Tags: Analysis: Iran-India Oil on Slippery Ground

Analysis: Iran-India Oil on Slippery Ground

Wednesday, 06 Jul 2011 08:49 AM

India continues to uphold a mutually beneficial crude oil relationship with Iran yet may be sensitive to increasing pressure from the United States to further curtail or discontinue this partnership.

New Delhi and Tehran are seeking to resolve a disruption in payments for crude oil triggered by international efforts to isolate Iran for its continued pursuit of an illicit nuclear program. India continues to purchase Iranian crude oil on credit following a decision by the Reserve Bank of India to end a clearing mechanism for payments in response to U.S. and international pressure. In a letter written late last month, the National Iranian Oil Company (NIOC) warned Indian oil refiners that the NIOC may halt supplies of Iranian crude oil if arrears are not paid and a mechanism put in place to ensure uninterrupted future payments.

India’s Oil Minister S Jaipal Reddy dismissed concerns over a possible disruption in crude oil telling reporters on Tuesday that New Delhi remains “optimistic about finding a solution and ensuring uninterrupted supplies” of Iranian crude oil.

Analysis

The United States, in cooperation with its European allies, is spearheading an international sanctions effort to end Iran’s nuclear weapons program Formal international sanctions approved by the United Nations Security Council are in place to prevent the acquisition of nuclear-related material and equipment by Iran. However, these sanctions have a limited impact on Iran’s continued pursuit of an illicit nuclear weapons program. Thus the United States and European allies have increasingly pursued both formal and informal measures to discourage states from conducting legitimate business and commerce with Tehran. Abundant crude oil supplies provide a lucrative source of revenue for the Iranian regime and are a prime target of international efforts to deter Iran’s continued pursuit of a nuclear weapons program. Washington also seeks to further Iran’s isolation by denying it access to the international financial system.

India is second only to China in the amount of crude oil purchased from Iran, accounting for nearly 400,000 barrels per day at a cost of $13 billion annually.

Analysis

Tehran’s threat to end crude oil supplies to New Delhi may be pure bluster given the shrinking international market for Iranian goods and services. In response to international sanctions and increasing pressure from the United States, several states have curtailed commercial dealings with Tehran, making Iran as much if not more dependent upon its crude oil relationship with India.

The international community will likely continue to pursue formal and informal measures to disrupt Tehran’s nuclear weapons program and further Iran’s international isolation. Such efforts will likely have mixed results since states like India will weigh access to critical resources such as crude oil against doing business with unsavory regimes like Tehran.

Washington may have further levers to use with New Delhi since India is particularly sensitive to maintaining a positive economic and security relationship with the United States.

Carolyn Leddy held senior positions with the U.S. Department of State and the National Security Council under the George W. Bush administration. She was a 2009-2010 Council on Foreign Relations-Hitachi Ltd. International Affairs Fellow in Japan and Visiting Fellow at the National Institute for Defense Studies in Tokyo.

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India continues to uphold a mutually beneficial crude oil relationship with Iran yet may be sensitive to increasing pressure from the United States to further curtail or discontinue this partnership.
Analysis: Iran-India Oil on Slippery Ground
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2011-49-06
Wednesday, 06 Jul 2011 08:49 AM
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