A double whammy for India

Brahma Chellaney

India’s energy and diplomatic dilemmas have been compounded by murky big-power geopolitics, which has allowed the oil monarchies to ride out the Arab Spring but brought the region’s two remaining anti-Western regimes in Iran and Syria under intensifying pressure. The sharpening U.S.-Israeli geopolitical confrontation with Iran risks escalating to military hostilities. After all, even as Israel steps up its “shadow war” with Tehran, the U.S. has declared indirect war through an oil embargo designed to financially throttle Iran.

The risks of India getting sucked into this geopolitical fight or becoming a proxy battleground are real. Israel’s instant accusation that Iran was behind the New Delhi car bombing serves as a reminder. Why would Iran target someone unimportant — an Israeli diplomat’s wife — just when the West is breathing down India’s neck to cease importing Iranian oil? This is the worst possible time for Iran to alienate one of its last-remaining economic lifelines, India. Despite the explosive device’s sophistication, the car incident in New Delhi (like the one in Tbilisi) bore the characteristics of an amateurish job.

If Iran indeed was behind the attack, it connotes sheer recklessness and incompetence. There has been no instance of Iranian terrorism in India in the past but several instances of Pakistan-based terrorists targeting Israelis or other Jews in areas ranging from Jammu and Kashmir to Mumbai. Yet, with Israeli Prime Minister Benjamin Netanyahu blaming Iran even before the police in New Delhi could complete the initial examination of the car-blast scene and consequently the media following just that angle, a possible link between Pakistan-aided terrorists and the attack has escaped public scrutiny. Significantly, the U.S., while condemning the bomb incidents in New Delhi, Tbilisi and Bangkok, has stopped short of endorsing the Netanyahu-led claims that Iran is behind the bombings.

Still, even as India faces the spectre of a proxy war between Israel and Iran on its soil, the blast incident only adds to the external pressures on New Delhi to break its energy ties with Iran.

More broadly, the narrow logic driving U.S. and Israeli policies has trumped larger considerations. Instead of seeking to reap long-term benefits by promoting genuine democratic transition across the Arab world, the U.S., for example, has deepened its alliance with oil monarchies, including the tyrannical House of Saud and the ambitious Qatari royalty, and winked at Bahrain’s brutal suppression of its Arab Spring movement. The long-term risks of aiding Islamist rulers or groups also have been overlooked.

This explains why the Arab Spring has brought no change to the oil monarchies. It is the Arab states with a presidential form of government that are at the centre of the ongoing profound changes, which, paradoxically, are sought to be influenced by the iron-fisted but deep-pocketed oil sheikhdoms.

Their already-swelling coffers — thanks to the U.S. energy embargo against Iran and rising oil prices — are set to overflow, increasing their leverage in the region and beyond.

The experience of the past half a century shows that the greater the transfer of oil wealth to these monarchies, the more they have funded fundamentalism and extremism, thereby contributing to the rise of international terrorism. In fact, the more wealth they have accumulated, the more the price of freedom has risen in the region.

In this light, the U.S. attempt to give international effect to its new Iran Sanctions Act threatens a double whammy for strategic-partner India. First, it will sabotage India’s energy-import-diversification strategy by making it place most of its eggs in the basket of the Islamist-bankrolling oil monarchies. India will become overly reliant on the wrong types of regimes and thus exposed to the games they play.

Over the years, the share of Iranian crude in India’s total oil imports has declined to barely 11 percent as part of a conscious Indian effort to reduce supply-disruption risks linked with the lurking potential for conflict. Given India’s soaring oil imports and search for new sources of supply, the Iranian share — even if the total quantity remains constant — will likely decline further. Still, as the nearest oil source for India, Iran offers lower shipment costs.

If India joins the total U.S. oil embargo against Iran, Indian refineries with a technical capacity to process only Iranian crude will be left high and dry. Oils from different countries vary in terms of two basic properties — specific gravity and sulphur content. Retrofitting those old refineries to process crude from other countries will be uneconomical.

Second, at a time when the U.S. is quickening its Afghanistan disengagement and seeking to cut a deal with the Taliban with little regard for Indian interests, jumping on the American sanctions bandwagon will rupture India’s relations with the very country central to its Afghanistan strategy — Iran, a conduit for the substantial Indian aid flow to Afghanistan. America’s Afghanistan-exit strategy — which is beginning to look like a sprint — only reinforces Iran’s geopolitical importance for India.

It should not be forgotten that India already has paid a heavy price for taking America’s side on some critical issues in its long-running battle against Iran, even though Washington doesn’t take India’s side in its disputes with China or Pakistan.

The Bush administration persuaded India not to conclude any new long-term oil and gas contracts with Iran and — in return for a civil nuclear deal with the U.S. — abandon the idea of a gas pipeline from Iran. By voting against Iran at the International Atomic Energy Agency’s governing board in 2005 and 2006, New Delhi invited Iranian reprisal in the form of cancellation of a 25-year, $22-billion liquefied natural gas deal which had terms highly favourable to India. That deal’s scrapping alone left India poorer by several billion dollars.

Now the U.S. embargo against Iran — the world’s third-largest net exporter of oil — has pushed international oil prices higher, increasing the oil-import bill of India and a number of other countries, while undercutting civil society in Iran and strengthening the clerical regime there. The embargo indeed is having a negative impact on the global economy by placing additional strain on oil supplies and threatening to slow economic growth.

Significantly, those states in favour of the total oil embargo on Iran (including the U.S., Britain, France and Germany) buy little oil from that country, while those countries advising caution (such as India, Japan, South Korea and China) are important importers of Iranian oil. These four Asian economies account for 60 percent of Iran’s oil sales. The U.S., in fact, stopped importing Iranian oil way back in 1987. The international division thus is between those that have nothing to lose and those that have much to lose.

Yet without offering any credible alternatives, Washington is mounting more pressures related to oil sourcing and payments that strike at the heart of energy-poor India’s efforts to secure stable, assured supplies. The Iran issue, in effect, has turned into a diplomatic litmus test as to whether India will stand up for its energy and geopolitical interests in the region or be co-opted to serve the short-term interests of its friends, particularly the U.S. and Israel.

A version of this article appeared in the Mint, February 17, 2012.