US-India strategic dialogue: Iran disagreement recedes as talks begin

By Ajai Shukla

Business Standard, 12th June 12

On Wednesday, in Washington D.C., the third US-India Strategic Dialogue will be co-chaired by US Secretary of State Hillary Rodham Clinton and India’s Foreign Minister SM Krishna.

The US State Department has announced that the dialogue between “the world’s oldest and the world’s largest democracies” will include discussions on bilateral and regional economic issues, regional security and defence, public health, innovation, agriculture, and women’s empowerment.

While engagement between Washington and New Delhi has expanded since President Obama’s visit in 2010, the last year has seen strains over the two countries’ differing approaches to Iran, in particular India’s insistence that its energy needs demand continued oil imports from Iran, irrespective of US-led sanctions. However, vocal public disagreement involving the two countries’ media, legislatures and strategic communities has not prevented the two governments from deftly bridging the gap.

On Monday, Clinton granted India (and six other countries) a six-month waiver from sanctions, justified by the actions they have taken to reduce oil dependency on Iran. India has reduced oil imports from Iran from the 2008-09 high of 16% of total oil imports to just 10% last year, with further reductions planned to 7%. Reducing below this level is problematic because refineries like those of Mangalore Refinery and Petrochemicals Ltd (MRPL) are engineered specifically for Iranian crude.

New Delhi officials, speaking anonymously, say entirely shutting off Iranian crude would be undesirable, even if Saudi Arabia offered to make good the shortfall. “We would not like all our eggs in one basket. Besides, we are exploring other sources: imports of crude from Venezuela have begun; and our traditional source, Iraq, has begun exporting crude again,” says a senior foreign ministry official.

Even at the reduced import levels from Iran, India faces difficulties in making payment. While it has been agreed that 50% of India’s oil imports will be paid for in rupees (reassuring to America because that reduces the flow of hard currency to Teheran), India’s share of the $15-16 billion bilateral trade is a mere $2.6 billion. Paying in rupees requires India to step up exports to Iran, but enhancing trade arouses further criticism of India.

“After 28th June, if the US decides to implement watertight sanctions on the Central Bank of Iran, payments would be difficult unless we have a larger rupee component, or implement counter-trade,” says the foreign ministry official.

Within New Delhi’s strategic elites, India’s relationship with Iran has become a major discussion point. Officials and analysts inclined towards the US point to Iran’s unpredictability; to India’s emerging strategic partnership with the US and Israel; and to gulf states like Saudi Arabia with whom India has longstanding relations, and to the need to keep the gulf region stable as it has 6.3 million migrant Indian workers.

The counter view, which is closer aligned to official policy, sees Iran as an influential player in West Asia that opposes Sunni extremism; as a potentially crucial Indian ally in stabilizing Afghanistan, and as a country that provides India a gateway to Afghanistan and Central Asia through the port of Chabahar.

While many regard the ongoing Iran crisis as a “west-versus-Iran” confrontation, the longer-term Indian security perspective envisions a balancing act between Riyadh and Teheran, both geopolitical rivals in a West Asian power play. They have multiple points of confrontation: civilizational Arab-Persian tension; Shia-Sunni sectarian rivalry; radically different approaches towards the west, and different outlooks to tackling Israel.

“The internal dynamics of the Islamic world are crucial. If Iran is badly weakened, the fundamentalist, pan-Islamic forces, which are heavily funded by Wahabbi regimes like Saudi Arabia and others will gain in vigour,” argued a senior diplomat in a closed-door discussion in New Delhi last week.

MEA officials have long insisted that reports of US-India tension over New Delhi’s continuing relations with Teheran reflected analyst opinion rather than the official bilateral relationship. Washington and New Delhi, in fact, were understanding of each others’ concerns and imperatives in dealing with Teheran. That appears to have been verified by the US waiver on Monday.

The strategic dialogue caps an intense engagement between Washington and New Delhi over the preceding months. Andrew Shapiro, the Assistant Secretary of State for Political-Military Affairs, visited New Delhi in April, followed by Defence Secretary, Leon Panetta this month. The Us Treasury Secretary, Tim Geithner, is scheduled to visit India on June 27-28.