In its first major diplomatic engagement of the new year, India hosted Iran’s supreme national security council secretary and chief nuclear negotiator, Saeed Jalili, last week. Jalili was in Delhi at the invitation of the national security advisor, Shiv Shankar Menon, and met not only Menon but also the finance minister, P. Chidambaram, and the foreign minister, Salman Khurshid. In spite of bilateral ties between Delhi and Teheran losing their past sheen, Jalili underscored that “there are very good relations between the two countries” and that the two nations remain “friends”. The visit was also significant because Jalili is considered as a potential successor to the present Iranian president, Mahmoud Ahmadinejad, who completes his two terms in office this year.
The economic situation in Iran has deteriorated rapidly over the last few months. Because the Central Bank of Iran has been having trouble maintaining its currency peg of 12,260 rials to the dollar, more and more Iranians are trying to trade their rials for foreign currency. This has led to a free fall in the value of the rial. The Western sanctions have blocked Iran international bank networks, making it difficult for Iranian businesses to borrow money at a time when the CBI is having difficulty meeting demands for dollars. As a consequence, Iran is facing its worst financial crisis since the Iran-Iraq war of the 1980s. It has therefore become urgent for Iran to reach out to non-Western nations to seek help. Russia, China and India are natural players in this context and so Jalili’s high-profile visit to Delhi is important. Jalili tried to project Iran as a destination where countries like India can fill the vacuum by suggesting that international economic sanctions on Iran were not a “threat”, but an “opportunity”. Even the Iranian healthcare system is close to collapse under the weight of sanctions and Teheran has reached out to India for help with life-saving drugs. India is now exporting one of its largest consignments of medicine ever to Iran.
Iran is also trying to make a case to Delhi that it could be a reliable provider of energy security to India even though the past experience of India has been rather problematic. But Jalili argued that “Iran’s capability is not just supplying oil and gas. Providing security of energy is one of the principles of Iran’s policy in this respect. We have the best capability [among all neighbouring countries] in providing energy security for the region”. Jalili made a case for the extension of the gas pipeline with Pakistan to India underlining that Iran “has the capacity to provide security”. But India has been trying to reduce its dependence on Iranian oil for some time now and it is not entirely clear if there will be a change of heart in New Delhi because of Jalili’s visit, although India recognizes the benefits of using Iranian territory as a transit route into Afghanistan and Central Asia.
In terms of energy security, actions by the United States of America and the European Union considerably impede India’s pursuit of resources in Iran, where India is the third-largest recipient of exported oil. This is well-illustrated by recent EU sanctions banning European companies from insuring tankers that carry Iranian energy resources anywhere in the world. With nearly all tanker insurance based in Western nations, Indian shipping companies are reportedly forced to rely on state insurance, which only covers tankers for $50 million as opposed to the estimated $1 billion in coverage typically offered by European agencies. Shippers therefore face great risk in transportation. Western efforts to undermine financial institutions in Iran have also complicated payments for Iranian oil exports. An executive order issued by the White House in November 2011 authorizes the US secretary of state to impose financial sanctions on any entity failing to satisfactorily curb support of the Iranian market according to US terms, thus pressuring countries such as India to reduce imports supporting the Iranian economy.
China, like India, has a massive demand for energy security. China is present in nearly every geographic area of importance to India’s energy security and Chinese State-owned companies have proved more willing and able to secure deals at any cost than Indian companies. This intricate challenge of remaining competitive with China and close to the US is manifest in Iran. While New Delhi faces pressure from the West to curb its ties with Iran, Beijing continues to pursue close bilateral relations with Teheran under a firm policy of non-interference to ensure the security of its energy and strategic interests. Beijing was a highly significant factor in Iran’s acquisition of capabilities throughout the 1980s and early 1990s that helped initiate its nuclear programme. Although China curbed official support of Iran’s nuclear programme in 1997 under heavy US pressure, American officials suspect the continuation of informal support under the auspices of non-governmental entities. China continues to supply arms to Iran as well, and although the value of these transfers declined in the first decade of the 2000s, Chinese arms are still presumed to be supporting proxy militant groups in the Middle East via Iran, much to the dismay of Washington. China also functions as a diplomatic ally that can offer leverage to Iran within the International Atomic Energy Agency and United Nations security council. Beijing is vocal in its support for diplomacy rather than force in dealing with Teheran and is adamant in denouncing unilateral or bilateral sanctions that prohibit economic interactions to isolate Iran.
China thus retains significant value for Iran in a manner that would be difficult for India to emulate, particularly given its greater dependency on good relations with the US and basic objections to Iran’s nuclear programme. Teheran and the P-5+1 (the five permanent UN security council members plus Germany) are set to resume talks later this month, although the place and date for the negotiations have not been finalized. The talks would be the first high-level negotitions over Iran’s nuclear programme since the negotiations in Moscow in June, offering at least the prospect of a thaw in a standoff that has grown increasingly tense in recent months. A Washington-Teheran rapprochement will allow India greater strategic space to pursue its diplomatic interests and, as the situation in Afghanistan continues to unravel, this will be useful in shaping the regional environment to India’s advantage.