be given a chance to force the current regime to cease and desist because China, India and others are uniformly complying with the sanctions.

Regardless, such compliance would last about as long as it would take for the regime and Tehran and Iran’s usual customer base to figure out some way of resuming business just as surely as Saddam Hussein was able to resume selling Iraqi oil.

JCarpenter says:

We don’t depend on Iranian oil, yet we’re quick to judge India who obviously depends on Iranian oil if they are the second-largest customer. Asking them to join the West in sanctions is asking them in effect to accept and apply a stiff economic sanction upon themselves. And we ask while maintaining an alliance with their crazy neighbor, Pakistan.

Michael Kadin says:

Inquire where Israel has been receiving its oil. In the past part has come from Mark Rich, where did he purchase his oil?

Cris says:

Good article,Armin. It’s been very difficult for Indian officials to make these overtures towards Israel.The general public in India is quite warm towards Israel but a lot of political analysts in India come from the hard left Jawaharlal Nehru University and are bitterly anti-Israel as well as anti-US. As a result of the arms deals with Israel and the vote against Iran, these analysts have already started calling the foreign office in India as Western stooges who are bowing to the omnipotent “Israel Lobby”. The hard-left loves Iran and detests Israel. They are already calling on the Indian government to cool ties with Israel. In fairness, the Iranian regime detested the Taliban and has maintained good ties with India.We Indians are hoping that Israel and Iran keep this to a cold war and don’t make it hot.

I hope that people in Israel realize that the Iranian regime is quite rational. Ahmedinejad might be a loon but the Iranian regime as a whole engages in ‘realpolitik’. They have maintained good ties with India to counterbalance Pakistan and Taliban in Afghanistan(even though they are Islamic). In the same manner, they supported Christian Armenia against Shia Azerbaijan because it served their interests. The Iranians are not apocalyptic and even their support of Palestinian terror is calculated to maximize their status as a regional power.

emunadate says:

India will have to find an alternative source for energy. This is a critical time to put an end to what Iran is doing…http://emunadate.blogspot.com/2011/02/iranium.html. The world has been avoiding finding alternative sources of energy. What ever happened to the electric car?

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Passage to India

The world’s largest democracy is now the second-largest purchaser of Iranian crude. Why is the West standing by as India exploits sanctions?