As the diplomatic dance continues between Iran and the United States of America, the rest of the world is keen to work out the implications of such a realignment, if a rapprochement between Washington and Tehran indeed becomes a reality. The presidents of the US and Iran could not meet and greet at the opening of the United Nations general assembly session, what with the pressures of domestic politics becoming too powerful to overcome in the short term. Like many other states, India will not remain immune to the consequences of possible US-Iran ties. For a long time now, New Delhi has been performing a balancing act when it came to its relationships with Tehran and Washington. It is expected that a potential US-Iran rapprochement will ease a lot of pressure on Indian diplomacy. But it is unlikely to resolve all the problems in Delhi-Tehran ties.
Notwithstanding all the hype surrounding India’s ties with Iran, they remain largely underdeveloped even as the significant stakes that India has in the Arab Gulf often go unnoticed. The strategic reality that confronts New Delhi in the Middle East today is that India has far more significant interests to preserve in the Arab Gulf, and as tensions rise between the Sunni Arab regimes and Iran, India’s larger stakes in the Arab world will continue to inhibit Indo-Iran ties. At the same time, New Delhi’s outreach to Tehran will remain circumscribed by the internal power struggle in Iran, growing tensions between Iran and its Arab neighbours, and Iran’s continued defiance of the global nuclear order.
India’s rapid growth has drastically heightened its need for energy resources and security. Hence the urgent importance of its relations with countries possessing and producing energy resources. It is largely in this context that India has moved closer to Iran, a country heavily sanctioned by the US throughout the 2000s due to its lack of cooperation with international nuclear regulations and its apparent sponsorship of terrorism and human rights violations. Wary of any international support for Iran, the US has pressured India to curb its relations with Tehran and to significantly cut levels of Iranian oil imports.
Actions by the US and the European Union have noticeably complicated transactions between Iran and importing nations, particularly India. These complications were well illustrated by the 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 left to turn to State insurance, which would only cover tankers for $50 million as opposed to the estimated $1 billion coverage typically offered by European agencies, thus taking great risk in transportation. Additionally, Western efforts to undermine financial institutions in Iran have complicated payments for Iranian oil exports. An executive order issued by the White House in November 2011 indirectly pressurizes countries such as India to reduce imports supporting the Iranian economy. In order to avoid threatened sanctions, countries like India and China are speculated to be bartering food products, consumer goods and local currencies for oil, a system which may prove insufficient in meeting the payments necessary to maintain current levels of oil imports. As a result of these pressures, Iran no longer figures among India’s top oil exporters.
The relationship between India and Iran will face challenges in the coming years. A rapprochement between Iran and the US may allow India to expand its economic and energy ties with Tehran and to develop a more productive relationship with Afghanistan. But that is all in the long term. In the short-to-medium term, there are numerous challenges that the two nations will have to navigate.