Washington grumbles about the Indian relationship with Iran, but the U.S. withdrawal from Afghanistan leaves New Delhi little choice

The striking juxtaposition this week in New Delhi is a nice illustration of how Tehran has become a complicating factor in U.S.-India relations.  Secretary of State Hillary Rodham Clinton was in town to exhort Prime Minister Manmohan Singh’s government to do more on curtailing imports of Iranian oil.  All the while, a large Iranian trade delegation was a few miles away striking deals for the provision of agricultural commodities that Tehran is finding harder to purchase.

On the surface, the awkward tableau was reminiscent of the situation three months earlier when the Obama administration moved to enforce new U.S. sanctions aimed at shutting down the Iranian petroleum sector as a means of pressuring the Islamic Republic to abandon its nuclear weapons program.  At the time, reports emerged that India had overtaken China as Iran’s largest oil customer and that a new rupee payments system and barter trade arrangement were being set up for the purpose of circumventing the sanctions regime.  Adding to the perception of New Delhi’s defiance was the announcement that an Indian trade mission would visit Iran to scope out commercial opportunities created by the U.S. and European Union sanctions.  Even if the Americans and Europeans wished to shun business with Tehran, Commerce Secretary Rahul Khullar was quoted as saying, “tell me why I should follow suit? Why shouldn’t I take up that business opportunity?”

These actions caused the Wall Street Journal to editorialize about “Iran’s Indian enablers” who were “turning about to be the mullahs’ last best friend.”  Nicholas Burns, who during the George W. Bush administration did yeoman’s work in bringing about the new era in bilateral affairs, issued a cri de couer:

This is bitterly disappointing news for those of us who have championed a closer relationship with India.  And it represents a real setback in the attempt by the last three American presidents to establish a close and strategic partnership with successive Indian governments.

Others pointed to New Delhi’s actions as evidence that Washington’s efforts to forge a strategic partnership with India were naïve and foolish.

But things have changed over the last few months.  While New Delhi continues to protest publicly the unilateral character of U.S. sanctions, it has quietly taken steps to accommodate U.S. concerns.  According to media reports, the Indian government has instructed domestic refineries to reduce imports of Iranian oil by 15 percent.  As a result, Baghdad has replaced Tehran as the country’s second largest crude oil supplier and Iranian oil now constitutes nine percent of India’s import profile as opposed to 12 percent last year.  Imports of Iranian crude declined by a third in April compared to March’s figures.  And the state-run Indian Oil Corporation, the country’s largest refiner, did not purchase any Iranian crude last month, down from 75,000 barrels per day in March.

During her trip, Mrs. Clinton publicly commended these efforts but also insisted that “India’s role in the international community” obliges it to go further.  To continue pressing this point, Washington is dispatching a special envoy next week to New Delhi.  This visit is significant since the Obama administration will soon begin rolling out punitive measures against foreign entities that have not lived up to Washington’s expectations.  It earlier granted passes to Japan and EU nations but pointedly left out such countries as India, China, Turkey and South Korea.

There is some speculation that India is in danger of being sanctioned for its continued oil transactions with Iran.  But a better bet is that this will not happen.  The rupee-based payment mechanism that India has fashioned to buy Iranian oil is certainly problematic from Washington’s perspective, though it is something U.S. officials can tolerate since it does not entail the exchange of major convertible currencies like the U.S. dollar or the euro.

Moreover, the third round of the U.S.-India Strategic Dialogue is taking place next month and Washington will not want the sanctions issue to derail the momentum coming out of the talks.  Indeed, according to sources quoted in the Indian media, the matter was not a major agenda item in Clinton’s discussions with Foreign Minister S.M. Krishna:

“Both sides referred to it obliquely, but Clinton didn’t even push it.  In fact, she seemed much more keen to talk about possible deliverables that could be achieved when the two ministers meet again for the bilateral strategic dialogue in mid-June.”

In his joint press conference with Clinton, Mr. Krishna once again pleaded that the country’s burgeoning energy security needs – it imports 75 percent of its petroleum requirements – limit how quickly it can break its oil links with Tehran.  Washington urges India to get more of its supplies from Saudi Arabia, which has happened to an extent though New Delhi remains wary of Riyadh given its close friendship with Islamabad.

But there is another factor at work here than just the geopolitics of oil, one that seems not to have been squarely acknowledged during the Clinton visit: A significant reason for New Delhi’s continuing desire to engage Tehran resides in the adverse effect on Indian security concerns caused by U.S. withdrawal from Afghanistan.

With domestic politics largely driving U.S. strategy, key differences are bound to emerge between the United States and India regarding the political endgame that is now unfolding.  Looking toward the exits, Washington will not be overly concerned with the exact details of the country’s future or the viability of the government in Kabul it leaves behind.  In contrast, New Delhi, which has invested heavily in Hamid Karzai’s government, has strong security interests in ensuring that any regime in Kabul is capable enough to be a bulwark against Pakistan as well as a gateway to trade links and energy resources in Central Asia.

India has traditionally relied upon Iran, whose interests in Afghanistan are roughly congruent, to help accomplish these goals.  After the fall of the Taliban regime, New Delhi played a key role in building a transportation corridor from the port of Chabahar in southeastern Iran into Afghanistan.  Late last year, it announced plans to expand this link by constructing a 900-kilometer rail line to Bamiyan province in Afghanistan, where an Indian consortium has won mineral development rights.

Indeed, New Delhi and Tehran may go so far as to revive their cooperation during the 1990s that provided critical support to the non-Pashtun militias battling the Taliban regime.  (Already reports are surfacing that the old Northern Alliance may be reconstituting itself.)  The Americans will surely grumble about the cozying up with Iran, but the geopolitical logic of the Obama withdrawal leaves New Delhi little choice.

India has for some time now telegraphed how the Afghanistan factor looms over its relations with Iran.  Speaking in mid-2010, at a time of renewed U.S. pressure on New Delhi’s bonds with Tehran, Indian Foreign Secretary Nirupama Rao (who now serves as New Delhi’s ambassador in Washington) gave a noteworthy address on the relationship.  She highlighted the “unique” civilizational ties and “the instinctive feeling of goodwill” between the two countries.  She spoke of how links with Tehran are a “fundamental component” of Indian foreign policy and how there has been a recent “convergence of views” on important policy issues.  Regarding bilateral cooperation on Afghanistan, she argued that New Delhi and Tehran “are of the region and will belong here forever, even as outsiders [read the Americans] come and go.”

Reinforcing this message, a senior Indian official was quoted in the press at the same time as saying that efforts to tighten relations with Iran were a policy “recalibration” caused by the “scenario unfolding in Afghanistan and India’s determination to secure its national interests.”

The tussle over Iranian sanctions is a harbinger of bigger challenges ahead for U.S.-India relations.  One of the key foreign policy conundrums the Obama administration faces is how to reconcile its approach on Afghanistan, which has the effect of aggravating ties with New Delhi, with its recently-unveiled strategic “pivot” toward Asia, the success of which hinges in important measure on a strengthening of the security partnership with India.  The interplay of two conflicting dynamics in bilateral affairs – growing strategic cooperation in East Asia and unfolding differences over the future of Afghanistan – will be a key factor to watch for in the years ahead.

This commentary was originally posted on Chanakya’s Notebook.  I invite you to follow me on Twitter.