By AIC News - Posted on July 26th, 2011
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Iran and Indian relations are defined by the export and import of crude oil. But with the U.S. sanctions as they stand today along with the world financial instability the Indian government finds itself in debt with Iran. India currently owes the Islamic Republic 5 billion dollars, and the debt is mounting. The difficulty lies in the U.S. sanctions, which prohibit transactions with the use of the dollar with Iran. Thus banks are afraid of handling such transactions out of fear and the country finds itself out of options.
Indian refineries, which import crude oil from Iran, are now stuck between a rock and a hard place as they nervously await the month of august, a month where it is still unclear whether they will be importing fuel from Iran.
With the third week of July over, Iran has yet to signal a continuance of trade with India. Such a signal indicates that India needs to find a solution to the payment problem, or else face the consequences.
India imports 400,000 barrels of crude from Iran a day and with such a supply cut off, the country could face disastrous results.
There are four reasons why the crisis is especially difficult for India to find a solution.
First is that India exports very little to Iran meanwhile importing a lot. This means that the country cannot hope to barter with Iran and hope to recoup the debt and the cost of importing crude oil with a form of goods exchange.
Second, India’s unwillingness to make the rupee a fully convertible currency also means it must use a mutually acceptable currency. Thus, India must turn to the International form of transaction which with Iran is strictly regulated and prohibited. Countries such as South Korea and Japan trade without any problems because they denominate the transactions in their own currencies which are convertible.
Third, India is being pressured from both sides; both the United States and Iran are pulling strings and attempting to force India’s hand as they look to win the larger battle. The United States is attempting to eliminate the last form of support that Iran gets with regards to its International trades and thus strengthen the effectiveness of its sanctions; shuttering off one of the largest remaining energy markets in the world. Iran is attempting use India as a mechanism to break through the U.S. sanctions. While there are products that India can export to Iran to offset the debt that it owes such as tea, automobile parts, among other things, Iran refuses to accept such, perhaps playing its own game; not wanting to lose to the United States.
The fourth and final reason is prestige. India does not want to seem to backing down under U.S. pressure. And it does not want to be overly dependent on Saudi Arabia for its oil, which has been moving into replace the Iranians in the Indian and other markets. The Saudis have already killed off Reliance’s long-standing trade of refining and then re-exporting Iran’s heavy crude. But given Riyadh’s close links with Pakistan and its Wahabi ideology, India would prefer Iran to Saudi Arabia if it had a choice.
Iran will most likely continue to export crude oil to India, as it is one of the nations few sources of trade under heavy U.S. sanctions. But Tehran will most likely not back down with its pressures on India and threats of cutting off exports to the country.
For India, Iran is a nation with which they are friendly but not an ally. Iran’s relations with Pakistan far outweigh its assistance in India. At the same time the U.S. sanctions are in line with Indian interests to see a nuclear free Iran; as a nuclear weapon in Iran would wreak havoc for the region, in India’s eyes, since it would start a race for weapons in nations including Saudi Arabia.
Iran and Indian relations are approaching a key turning point as players such as the U.S. and China look to also influence the situations in the region. However, with U.S. sanctions as they are and the Iranian economy and people under heavy limitations, Iranian and Indian relations could prove to be vital as time moves forward.
This article originally appeared in the Hindustan Times on July 21, 2011.