India has for long been caught in the diplomatic crossfire between the United States and Iran, so today’s meeting between US Secretary of State John Kerry and his Iranian counterpart, on the sidelines of the UN General Assembly in New York, is being keenly watched for signs of a potential thaw between the two adversaries. This is one of the highest level diplomatic initiatives between Iran and the US in a 34 year standoff that began after the revolution of 1979.
From India’s perspective, a warming up in the frosty US-Iran ties is critical. India’s relationship with Iran spans centuries and has continued to grow despite budding links with the US and the “strategic partnership” which the two nations have been pursuing since 2005. In the past few years India has had to carefully navigate its energy and economic ties with Iran amid tightening US and EU sanctions and the lingering threat of a military strike by Washington. In fact, India along with others like China and Japan have been waived off from US sanctions on Iran aimed at forcing Tehran to halt its nuclear programme, provided purchase volumes are gradually brought down.
Oil import volumes from Iran have come off, and that is costing India money. Iran was India’s second largest supplier of oil, but has now slipped to ninth position with imports down 40% from last year, according to Reuters, as it has been difficult to insure refineries and ships involved in the trade. According to the wire agency, imports from Iran are seen at 190,000 bpd (barrels per day) in FY2014 down from 260,000 bpd last fiscal. Oil Minister Veerappa Moily has said a figure closer 260,000 bpd would save India $8.5 billion in foreign exchange, critical at this juncture to curb India’s current account deficit and stabilise the rupee.
“This provides an interesting tailwind for exports, since Iran is pretty much limited to taking exports from India with its rupee.” Siddhartha Sanyal, chief India economist at Barclays told The Times of India. He said the rupee swap deal could help India reduce its trade deficit with Iran from $10-12 billion to $6-8 billion. India and Iran plan to reach the $25 billion mark in bilateral trade from the current $15 billion. An easing off of US sanctions would give that goal a push.
Improved Iran-US ties would also give India confidence in pursuing other long pending energy and trade cooperation proposals that it has signed with Iran, but gone slow on, for the fear of drawing the US’s ire. Among them is the Iran-Pakistan-India pipeline, a project from which India withdrew after signing the civilian nuclear deal with the US. Indications of a thaw could revive talks on this project as trade is high on PM Manmohan Singh’s agenda when he meets Nawaz Sharif this week.
Teheran has also offered Indian PSUs like ONCG Videsh, OIL and Indian Oil Corporation production sharing contracts for developing the Farzad B gas field, but India hasn’t been convinced about committing investment, weighed down by the US sanctions. The International North South Transport Corridor (INSTC) connecting India, China and the Persian Gulf to Central Asia and Europe – a project that India has put its weight behind despite the US sanctions, as it is pegged to radically reduce cargo transport time and enhance trade – could also get a fillip. Iran is a critical node in this regional initiative.
An area where the interests of all the three nations – India, Iran and the US converge - is Afghanistan. India has helped construct ports and roads connecting Iran and Afghanistan, enhancing not only its economic and trade influence in the region, but also its strategic control of the area.
“Indian interests in Afghanistan are likely far more in concert with the US than those of Pakistan or China, which has steadily expanded its Afghan footprint as well,” wrote Ishaan Tharoor in the Time Magazine last year. A renewal of diplomatic ties between Iran and the US will have tripartite benefits, especially with the US withdrawing troops from Afghanistan in 2014.
Experts are, of course, skeptical of how much headway Iran and the US can make with these talks, given the decades of mistrust and suspicion between the two countries, Iran’s unwavering stance on its nuclear programme and domestic political compulsions Obama faces. Iranian President Rouhani has warned that any attempts to force Iran to abandon its nuclear technology would fail. He said, an inconsistent voice from Washington could derail the resolution of this dispute, and sought “equal footing, mutual respect and the recognised principles of international law” to “govern the interactions”. But reports suggest that were Obama to waive sanctions in a bid to reach a compromise, it could worsen relations with hawkish Congressmen who are skeptical of this reconciliation effort.
India will be watching how Obama steers through this complex conundrum.
From India’s perspective, a warming up in the frosty US-Iran ties is critical. India’s relationship with Iran spans centuries and has continued to grow despite budding links with the US and the “strategic partnership” which the two nations have been pursuing since 2005. In the past few years India has had to carefully navigate its energy and economic ties with Iran amid tightening US and EU sanctions and the lingering threat of a military strike by Washington. In fact, India along with others like China and Japan have been waived off from US sanctions on Iran aimed at forcing Tehran to halt its nuclear programme, provided purchase volumes are gradually brought down.
Oil import volumes from Iran have come off, and that is costing India money. Iran was India’s second largest supplier of oil, but has now slipped to ninth position with imports down 40% from last year, according to Reuters, as it has been difficult to insure refineries and ships involved in the trade. According to the wire agency, imports from Iran are seen at 190,000 bpd (barrels per day) in FY2014 down from 260,000 bpd last fiscal. Oil Minister Veerappa Moily has said a figure closer 260,000 bpd would save India $8.5 billion in foreign exchange, critical at this juncture to curb India’s current account deficit and stabilise the rupee.
Also Read
Experts say better US-Iran ties will also help India boost exports. India has a rupee swap agreement with Iran whereby it pays for crude imports in the rupee.
“This provides an interesting tailwind for exports, since Iran is pretty much limited to taking exports from India with its rupee.” Siddhartha Sanyal, chief India economist at Barclays told The Times of India. He said the rupee swap deal could help India reduce its trade deficit with Iran from $10-12 billion to $6-8 billion. India and Iran plan to reach the $25 billion mark in bilateral trade from the current $15 billion. An easing off of US sanctions would give that goal a push.
Improved Iran-US ties would also give India confidence in pursuing other long pending energy and trade cooperation proposals that it has signed with Iran, but gone slow on, for the fear of drawing the US’s ire. Among them is the Iran-Pakistan-India pipeline, a project from which India withdrew after signing the civilian nuclear deal with the US. Indications of a thaw could revive talks on this project as trade is high on PM Manmohan Singh’s agenda when he meets Nawaz Sharif this week.
Teheran has also offered Indian PSUs like ONCG Videsh, OIL and Indian Oil Corporation production sharing contracts for developing the Farzad B gas field, but India hasn’t been convinced about committing investment, weighed down by the US sanctions. The International North South Transport Corridor (INSTC) connecting India, China and the Persian Gulf to Central Asia and Europe – a project that India has put its weight behind despite the US sanctions, as it is pegged to radically reduce cargo transport time and enhance trade – could also get a fillip. Iran is a critical node in this regional initiative.
An area where the interests of all the three nations – India, Iran and the US converge - is Afghanistan. India has helped construct ports and roads connecting Iran and Afghanistan, enhancing not only its economic and trade influence in the region, but also its strategic control of the area.
“Indian interests in Afghanistan are likely far more in concert with the US than those of Pakistan or China, which has steadily expanded its Afghan footprint as well,” wrote Ishaan Tharoor in the Time Magazine last year. A renewal of diplomatic ties between Iran and the US will have tripartite benefits, especially with the US withdrawing troops from Afghanistan in 2014.
Experts are, of course, skeptical of how much headway Iran and the US can make with these talks, given the decades of mistrust and suspicion between the two countries, Iran’s unwavering stance on its nuclear programme and domestic political compulsions Obama faces. Iranian President Rouhani has warned that any attempts to force Iran to abandon its nuclear technology would fail. He said, an inconsistent voice from Washington could derail the resolution of this dispute, and sought “equal footing, mutual respect and the recognised principles of international law” to “govern the interactions”. But reports suggest that were Obama to waive sanctions in a bid to reach a compromise, it could worsen relations with hawkish Congressmen who are skeptical of this reconciliation effort.
India will be watching how Obama steers through this complex conundrum.