Iran: A test for U.S.-India relations

Editor's Note: Jeff M. Smith is the Kraemer Strategy Fellow and director of the South Asia program at the American Foreign Policy Council.  Sarah McKeever is a Research Associate at the Council.

By Jeff M. Smith and Sarah McKeever – Special to CNN

In the aftermath of the landmark U.S.-India nuclear deal passed in 2008, Washington and New Delhi have deftly navigated the periodic irritants that plague all great power relations.  Thanks to admirable efforts in both capitals, a post-nuclear deal hangover has not succeeded in fraying the bonds forged over the past decade, despite disputes over visa restrictions, lost arms contracts, and differences over America’s Af-Pak strategy.  But it was only a matter of time before India’s ongoing relationship with the Islamic Republic of Iran presented a materially more serious challenge to bilateral ties.  With the advent of spring, the West’s standoff with Tehran over its rogue nuclear program is heating up, just as India is testing new avenues for cooperation with the pariah regime.  Without serious attention from both sides, this disconnect risks creating an enduring rift between the world’s largest and oldest democracies.

New Delhi spent the better part of the 21^st century performing a delicate balancing act with Iran.  On the one hand, India sides firmly with the international community in opposing Iran’s development of a nuclear weapon. Tehran’s passion for revolutionary Islamist fundamentalism is anathema to most Indians, as is the country’s periodic agitation over independence for Kashmiri Muslims.  And as an aspiring permanent member of the U.N. Security Council - and the current holder the body’s rotating presidency - India has an interest in establishing credentials as a responsible global power.

On the other hand, India is dependent on Iran for 10-12% of its oil imports and remains stubbornly tethered to Cold War principles of non-alignment. The specter of being painted as an American puppet still haunts Indian politicians. And New Delhi has a history of cooperation with Tehran in opposing the Taliban in Afghanistan and has sought to use Iran as an alternative trade and energy conduit to Central Asia, bypassing rival Pakistan.

India has tried to navigate these contradictions by charting a middle way. It has voted alternately with and against Iran at the United Nations and the International Atomic Energy Agency (IAEA); aligning itself with mandatory international sanctions on Tehran but straying from voluntary Western financial restrictions.  Until now, the tight-rope act has worked, thanks in no small part to a remarkably broad and bi-partisan pro-India caucus in Washington. But nothing quite excites passions in the nation’s capital like Iran’s rogue nuclear program.

On January 29, Indian Finance Minister Pranab Mukherjee provoked ire on Capitol Hill by proclaiming India “will not decrease imports from Iran,” during a two-day trip to the U.S.  The announcement was followed by news in early February that India was circumventing Western sanctions on Iran by paying for 45% of its oil imports in rupees and finding alternative ways to insure shipping lines transporting Iranian crude. In early March India dispatched Commerce Minister Anand Sharma to Iran with a large trade delegation of 70 business and government representatives. And on March 29 fourteen countries will meet in New Delhi in an attempt to revive the North-South Corridor, which could elevate Iran as a key transit hub for New Delhi’s trade with Eurasia.  Finally, in perhaps the most troubling development, the Indian government seemed to downplay Tehran’s links to a February 13 bomb attack in New Delhi targeting Israeli diplomats and bearing the hallmarks of Iran’s unique breed of state-sponsored terrorism.

U.S. Congressional leaders showered the Indian embassy in letters of protest.  Longtime Indophile stalwarts like Nicholas Burns, Under Secretary of State in the Bush administration, warned India that its government “is now actively impeding the construction of the strategic relationship it says it wants with the U.S.”  In Israel - by some counts India’s largest supplier of military hardware - questions were raised about the suppression of evidence in the New Delhi bomb attack.

Even India’s critics should sympathize with its economic conundrum. Bilateral trade with Iran now stands at $14 billion. As oil prices again top $100 per barrel, India remains hamstrung by refineries equipped specifically for Iranian crude. “An automatic replacement of all Iranian oil imports, is not a simple matter of selection, or a realistic option,” explains the Indian embassy in Washington. A challenging economic outlook further restricts India’s options: GDP growth for the last quarter was recently revised down to 6.1% while inflation remains too high, and FDI too low. The rupee fell 15% last year.

But these constraints do not absolve India from all responsibility.  New Delhi seems remiss in acknowledging that compelling Iran to abandon its nuclear program through economic pressure may be the best - and for some, the only - alternative to military force.  At the very least, New Delhi should strongly reaffirm its opposition to an Iranian nuclear weapon and follow through on a full and transparent investigation of the February bombing in New Delhi.  Recent breakthroughs in the case may conclusively implicate Iran, as details emerge about an Iranian terrorist cell with global reach.  (Thai authorities have already fingered Tehran for involvement in a similar attack launched in Bangkok the same day and Malaysian authorities have arrested an Iranian linked to the case).

Most important, India can begin implementing a strategy to reduce dependence on Iranian oil.  There are early signs this process is underway.  On February 23, Indian Oil Minister Jaipal Reddy said his country had requested that Saudi Arabia, India’s largest supplier of crude, increase oil shipments from 27 to 32 million tons of crude per year for 2012-2013.  In March an Indian spokesman admitted “crude imports from Iran constitute a declining share of India’s oil imports.”  Meanwhile, Indian refineries recently reported coming under pressure from the government to reduce imports of Iranian oil by 10%.  And India’s MRPL, the country’s largest refiner of Iranian oil, is reportedly planning a “drastic reduction in volumes from Iran,” from 150,000 bpd to 80,000 bpd.   "In a number of cases, both on their government side and on their business side, they are taking actions that go further and deeper than perhaps their public statements might lead you to believe," Secretary of State Hillary Clinton told a congressional hearing on February 28.

Washington should never shy away from making the Iranian nuclear program a high priority in relations with New Delhi, though it should recognize that on sensitive issues, diplomacy with New Delhi is always more effective through private channels.  India has never proven responsive to public demands. Better to offer the country further diplomatic and economic incentives to diversify its oil imports and upgrade its refineries. For its part, India, which has often received preferential treatment from the U.S., must better understand that Iran’s nuclear program constitutes a bold red line for many of its allies in Washington.  It will take sustained efforts from both sides to bridge the gap over Iran’s nuclear program and prevent Tehran from undermining this promising partnership.

The views expressed in this article are solely those of Jeff M. Smith and Sarah McKeever.