India is keeping its options open as US sanctions against Russia and Iran take effect.
G Parthasarathy reports
Countries like India now face difficult and complex choices as the US Congress and Trump Administration separately and jointly embark on new sanctions against Iran and Russia in crucial areas of defence preparedness and energy security. Even as President Trump was embarking on a process of reaching out to Russia during his July meeting with President Putin in Helsinki, the US Congress was giving teeth to legislation designed to globally curb defence and energy cooperation with Moscow. Recent American legislation under the ‘Countering America’s Adversaries Through Sanctions Act of 2017’ (CAATSA) places sanctions on countries embarking on major defence-related purchases from Russia. This legislation led to the postponement of a Joint Meeting of the US Secretary of Defence and Secretary of State with their Indian counterparts in New Delhi, as India refused to comply with the provisions of the US Legislation.
US objections were specifically to a $4 billion deal between India and Russia for India’s purchase of potent S-400 Missile Defence Systems from Russia. Also, with over 60 per cent of its inventory of frontline weapons systems, including fighter aircraft and tanks, being of Russian origin, India could not compromise on its need for spares by accepting US sanctions under any circumstances.
Moreover,India could not ignore the fact that China had commenced receiving S-400 missile defence systems in 2016. In the meantime, two other neighbours of China – Indonesia and Vietnam – also voiced concern about the US legislation. Indonesia had already placed orders for the supply of advanced SU 35 fighter aircraft by Russia, while Vietnam had supplies of a number of Russian weapons systems in the pipeline. Washington has duly amended its legislation, giving the Administration the flexibility to waive the sanctions, when necessary. Secretaries Pompeo and Mattis have now rescheduled their visit to New Delhifor September 6.
Energy is yet another crucial area of cooperation between India and Russia. The global energy situation has changed radically, with countries such as Russia, the US and Canada now becoming majorplayers in energy exports. They have significantly enhanced India’s energy autonomy, ending its huge dependence on countries in the Persian Gulf – Iran, Saudi Arabia and its partners in the Arab Gulf Cooperation Council (GCC). Qatar, which once had a virtual monopoly on gas supplies to India(Asia’s third largest importer of liquefied natural gas, or LNG), now finds that with growing discoveries of shale gas across the world, ithas to compete with both the US and Russia when it comes to supplying gas to countries like India, Japan, South Korea and China.India will invariably look for diversification of its energy suppliers; it received its first consignment of LNG from the US earlier this year. Moreover, with India emerging as one of the world’s fastest growing energy markets, Russia’s GAZPROM was recently compelled to negotiate anew long-term agreement with India.
These moves for diversifying imports of LNG and petroleum are being accompanied by moves to expand refinery capacity in India, with Indian refineries set to export around $30 billion of refined petroleum products annually. While India has invested around$10 billion in the oil and gas sector in Russia, the Russians have recently concluded a massive deal by acquiring a major stake, with an investment of $12.7 billion, in an Indian private sector oil company, Essar Oil. This has been accompanied by increasing supplies of Russian crude oil to India. Interestingly, despite the significantly higher freight costs of supplies of oil from the USA, they are still proving to be internationally competitive. India is, therefore, set to expand imports from America. A weakening of the OPEC cartelwill always be welcome in India, whose economy has been hit substantially on past occasions by unexpected and excessive rises in oil prices.
Meanwhile, the US sanctions on Iranian oil will adversely affect the Iranian economy and add to tensions in the region. China and Japan can deal with this situation without attracting US sanctions, as their oil imports are broadly balanced by their exports to Iran and money does not have to be transferred through international (American) banking channels. India, however, has had difficulty in continuing with oil imports from Iran, as virtuallyall its major banks have substantial holdings of US dollars in the United States. Moreover, settling accounts with Iran bilaterally is not feasible for any length of time, as India’s trade deficit with Iran is substantial. But, given the dynamics of global oil production, the Indian assessment is that these American sanctions are, by themselves, not likely to result in a significant surge in global oil prices.
While the new entrants to the global energy markets are making a significant entry into the Indian market, Delhi has an abiding interest in the stability and economic progress of the countries in its Persian Gulf neighbourhood. Apart from its oil purchases, India has anotherreason for wanting peace and stability in the region: over 6 million Indians live in the Arab Gulf countries, and they remit back nearly $50 billion annually.The United Arab EmiratesisIndia’ssecondlargest export market. But the tensions between Iran on the one hand and its Arab neighbours, most notably Saudi Arabia and the United Arab Emirates, on the other is a source of concern, particularly after tensions arising from the Yemen conflict resulted in the closure of the Babb el Mandeb Straitafter two of its oil tankers were attacked.
It is sad that even as millions of Yemenis perish or suffer horrendously, the international community has done precious little to end the conflicts within Yemen and between Yemen and some of its Arab neighbours. The lust for arms sales is evidently prevailing over the quest for peace.