Wednesday, February 1, 2012

Comments posted on Indian Express website over Oped article:Tehran Test -

Wednesday, February 01, 2012

Comments posted on Indian Express website over Oped article:Tehran Test - 

If US wants India to bend, the writer wants India to crawl. It is a pity that nobody with any spine stands up for India to have its own independent policies that not only impacts on its own interests, but in a wider sense, impact the world around us. If US and Israel's security interests, are centered on regime change in Iran, why India's own need for stability and peace in the region should not be openly and vociferously articulated by India in world forums and international media. Nobody wants war in our neighborhood and it would seem, US and Israel are bent to force their high-handed agenda of imposing their will on UN member countries through use of force. India must announce a blanket policy of ‘hands- off’ in such misadventures. People of India will overwhelmingly support their government’s peace initiatives. India does have support from China, Russia and other nations and its should use that influence to ward off all such evil designs of USA and Israel in this area. Let South East Asia be a zone of peace.

Ghulam Muhammed (Mumbai)

The Tehran test
Pranab Dhal Samanta : Wed Feb 01 2012, 23:40 hrs

The real problem for India, post sanctions, is political, not financial

On the face of it, India is facing a tough challenge squaring up its oil bill with Iran. The problem gets more complex when one realises that most options are geared towards paying up accumulated dues, while the current oil bill with Iran also continues to rise. The bottom line is that even this year supplies from Iran will be around 12 per cent of India’s total oil import. So when Finance Minister Pranab Mukherjee says in the US that India will continue to import oil from Iran, he is actually underlining New Delhi’s compulsion, not taking a position or asserting a point of view.

A concise overview of the situation shows that largely five oil majors, four PSUs and one private company, are commercially exposed to Iran. The onset of UN sanctions led to the collapse of the earlier mode of payment through the Asian Clearing Union mechanism. The RBI then allowed entities to settle payments of legitimate transactions through any acceptable currency outside the ACU.

Indian trade with Iran was being settled through euros. Even later, Delhi continued to make these payments through eurozone banks until bank after bank began to close their Iran account for fear of sanctions. At present, India is making its payments through the Halkbank, Turkey, which too is beginning to feel the pressure.

These knotty details apart, the real problem is political, not financial. For far too long the issue has remained in the realm of the entities themselves, the petroleum ministry or, at the most, the finance ministry, while it was all along a strategic question — an issue of international politics, requiring a more political approach.

It was only a matter of time before the West would target Iran’s petroleum business. The Obama administration has made its first move in an election year after indications of Iran developing a nuclear weapon — although there is still no clinching proof. The EU has followed suit.

Before moving further, it’s important to understand what the US, as lead actor, has actually done. Barack Obama has signed into law this month a fresh set of sanctions on Iran, after due Congressional approval, under the National Defence Authorisation Act. This targets Iran’s proceeds from petroleum exports, which have internationally been allowed to continue because oil is an essential commodity.

Without getting into the tricky affair of placing an embargo on Iranian oil, the US law states that foreign financial institutions which conduct any “significant financial transaction” with Iran for petroleum products will be barred from transaction in the US. This provision becomes effective from March 1.

There’s a second provision, which targets state financial institutions and even foreign central banks, which conduct transaction with Iran on petroleum products. This will kick in six months later. The only pre-condition for these sanctions to become effective is a determination by Obama that the international market position is such that there’s adequate fuel to keep oil prices at a reasonable level.

The US seems to have worked this out with OPEC, which has calculated that removing Iranian oil from the market would result in a loss of about 10 billion barrels per day. It’s reliably learnt Saudi Arabia has officially agreed and, in fact, made a commitment to OPEC for an additional 30 billion barrels a day, in case Iranian oil doesn’t reach the market. This commitment is bound to strengthen Obama’s hand to make such a determination, which could be vital for him in this election year.

Where does all this leave India? There are two routes — an exemption or a waiver, and both, in a sense, are mutually exclusive. The US law states the president can exempt a foreign financial entity for conducting business with Iran provided the country of primary jurisdiction has reduced import of Iranian petroleum products. This would essentially mean Indo-Iran oil trade has to show a declining trend to escape sanctions on Indian financial institutions. However, an exemption would be time-bound and up for periodic review.

As for the waiver, it can only be considered once sanctions have been enforced. This would mean that first an Indian entity must face sanctions, only then can the US consider a waiver which has a lifespan of 120 days, during which the president has to send a report on the country’s compliance with the sanctions.

All this is not a sudden development. That’s why other big economies like China, Japan and South Korea made their own bilateral arrangements with Iran, almost a year ago, to ensure no disruption to their oil supplies. They entered into a barter system of sorts, offsetting oil purchases through increased exports in other goods. The Japanese also drove home the advantage of a fully convertible yen, a currency Iran is happy to hold.

India, on the other hand, has very few exports and the rupee, partially convertible, does not make much sense for Iran. Yet, Tehran has agreed to settle at least 30 per cent (figure could go higher) through the rupee. There’s also the option of project exports by undertaking infrastructure contracts in Iran; re-exporting goods Iran requires from a third country; or high-seas sales and payment, outside either country’s territorial limits. All these measures are under consideration. But they are, at best, innovative responses to a crisis, not a credible solution.

Even at this late stage, India has to work towards a political resolution, else Indian entities will be under constant threat of sanctions. Put simply, India has to build a case for an exemption package and, internally, ensure entities dealing with Iran have minimal or no exposure to the US financial system. To build a case for an India-specific exemption will require political heavy-lifting in Washington because Delhi is likely to want more favourable terms than those laid out in the exemption provision within the law.

This will test the tenacity of the Indo-US strategic partnership and that’s why Delhi will have to broaden the conversation on Iran. For instance, bringing to the table the consequences of India’s gradual disengagement with Iran on the Af-Pak scenario — the US has failed to make Pakistan agree on transit for India, which means Iran remains the best access point for India. Does the US want India’s role to diminish in Afghanistan? Also, targeting Indian entities would pass on the advantage to China, making it almost indispensable to Iran — is that a desirable strategic outcome for the US?

There are many more such connected questions, but for all of this India needs a more focused bilateral dialogue with the US on Iran — giving it the necessary political impetus and aiming for a solution, knowing well this is not about oil alone. The US recognising India’s unique situation and Delhi committing to look at other petroleum sources could be a good starting point.

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