If the news reports are correct, the diplomatic maneuver comes only a few months after India abandoned the practice of paying for its crude oil imports from Iran through the Tehran based Asian Clearing Union, a central bank clearing mechanism, apparently under direct pressure from President Obama. India was so hasty in acceding to US demands that it failed to set an alternate mechanism in place or even to consult private petroleum importers. India asked Iran to find a set of banks that were not under US sanctions in order to reroute financial payments. For its part, Iran did not retaliate and continued to supply crude oil on credit to India until a new payment arrangement was agreed through branches of both countries’ state owned banks in Germany. Iran is the largest single supplier of crude oil to India (importing ~$12 billion / per year), and India still has plans to invest heavily in Iranian oil and gas fields.
India has also abstained from voting on Iran’s human rights situation in the UN Human Rights Council and it voted in 2010 in support of the IAEA censure of Iran’s alleged nuclear weapons program. The latter vote elicited a “nasty” letter from the Iranian government even though India had tried to indicate that it did not support punitive sanctions and favored dialog (PTI, 5/17/2010). The censure vote reinforced a decision in 2005 by India to support taking the issue of Iran’s nuclear enrichment program to the UN Security Council. Although India might ideally prefer to retain its friendship with Iran, India appears to be signalling a shift toward further alignment within the American orbit at the expense of its ties to Iran.
A portion of the tension between India and Iran may also relate to technical details in the proposed IPI (Iran-Pakistan-India Pipeline) project. India wanted Iran should to guarantee delivery of gas across Pakistani territory and Iran has been unresponsive (Doordarshan, 5/15/2010). However, these disputes are likely to be a consequences of India’s position at the IAEA rather a completely separate point of contention.
In addition to the fact that India’s partnership with the US has already begun to provide dividends, India’s foreign policy establishment must also weigh the value of its growing security ties with Israel as well as robust economic relations with the Persian Gulf countries relative to the value of potential future energy imports from Iran. Indian non-oil trade with the GCC countries (~$24 billion) dwarfs its non-oil trade with Iran (~$5 billion). The GCC countries also supply approximately 2/3 of India’s oil imports and are a major source of remittance income (Indian Express 8/9/2007). Finally, as a permanent member of the IAEA Board of Governors, India has a strong interest to defend its own reputation as a responsible nuclear power in order to legitimate its own questionable entry into the nuclear armed club.
If the shift in Indian foreign policy continues, it will be tantamount to a retreat from its considerable efforts to stabilize Afghanistan (India is the 5th largest donor to Afghanistan). It is already evident that the Delaram-Zaranj road built by Indian paramilitary forces at considerable risk and cost in Western Afghanistan to reduce Afghanistan’s dependence on Pakistan has been taken over by Taliban militants. Lowering India’s profile in Afghanistan marginally harms America’s objective of stabilizing Afghanistan, particularly as India remains one of the most favored donor countries among Afghans.
American policy toward Iran, which is almost exclusively a reflection of the interests of allies in West Asia, may come at the expense of stability in South Asia. Although Iran has no interest in destabilizing its eastern neighbor, American attempts to isolate Iran diplomatically mean that an opportunity to use the stabilizing influence of a Muslim majority state which has historically had tremendous influence among Dari speaking Afghans and a strong anti-Taliban disposition are being squandered.
The US and Iran were able to work together in 2001 to help overthrow the Taliban. And despite some reports of munitions from Iran being shipped to insurgents (none of which have been successfully traced back to the Iranian government), Iran has mostly acted as a stabilizing force in Afghanistan — even allegedly supplying direct cash support to the Karzai regime. In fact, as Ambassador James Dobbins has recounted, it was the Iranians who reminded the Americans at the Bonn conference that the new Afghan constitution really ought to mention the word “democracy” at least once. And for all of the moralizing American rhetoric about women’s rights, it is also worth recalling that in the early years of the Taliban, when the US sought to cozy up to the brutal movement to secure pipeline contracts, only the Iranians championed the rights of Afghan women which were being trampled. This is not to argue that the Iranian regime’s record on democratic governance, human rights, and civil rights is without very serious problems, but it is to show that Iran is not America’s “other.”
A more balanced US foreign policy toward Iran (which would also give India greater political and diplomatic room for maneuver), despite decades of animosity and the potential for further horizontal nuclear proliferation, is most likely in the best interest of the US and most of the regional players in South and Central Asia. Iran could also contribute by climbing down from its current position on nuclear enrichment.