Jim Yardley – New York Times May 8, 2012
Admittedly, the timing was awkward. Secretary of State Hillary Rodham Clinton arrived in New Delhi this week after declaring that India should reduce imports of Iranian oil and comply with Western sanctions. Yet across town, India and Iran were trying to figure out ways to do business together.
In the main ballroom of a five-star hotel, an Iranian trade delegation met with Indian exporters, exchanging cards, sipping tea and nibbling on cookies. The Iranians met one Indian trade group on Monday, another on Tuesday and had more meetings planned in the country’s financial capital, Mumbai — a business courtship seemingly in open defiance of Mrs. Clinton’s hard line.
“I am sure the future of India-Iran trade is very good,” said Yahya Al Eshagh, president of the Tehran Chamber of Commerce, Industries and Mines and the leader of the Iranian delegation.
No doubt, this week’s diplomatic choreography — with the Americans on one side of the capital and the Iranians on the other — could easily have been interpreted as a deliberate provocation at a moment when the once-shiny partnership between India and the United States seems to have dulled. But if the scheduling was poorly planned, the situation actually provided an illuminating window into the realpolitik of Iranian sanctions and of how the United States and India, as well as China, are all trying to achieve their divergent goals.
The Obama administration, in trying to squeeze Iran by choking off foreign currency that might be used for its nuclear program, is pressuring Iran’s oil customers to reduce imports sharply or face punitive sanctions as soon as next month. Earlier this year, Mrs. Clinton announced exemptions for Japan and 10 European nations but provided no such waiver to India and China, the biggest importers of Iranian crude and the rising powers of Asia.
China and India had already rejected the threat of sanctions and vowed to act in their national interests. The Obama administration called on both countries to make significant reductions of imports. But behind the scenes, officials from all three countries were exploring ways to reduce Iranian oil exports while engineering workaround mechanisms so that India and China could pay for the oil they do buy. Indeed, both countries now have arrangements to buy Iranian oil in their domestic currencies — rather than the dollar — that could increase their exports to Iran and also make Iranian oil cheaper.
“It is a lot more complicated with India and China than with Japan or South Korea,” said Valerie Lincy, executive director of the Wisconsin Project on Nuclear Arms Control, which tracks Iran’s nuclear program. “The economies are structured differently, the amount of oil they are importing from Iran is different and the geopolitics are different.”
The Obama administration, which has courted India as a geopolitical partner, recognizes that India has its own interests to defend: Indian leaders want to maintain good relations with Washington, and avoid crippling sanctions, yet India is heavily dependent on foreign oil, meaning that drastic reductions could damage an already wobbling Indian economy.
Moreover, Indian politicians are loath to appear to be doing the bidding of Washington, even if quietly they are working to comply. Analysts say the Indian government has ordered domestic refineries to reduce imports of Iranian oil by more than 15 percent.
“India is clearly making an effort to reduce its dependence on Iran, and this is recognized by the U.S.,” said Harsh V. Pant, an India specialist at King’s College in London, in an e-mail. “But domestically, the Indian government cannot be seen to be buckling under any sort of U.S. pressure. So there is a lot of talk of expanding trade ties with Iran.”
Mrs. Clinton’s visit to India was the last stop in an Asian tour that began in China. Her agenda in China was overtaken by the plight of the blind dissident Chen Guangcheng, but Mrs. Clinton also spoke to Chinese leaders about their progress on reducing oil purchases from Iran.
In New Delhi, Mrs. Clinton discussed Iran and other issues with Prime Minister Manmohan Singh, while also meeting with Sonia Gandhi, president of the governing Indian National Congress Party. On Tuesday, she used a brief news conference to praise India as “a strong partner,” adding that India and the United States share a common goal of preventing Iran from getting a nuclear weapon.
“We commend India for the steps its refineries are taking to reduce its dependence on imports from Iran,” she said. “And we have been consulting with India, and working with them on some areas on alternative sources of supply. There’s no doubt that India and the United States are after the same goal.”
India’s external affairs minister, S. M. Krishna, appearing with Mrs. Clinton, portrayed India as acting in its own self-interest, while noting that Iran and India have longstanding cultural, economic and religious ties that cannot be reduced to the single issue of oil.
“It is natural for us to try and diversify our imports of oil and gas to meet the objective of energy security,” Mr. Krishna said.
Even as India reduces its oil imports from Iran, officials have been trying to figure out how to pay for its remaining Iranian oil purchases. Banking restrictions now make normal transactions with Iran almost impossible. This is why the Iranian trade delegation is in town: Iran has agreed to accept payment for 45 percent of oil sales to India in rupees, the Indian currency, much of which will be used to buy Indian exports.
Mrs. Clinton never mentioned the presence of the Iranian delegation, nor the rupee payment system, yet American officials do not seem to mind. Mark Dubowitz, an Iran specialist in Washington, said a primary purpose of sanctions is to starve Iran of the dollars and euros it needs to finance the country’s nuclear program. In the past, India paid for most of its oil purchases in dollars; under the new arrangement, India will buy nearly half its Iranian oil in rupees, which are not a fully convertible currency.
“This rupee account is very helpful,” said Mr. Dubowitz, executive director of Foundation for Defense of Democracies. “They can’t convert rupees into dollars or euros. They can’t repatriate rupees back to Iran. So the only thing they can do is buy Indian goods.”
At almost precisely the moment on Tuesday that Mrs. Clinton was speaking at her news conference, the Iranian trade delegation was a few miles away, in a basement conference hall of one of the city’s most prominent cultural centers, watching a slide show on Indian exports, including photos of Indian rice, tractors, auto spare parts, pharmaceuticals and more.
“We are very keen to work with you,” said Anil K. Agarwal, a businessman and officer with the Associated Chambers of Commerce and Industry of India.
In fact, the new payment arrangement for oil may help India reduce its enormous trade imbalance with Iran. Last year, India spent $988 million on Iranian imports, mostly on oil, more than 10 times the $91 million in goods that India exported to Iran.
Iranian leaders deny that they are developing nuclear weapons and say their nuclear program is for the peaceful development of energy. Mr. Eshagh, the leader of the Iranian delegation, never directly mentioned the sanctions, nor the fact that Mrs. Clinton was in town. But he did allude to “certain circumstances” and “some problems” that made trade more complicated. Still, he struck an upbeat tone.
“There is a vast potential for exports and imports between the two countries,” Mr. Eshagh told the audience, speaking through an interpreter. “We feel there is no difficulty regarding goods and their prices.”
It remains to be seen how extensively, or effectively, the new rupee payment system will be used. American officials will also be watching to ensure that no goods that are banned under the sanctions are exported to Iran under the system. Wheat, rice and pharmaceuticals are currently outside the sanctions, but sales of certain technologies, for example, are a cause of concern.
The question now is whether India has made the “significant reductions” required for exemptions. Indian officials believe they have now met the American demand, and many analysts expect the Obama administration officials to grant an exemption during a high-level Strategic Dialogue between the two countries next month in Washington.
Gardiner Harris and Hari Kumar contributed reporting.