Hardly have the WikiLeaks disclosures about the US pressure on India to roll back its relationship with Iran died down than Washington is back in business. The current agenda is to somehow throttle India’s decades-old oil trade with Iran, which would spell the end of the bilateral economic relationship. The pressure on India to wind down the Asian Clearing Union [ACU] mechanism for oil trade was at the core of that agenda. But India found a way out to carry on with the oil trade with Iran even though it did close down the ACU mechanism. This was to make payments to Iran through a German bank. Tehran also showed a cooperative attitude by continuing to supply oil to India on deferred payment basis pending the negotiation of a new payments mechanism.
Uncle Sam feels it has been had by the Indians and Iranians. Put plainly, its bullying didn’t work. Indians didn’t confront the Barack Obama administration and indeed avoided any confrontationist attitude on the ACU issue but instead chose to sit down with the Iranians to work out an alternate mechanism so that the oil imports are not jeopardised.
The import of Iran’s ‘sweet crude’ is through long-term oil deal. The ‘sweet crude’ (unlike the Saudi heavy crude, for instance) is important for diesel production which is crucial for India’s agriculture sector. If Iranian supplies are disrupted, India will be compelled to enter the spot market or to seek alternate sources of supply at much higher prices. Already, diesel prices in India are heavily subsidised. Besides, this is a bad time to negotiate fresh oil deals because oil prices are rising and there is great volatility in the market due to political uncertainties in the Middle East.
It is not as if the US is unaware that it is hitting India below the belt by trying to throttle its oil trade with Iran. But Washington is now pressuring the German bank not to handle payments for India’s oil trade with Iran! The UPI has quoted US Treasury Department officials as saying they are “concerned” that a German bank is facilitating payments. The New York Times has carried a lengthy dispatch highlighting that the Americans are at the German throat demanding that the Bundesbank in Frankfurt should block the Indian-Iranian payments via the German bank EIH, which has been ‘blacklisted’ under US laws. The Germans are apparently taking the plea that there is no legal basis to do what the Americans are demanding since EIH hasn’t broken any German laws.
NYT says for the present Germans are holding tight and refusing to buckle under US pressure. Indeed, German laws protect EIH’s banking licence. But this is not necessarily the end of the story. What is the ultimate solution? I think there is no real solution since Uncle Sam has experienced that it pays to bully the Indians and at some point Delhi will throw in the towel and walk away from oil trade with Iran. Who knows, Indians may even switch to buying ‘sweet crude’ from some American oil companies!
Washington is also peeved that Indian ingenuity (and Iranian pragmatism) came up with an alternative to the ACU mechanism. On top of it, India is also now repairing its ties with Iran. In fact, Washington is mighty displeased that the negotiations over the future of the oil trade have brought back to the table the entire range of India-Iran energy cooperation, which was gathering dust under Murli Deora’s stewardship of the petroleum ministry. With Deora no longer in the driving seat, Washington doesn’t have the confidence that it possesses the capacity to influence India’s energy policies to the extent that it has been used to during the 2006-2010 period. But when the chips are down, it boils down to the old adage: ‘Once a bully, always a bully’. Let us hope Uncle Sam doesn’t link India’s oil trade with Iran to Delhi’s bid to secure permanent membership in the UN Security Council.
– March 31, 2011