Analysis: Iran sanctions threaten US-India ties

In India, as well as Iran, Obama's sanctions could be more than counterproductive.

By Jason Overdorf
GlobalPost (February 4, 2012)

NEW DELHI, India — The West's quest to impose a painful embargo on Iran is slamming into a harsh reality: India is declining to cooperate.

Without the participation of major importing nations like India, the sanctions are far less likely to succeed in forcing Iran back to the nuclear negotiating table. The standoff means that the West's initiative could backfire, harming US-India ties more than it thwarts Iran's apparent nuclear ambitions.

Some experts even contend that, considering regional geopolitics and particularly India's relations with its neighbors, the sanctions' failure has been written in stone from the outset.

As the prospect of war with Iran mounts, the West has resorted to unusual measures to promote the success of its economic offensive. To coerce other nations to comply, the US has issued extra-territorial sanctions against any entity doing business with Iran's central bank, a move that complicates all potential trade with Tehran.

Any bank that engages in a “significant financial transaction” with Iran's central bank — necessary for facilitating the currency conversion in oil purchases — is barred from doing business in the US.

To Washington's dismay, this week, India announced that it wouldn't cut back on oil imports from Iran. When doubts arose over how India would pay for its oil with sanctions in place, Iran said they would allow India to pay in rupees, circumventing Washington's embargo.

And so the deal was done.

“We've been at pains to explain to the US that we have a special problem here,” said Lalit Mansingh, a former Indian ambassador to the US. “On the issue of Iran acquiring nuclear weapons, we have a clear stance: We are against it. But we are also dependent on Iran for 12-15 percent of our oil supplies and that can't be wished away.”

Despite the much ballyhooed “strategic partnership” between the US and India, Washington doesn't seem to be listening.

Desirable as it may be to slow Iran's acquisition of nuclear weapons, and however appealing these sanctions might sound to US voters, this is not the way to go about it, many experts say.

Harsh economic sanctions are as likely to drive Tehran to “double down on its quest for the ultimate deterrent” as they are to lure President Mahmoud Ahmadinejad to the negotiating table, as Brookings Institution fellow Suzanne Maloney argued recently in Foreign Affairs.

“[With the] ratcheting up of sanctions, and clearly now an attempt to wage economic warfare against Iran and force a regime change, plus the continuous threat that all options, including military action, are on the table, any sensible nationalist would say the only protection that Iran has is to develop nuclear capability,” said former Indian Foreign Secretary Kanwal Sibal.

Perhaps more importantly, the banking mechanism that Obama has adopted to impose these sanctions allows countries like Japan, South Korea and China — which consistently opposes US foreign policy interventions — to circumvent the blockade.

And it singles out India — which has supported Washington's call for an end to Iran's nuclear program before the International Atomic Energy Agency — for special punishment.

How so? China and other nations from which Iran makes significant purchases have already set up a barter system of sorts that allows them to pay for oil with goods, rather than cash, thereby cutting out Iran's central bank. But because Iran is not a big customer for India's outsourcing sector, or a significant buyer of any other Indian commodity, India must settle its oil bill in cash.

That means, first of all, it had to convince Iran to accept 45 percent of its money in rupees at a time when the Indian currency is bouncing back from an all-time low against the US dollar — a feat that it reportedly achieved this week, according to the Indian Express.

But it also leaves India's future oil purchases in doubt, as the shaky payment mechanism could break down any time. And it sets up America's newest strategic partner to bear the brunt of US criticism simply for doing what its neighbors are doing in a more direct way.

“It's a bit unfair that you come up with sanctions on the eve of elections and make it appear that it's a matter of great urgency,” said Mansingh. "Work with the United Nations and the IAEA ... is basically what India is saying." Mansingh also emphasized that this was India's stance the last time Washington forged ahead agressively against supposed weapons of mass destruction: the invasion of Iraq.

In calling attention to that debacle, India is being more than a little disingenuous. China or Russia would be almost certain to veto any UN resolution mirroring America's current economic sanctions. But India's position is consistent and pragmatic, as well.

New Delhi has for decades refused to ratify the Non-proliferation Treaty (NPT) because, it argues, it is designed to help the small club of nations with nuclear weapons retain a dominant say over world affairs, and has no provisions for disarmament.

At the same time, its own history in acquiring nuclear weapons, as well as the contrasting fates of Iraq and Pakistan after Sept. 11, provide strong arguments suggesting that no measure will be sufficient to convince Iran to abandon its nuclear program. And, as a result, it is wise to prepare for the day Tehran gets the bomb by establishing some common ground.

“For the US to singlemindely focus on one single aspect of the problem Iran presents in terms of its nuclear ambitions is narrowing the larger strategic geopolitical considerations that must go into any decision making involving such a volatile region,” said Sibal.

India is already hedging its position and moving to scale back its dependence on Iran's oil, according to a report by the US Congressional Research Service.

But that will take time. And India still hopes to use those “larger strategic geopolitical considerations” to angle for a temporary waiver or an exemption for its oil imports.

Scuttling its relationship with Iran, the argument runs, would cut off India's access to Afghanistan. Therefore, an end to the oil trade might also spell an end to India's aid in the post-war reconstruction effort — where, despite Pakistan's objections, India's functional-if-chaotic democracy may offer the best hope for creating effective civil institutions.

Moreover, weakening New Delhi's influence in Tehran will increase Beijing's, not Washington's.

But Obama should be looking further toward the horizon — beyond the upcoming election or the withdrawal from Afghanistan. The US strategic partnership with India could be very important for the US' future in Asia, if Washington treats India as an ally and not a vassal.

“Washington must not take a litmus test approach, in the sense that if you don't get a fighter contract or nuclear liability law then the relationship is doomed,” said Mansingh.

“As I see it, we've had the strategic partnership for about a decade now, and it's doing quite well. But if you take each of these high profile cases as a test, it's not going to work.”

http://www.globalpost.com/dispatch/news/regions/asia-pacific/india/120203/iran-sanctions-us-india-ties