India defies US sanctions on Iran, eyes Chahbahar port and route to Afghanistan

India defies US sanctions on Iran, eyes Chahbahar port and route to Afghanistan

On October 8, Indian petroleum minister Dharmendra Pradhan came on record to say that India will continue with its purchases.

Finally, India decided to go against US sanctions on Iran instead of bringing the crude oil imports from the country to zero by November 4. This date is a deadline set by the US establishment led by President Donald Trump to set in the sanctions on Iran. Following this, Washington ratcheted up the pressure on Delhi along with other consumers of Iranian crude to slash their oil imports to zero. In first week of October, two Indian companies placed orders for crude oil delivery next month.

India was negotiating window out of these sanctions, similar to waivers under the Countering America's Adversaries through Sanctions Act, or CATSA on Russia to buy S-400 missile systems. Indian diplomats say the US is yet not clear about waivers on Iran. These diplomats told Business Today that India must not wait endlessly since these sanctions are neither backed by the United Nation nor by any other community. From 2012 to 2015, US along with EU and United Nations pushed sanctions on Iran, forcing India to reduce the imports as well.

Bringing the imports to naught neither suits Indian economically nor geo-politically. The indications from Tehran suggest that the diplomats may link the Chahbahar port with the oil exports to India. Iran hasn't withdrawn a single penny out of the line of credit worth $500 million extended by India a year back, via EXIM bank. All this India can ill-afford.


Meanwhile, the state-backed refiners -- IOCL and MRPL -- placed orders of 6 million barrels and 3 million barrels, respectively from the Iranian exporters. On October 8, Indian petroleum minister Dharmendra Pradhan came on record to say that India will continue with its purchases. He also confirmed that country is evolving a different payment system to transact in rupees. India expects that this will help in circumventing the US sanctions on transactions in US dollars. Many of the Indian oil companies, like IOCL make most of their payments in euros. In May this year, the Indian foreign minister Sushma Swaraj sat with her Iranian counterpart Javed Zarif to exchange notes on rupee-riyal trade.

India along with other regional guzzlers of imported crude oil like Japan and South Korea are reducing their dependence on Iran, but the Chinese plans are still not clear. On the trade front, China is already fighting a battle with the US establishment. Along with this, China is trade positive with Iran, and is comfortable in convincing the Iranians to execute deals in yuan. This may force India to concede their space to their bete noire in case of bringing the crude oil to naught.

There are challenges for India, especially to arrange the insurances for the vessels and product; where the US-based companies are dominant. Apart from this, India was unable to replace the crude despite the Washington's assurance of additional supplies from Saudi Arabia and from their own coasts. There is economics as well; Saudi Arabia charges premium on cargoes heading towards east, whereas Iran offer deeper discounts. Although the diplomats in Washington are continuously telling their counterparts that they are pushing the OPEC members to increase their output to mellow down the crude oil prices, yet on ground situation hasn't improved.

In September first week, at first 2+2 dialogue -attended by external affairs minister, Sushma Swaraj, defence minister, Nirmala Sitharaman and US secretary of state, Mike Pompeo and secretary of defence Jim Mattis-India pushed the case of Indian interests in Iran in ensuring the regional balance of powers. The crucial Chahbahar port in Iranian province Sistan-Baluchistan is nearing completion and India doesn't want the sanctions to have any impact on the same.

To make the intentions clear, India also hosted Iran's Roads & Urban Development Minister Abbas Ahmad Akhoundi in Delhi, during the same time when the US lawmakers were doing the dialogue. He made it clear that Iranian establishment is ready to honour the commitment of handing over the the Shahid Beheshti port or phase 1 of Chabahar in few weeks to India Ports Global Ltd, or IPGL-an Indian company. IPGL will take over the operations of the port.

New Delhi looks at the port as a gateway to the International North-South Transport Corridor that will link India to the landlocked Central Asia and Russia as well. At present, India's trade with these countries, especially to CIS countries and Afghanistan is dependent on a pass through from Pakistan, and the hostile relations between New Delhi and Islamabad affect the trade and make it uncompetitive with their Chinese counterparts. The Chabahar port has the potential to become a regional transit hub for Afghanistan and Central Asian countries as well.