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Can India Balance Its Ties with the U.S. and Iran?

Posted by Ram Kumar Shrestha on May 9, 2012

Shannon Stapleton / AFP / Getty Images

US Secretary of State, Hillary Clinton (L) meets with United Progressive Alliance (UPA) Chairperson Sonia Gandhi in New Delhi on May 7, 2012.

U.S. Secretary of State Hillary Clinton used her visit to Kolkata and New Delhi this week to urge India to up its efforts in reducing oil imports from Iran. In remarks made in Kolkata, Clinton commended the cuts India has made in the last few years, but said that it is part of “India’s role in the international community” to go further and join the U.S.-led effort to pressure Tehran to open its nuclear program up to inspections.

(READ: To confront Iran, will the U.S. risk ties with India?)

In late June, the U.S. will be imposing sanctions targeting the financial institutions of nations that don’t cut back on their Iranian oil imports. The heat got turned up a notch for both India and South Korea — both big customers for Tehran — since Clinton announced in March that 10 European nations as well as Japan, which is in the midst of an energy crunch after last year’s tsunami and nuclear crisis, earned an exemption from the sanctions after slashing their imports.

India has not openly embraced America’s plan. But new numbers show that the message is getting out there to buyers. Iraq has just knocked Iran out as India’s second largest oil supplier after Saudi Arabia. (Kuwait and Nigeria come in at 4th and 5th.) And anonymous officials told Businessweek that India plans to cut its imports still further from 17.5 million tons to 14 million tons in the next fiscal year, or from 10% to 7% of India’s total oil imports. Whether that would pass the bar to be included in the U.S. exemption is unclear.

India imports nearly 80% of its oil and is under pressure to secure new resources as its economy will continue to grow, albeit at slightly slower pace than in recent years. Demand is increasing across every energy market in India, but both the domestic nuclear energy sector and the coal sector have run into controversies in different parts of the country that have bogged down their development.

(PHOTOS: India Celebrates Its 63rd Republic Day)

Though in agreement with the U.S. that Iran must abandon any intention to weaponize its nuclear program, India does not want to alienate Tehran, which insists the program is for civilian purposes. Iran hosts a key route between India and Afghanistan that New Delhi does not want to see cut off, particularly as its interests there will continue to grow with the coming U.S. troop withdrawal. In November, India announced plans to build a new railroad along the same route from Afghanistan to the Iranian port of Chabahar to facilitate the movement of minerals into India.

The balancing act India faces was underscored at an Indian-Iranian business conference held at the same time as Clinton’s visit. “Our trade problems will be resolved in spite of efforts of those who oppose us,” Yahya Ale-Eshagh, president of the Tehran Chamber of Commerce, Industry and Mines, said at the fair, according to local media. “Economics does its own work, trade does its own work and politicians do their own work.” The meetings with delegates from Tehran focused on potential trade in non-sanctioned items like agricultural products, pharmaceuticals, banking and shipping, among other industries, though Ale-Eshagh did make the pitch for India to buy more oil, too. “You need oil and we need to sell and we need good co-operation,” he said, according to the Telegraph. “We will solve all difficulties.”

MORE: Why the Chief Minister of Gujarat Inspires Love and Loathing in India

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