India ignores US call for economic freeze, opens up Iran oil strategy

Discussion in 'Foreign Relations' started by ejazr, Jan 11, 2012.

  1. ejazr

    ejazr Stars and Ambassadors Stars and Ambassadors

    Joined:
    Oct 8, 2009
    Messages:
    4,518
    Likes Received:
    1,378
    Location:
    Hyderabad and Sydney
    India ignores US call for economic freeze, opens up Iran oil strategy

    India has decided to ignore the US call to freeze its economic relationship with Iran, citing strategic national interest, even as the government is working towards a multi-layered strategy that involves reducing its exposure to Iranian crude, looking at intermediaries with third-country banks, as in Russia, and putting into place a rupee-rial barter trade mechanism allowing India to directly trade with Teheran.
    As the Turkish bank, Turkiye Halk Bankasi, told Indian oil refiners on Tuesday it would no longer be able to act as an intermediary for their purchases of Iranian crude, India was already putting in place a containment strategy that would not offend the Americans but simultaneously assuage the Iranians about their continuing importance in India's view of the world.


    The crisis is not upon India immediately, as the US sanctions give a six-month breathing space for countries to act. Second, the US anti-Iran legislation is framed so as to allow a US presidential waiver to countries if they show they have succeeded in reducing their exposure to trading with Iran. In fact, private oil companies like Reliance and Essar have already done so, leaving PSUs like Mangalore Refinery & Petrochemicals Ltd (MRPL), HPCL and Indian Oil now scrambling for cover. With a multi-ministerial delegation headed for Iran on January 16, a rupee-rial counter-trade mechanism is expected to form the backbone of India's medium-to-long-term oil strategy with Iran.
    Despite a burgeoning romance with Saudi Arabia, in which the Saudis offered Prime Minister Manmohan Singh during his 2010 visit larger amounts of crude, Indian refineries have continued to source a significant 12 per cent of their oil requirements from Iran, amounting to $1 billion annually.
    Saudi Arabia remains India’s largest source of crude, totalling 30 per cent of requirements. But as the US attempts to force Iran to downsize its nuclear programme, it has opened the gates for a new great game in energy security. China, Korea and Japan have already announced that they will soon initiate their own counter-strategies by trading in their respective currencies, the yuan, the won and the yen.
    The problem with India's barter system is that the Iranians may not want to buy too much from India, perhaps some tea, gems and jewellery.
    If companies like L&T hope to sell construction equipment, oil rigs, etc, thereby helping use up the bank of rupees that Iran accumulates for the oil it sells to India, it will run the risk of not being able to do business with the US and Europe.
    That is why a combination of strategies is being contemplated: MRPL, which has the largest exposure to Iran (about 142,000 barrels a day), is already reducing its purchases from Iran. And if HPCL (about 65,000 barrels a day) and Indian Oil (about 50,000 barrels a day) also do the same, they could qualify for a possible US waiver.
    Meanwhile, India is in ongoing talks with Russia for third-party banking, with none other than the PM having requested his counterpart during his visit to Moscow in December, to allow the RBI to deal with the Central Bank of Iran through Russia's Vnesheconombank.
    Meanwhile, India has re-opened channels with the top Iranian leadership, despite the recent tension with Teheran over our negative vote at the International Atomic Energy Agency. None other than Ali Akbar Velayati, an enormously seasoned Iranian diplomat, former foreign minister, as well as the current adviser to Iranian supreme leader Ali Khamenei, visited India late last month.
    Velayati was in Delhi and Aligarh to participate in a function of Aligarh Muslim University. In Delhi, he met Vice-President Hamid Ansari, an erudite former diplomat and ambassador to Iran, as well as other senior officials.
    The Indian side is believed to have told Velayati that the anti-Iran vote at the IAEA should be seen as a one-off event, and confirmed India-Iran's civilisational ties and inheritance.
    As for the Americans, officials say India will largely ignore US unhappiness on this score, pointing out that if both countries are growing allies and partners, the US must also understand India's concerns.
     
    Sridhar likes this.
  2.  
  3. W.G.Ewald

    W.G.Ewald Defence Professionals/ DFI member of 2 Defence Professionals

    Joined:
    Sep 28, 2011
    Messages:
    14,140
    Likes Received:
    8,528
    Location:
    North Carolina, USA
    Iran is going to set off a 1.0 kt test? That will hardly bother the lizards.
     
    Oracle likes this.
  4. lcatejas

    lcatejas Regular Member

    Joined:
    Nov 19, 2010
    Messages:
    710
    Likes Received:
    255
    Location:
    Bharat
    Let Uncle Sam bomb IRAN it will automatically stop ... the Iran oil strategy...
    For our politicians .. vote bank is IMP rgt...
     
    Last edited: Jan 11, 2012
  5. ejazr

    ejazr Stars and Ambassadors Stars and Ambassadors

    Joined:
    Oct 8, 2009
    Messages:
    4,518
    Likes Received:
    1,378
    Location:
    Hyderabad and Sydney
    India to embrace Iran in staving off US and European sanctions - Indian Express

    India plans to offer Iranian central bank BMJI the facility to use its rupee accounts with UCO Bank not just to offset Indian exports but to fund Iranian imports from third countries.

    New Delhi’s plan B (as proposed to the Cabinet Committee on Security today) plans to step up India’s exports, including project exports, to Iran with an ‘Oil for Projects’ scheme to sustain Iranian crude oil supplies in the face of stringent US and EU sanctions.

    “The objective is to put in place a system so that Indian exporters, including project exporters, could be paid from the Indian rupee accounts held by BMJI directly or through rupee accounts held by Iranian banks in Indian banks,” says the proposal.

    The prime strategy is to increase India’s exports through “positive steps relating to extending the Export Credit Guarantee Corp cover for Indian exports to Iran and to identify large projects that could be commissioned in Iran as project exports”.

    The projects identified are in mining, fertilizer, food processing, pharma and automobile projects that are not currently sanctioned as well as setting up an SEZ in Iran, developing the Chabahar port and building rail network for access to Afghanistan and Central Asia.

    Investments by Indian firms could be in consortium with Russian, Chinese or Kuwaiti companies to make it hard for the US or the EU to single out a country or company. A second option is to create new corporate entities that do not have any financial exposure in the US or EU so that they are insulated from any retaliation.

    The delegation to Iran, which leaves on January 16, has also been given the mandate “to explore the possibility of using the rupee accounts held by Iran in India to fund Iranian imports from third countries, subject to suitable verification mechanism” in line with what Japan and South Korea follow.

    To that end, the team would advocate for an increase in the rupee account limit to 100 per cent of Iranian earnings from the current 20 per cent to buffer the rupee kitty, and allowing two non-sanctioned Iranian banks to open rupee accounts with the UCO Bank.

    Also, the Reserve Bank of India has been given the mandate “to facilitate, in discussion with BMJI, investment by the Iranian central bank in Government of India securities within its limit of $1 billion allowed for its UCO Bank account”.

    The present strategy relies heavily on the outcome of the Committee of Secretaries (CoS) meeting held by National Security Advisor in July 2010 that proposed ‘creative mechanisms’ to insulate Indian firms from the adverse impact of US sanctions.

    Based on a Ministry of External Affairs paper “International Sanctions on Iran and Way Forward for India-Iran Relations”, the CoS decided that economic engagement with Iran was necessary not just to promote energy security, connectivity and opening of new markets but also to ensure that India did not leave the Iranian space for China to enlarge its presence.

    India has until last week bought 11.64 million tonnes of crude oil from Iran. It has paid off $9.08 billion and has to pay $3.59 billion of which only $107.62 million is “due but not paid”.

    Crude strategy

    * Plans to offer Iranian central bank the facility to use its rupee accounts with UCO Bank

    * Employ diplomatic efforts to open and operationalise bank accounts of oil companies with Russia’s Gazprombank and South Korea’s Woori Bank

    * Diplomatic efforts to ensure that existing payment channel through Turkiye Halk Bankasi remains open
     
  6. Ray

    Ray The Chairman Defence Professionals Moderator

    Joined:
    Apr 17, 2009
    Messages:
    43,118
    Likes Received:
    23,545
    Location:
    Somewhere
    One will have to watch for US reaction.

    They have already imposed sanction on a Chinese firm.
     
  7. sukhish

    sukhish Senior Member Senior Member

    Joined:
    Dec 30, 2009
    Messages:
    1,087
    Likes Received:
    258
    now this is some good news. india was running pillar to post on this issue. sometime trying the russia route and other time trying the turkey route.
    and now india will finally follow the indian route. which is always good. at the same time india will also look for alternatives as well, so that uncle is not annoyed too much. good for india a well balanced approach.
     
  8. Ray

    Ray The Chairman Defence Professionals Moderator

    Joined:
    Apr 17, 2009
    Messages:
    43,118
    Likes Received:
    23,545
    Location:
    Somewhere
    Indian route will warm the nationalist heart.

    However, oil is not the only input that boost the economy.

    Upsetting the US and the West will have its own repercussions.

    International politics is but a policy that has works on comprises which euphemistically is called 'peaceful coexistence'.
     
    illusion8 likes this.
  9. sob

    sob Moderator Moderator

    Joined:
    May 4, 2009
    Messages:
    6,359
    Likes Received:
    3,663
    Location:
    New Delhi
    The Us has been putting pressure on the big 3 customers of Iran Crude- India, China and Japan.

    While Japan is expected to toe the US line, and China having reduced their imports from Iran, the pressure will be on India. In the past Iran has not been keen on the barter trade and on the Indian side SBI had refused to route that the payments through it as they would face sanctions in the US and Europe. It is best that slowly India should identify an alternate supplier of crude, here the KSA would be more than willing to make up for the Iran quota. Another option has been crude from Venezula, (cheaper due to being very heavy and complex), which can be refined easily by Reliance and Essar.

    Having an independednt foreign policy is good, but the days of NAM are gone. It is time for Realpolitik and to open a direct communication with the Us on this issue and take them on board, any decision that we make.

    If as many have been suggesting for some time the decision has been made keeping in mind the UP elections, then the Nation is being let down by our leaders.
     
    parijataka and balai_c like this.
  10. sob

    sob Moderator Moderator

    Joined:
    May 4, 2009
    Messages:
    6,359
    Likes Received:
    3,663
    Location:
    New Delhi
    EjazR: The IE report mentions consortium with Kuwaiti Companies. I would like your view, on this looking at the relationship Kuwait has with the US and also the Arab/Persian angle. Your insight on this will bring some clarity on this topic.
     
  11. The Messiah

    The Messiah Bow Before Me! Elite Member

    Joined:
    Aug 25, 2010
    Messages:
    10,788
    Likes Received:
    4,552
    Good decision :clap:

    We have interests of our own to look after.
     
    utubekhiladi likes this.
  12. pankaj nema

    pankaj nema Senior Member Senior Member

    Joined:
    Oct 1, 2009
    Messages:
    3,454
    Likes Received:
    1,410
    The next round of US sanctions which come into effect some SIX months later
    will really hurt Indian financial institutions and cause serious headaches for GOI

    It will be much better that we prepare a sensible strategy and do not rely on bravado alone

    And as oil production picks up in LIBYA IRAQ and else where in the world
    and US is CERTAIN that WAR will not skyrocket OIL prices ; THEN US will STRIKE Iran

    It is a matter of WHEN and not if whether US will attack Iran
     
    Last edited: Jan 13, 2012
  13. Armand2REP

    Armand2REP CHINI EXPERT Veteran Member

    Joined:
    Dec 17, 2009
    Messages:
    10,397
    Likes Received:
    2,314
    The goal isn't to cut all oil coming out of Iran, that would destabilise the market too much. The goal is to cut it in half and India is going to help in that effort by reducing imports. If they don't they will be hit with sanctions from the US that are certainly more detrimental than doing the little business it has with Iran.
     
  14. Tshering22

    Tshering22 Sikkimese Saber Senior Member

    Joined:
    Aug 20, 2010
    Messages:
    4,404
    Likes Received:
    2,783
    Location:
    Gangtok, Sikkim, India
    We need it most critically to boost national economy and retain growth. US has its resources secure in South America, Canada and Alaska. Is it willing to sell us Alaska? If not, then we must be ready to face and turn the upcoming "repercussions" into further opportunity.


    Which is why any strategic weapons purchase must be avoided where US can actually get a stranglehold.
     
  15. Tshering22

    Tshering22 Sikkimese Saber Senior Member

    Joined:
    Aug 20, 2010
    Messages:
    4,404
    Likes Received:
    2,783
    Location:
    Gangtok, Sikkim, India
    US cannot sanction us at this time. Maybe a couple of firms but as a country, it will suffer more than we will. In the recent past we've done enough stuff for them to have sanctioned us in the last 10 years. It simply didn't. Simply because oil is not harming US interests and US isn't ready to give us Alaskan oil. So how do we get oil? Either US asks Saudis to pump double the existing oil imports into India, therefore making it difficult for them to bargain and easy for us. Or it just lets us choose a resource strategy that we need.

    Sanctions are a thing of past and for a country of our stature, I doubt that would be something US bigwigs would be interested in.
     
  16. ejazr

    ejazr Stars and Ambassadors Stars and Ambassadors

    Joined:
    Oct 8, 2009
    Messages:
    4,518
    Likes Received:
    1,378
    Location:
    Hyderabad and Sydney
    Kuwait is next door to Iran ofcourse and along with Qatar are the more moderate members of the GCC. The UAE and Saudi Arabia are the most belligerent, UAE even has island disputes with Iran.

    Qatar and Kuwait also have extensive trade relations with Iran, so does UAE for that matter though.

    But in the present context of the nuclear weapons program and the related sanctions. I think all GCC countries will unite on this account. Kuwaiti companies or even other companies for that matter may not be interested in JVs with Indian companies and I doubt this will happen.

    The best we can do is get a back channel waiver from our GCC partners- mainly Saudi Arabia, Israel and the US that we need Iranian oil and that we hope sanctions would not be applied aggressively. And that when the time comes for Iran to make peace, India will be ready to offer its mediator role in resolving the impasse. Something like the role Brazil and Turkey played last year.

    It really depends on how long Turkey will allow us to continue to route payments to Iran (which is not likely to last long) and how eagerly do Iranians accept Rupee accounts to settle Iranian oil payments (which is more viable that expecting Kuwaiti, Russian or Chinese companies to do JVs with India)
     
    sob likes this.
  17. nrj

    nrj Stars and Ambassadors Stars and Ambassadors

    Joined:
    Nov 16, 2009
    Messages:
    9,252
    Likes Received:
    3,347
    Location:
    Brussels
    I like this news.

    Let US sanction India & face the consequences, they don't have many unstultified friends around anyways :laugh:
     
  18. noob101

    noob101 Regular Member

    Joined:
    Dec 31, 2011
    Messages:
    394
    Likes Received:
    101
    this just a plain simple cost to benefit calculation for India, costs are too high benefits are almost non existent .... we don't have alternative sources of oil unless Unkil does something about it.... the only benefit would be to appease the west which there is no need to, America still wants India as a counter weight to China.... as far as I know there are not major shia terror groups that target India so even if Iran gets a nuclear weapon then and it falls in the hands of terrorists they are most likely to target the west rather than India if we embargo then we increase our chances while hurting our own economy... Plus I doubt the embargo will hurt the nuclear weapons program...
     
    Nagraj likes this.
  19. venkat

    venkat Regular Member

    Joined:
    Apr 6, 2009
    Messages:
    904
    Likes Received:
    195
    At least now India is acting sensibly by ignoring US calls on Iran. we must maintain good relations with Iran in our own interest. first they finished off Afghanistan just to keep the soviets at bay, then Iraq,then Libya...Anarchy in Egypt,Tunisia...etc.. what does US wants? Iran supported India during Mrs. Gandhi's regime and later drifted away during Ayotollah Khomeini and under paki influence...Good relations with Iran will benefit us.
     
  20. Virendra

    Virendra Moderator Moderator

    Joined:
    Oct 16, 2010
    Messages:
    4,674
    Likes Received:
    2,923
    Location:
    Delhi, India, India
    By every passing day, US is less and less of action, more and more of rhetoric words. We'll deal with them and Iran the same way they deal with us and Pakistan parallely. No zero sum game here.
    Time to show some balls, if not for reputation sake then at least to protect one's interests.

    Regards,
    Virendra
     
  21. illusion8

    illusion8 Regular Member

    Joined:
    Dec 23, 2011
    Messages:
    134
    Likes Received:
    63
    Location:
    Bangalore, Mumbai
    I was thinking in a similar line, we are indirectly eroding the US authority in the world by time and again going against them vis a vis Iran, This though is in India's concerns regarding oil supply but we are indirectly strengthening the chinese which is not a good thing for us.
     

Share This Page