India Struggles to Protect Flow of Iranian Oil
By LYDIA POLGREEN and HEATHER TIMMONS
Published: December 30, 2010NEW DELHI — Officials in India and Iran scrambled Thursday to keep the $11 billion in oil and gas trade between them going after India’s central bank declared last week that a regional clearinghouse could no longer be used to settle such transactions.
The move, which was long sought by the United States as a way to tighten sanctions against Iran, makes it tougher for Indian firms to buy Iranian oil and gas because they can no longer use the Asian Clearing Union, which was set up by the United Nations in the 1970s to ease commerce between Asian countries, to handle payments.
The clearinghouse allowed Indian companies to pay Iranian companies via the two countries’ central banks. But it also meant that the transactions were less transparent, making payments to companies linked to Iranian companies controlled by groups banned under the sanctions regime more obscure.
Central bankers from both countries were preparing to meet on Friday to resolve the impasse, officials in India said.
“We are working on an alternate settlement mechanism,” India’s oil secretary, S. Sundareshan told journalists at a news conference on Thursday. “It is being discussed at length with the ministry of finance and a solution will be found in the course of the next few days.”
India’s decision to rethink its crude oil purchasing rules seems to have come after President Obama visited in November, and is a sign of the deepening ties between India and the United States. The two countries have much in common but have often been at odds.
Still, the decision came as a surprise to many analysts.
“India buys huge quantities of crude oil from Iran, and to replace those volumes remains tricky,” said Praveen Kumar, head of the South Asia oil and gas team at the consultant FACTS Global Energy. “We’re talking about an existing system already in place that meets a lot of India’s existing requirements.”
Weaning India off Iranian oil is particularly difficult now, as supplies are tight, prices are high and the Indian government is eager to cut subsidized prices its own citizens pay for petroleum products.
India imports about 350,000 barrels to 400,000 barrels of oil a day from Iran, about 15 percent of India’s total crude imports. Much of that crude is imported by India’s state-owned oil companies, because private oil companies in India that were reliant on Iranian imports have pared back their imports in recent years, under pressure from the United States.
While China has shrugged off the United States’ pressure to impose sanctions against Iran, India does not have that option.
India is “not left with much choice,” Mr. Kumar said. It is as if their “big brother,” in the form of the United States, “has told them to do this,” he said.
Indeed, the United States has long wanted India to stop processing payments to Iran via its central bank clearing system. A White House spokesman praised the central bank’s decision, saying in an e-mail statement that “the Reserve Bank of India has made the right decision to carefully scrutinize and reduce its financial dealings with the Central Bank of Iran.”
India has long had cordial relations with Iran, which is an important regional player, for practical and ideological reasons. India was one of the founding nations of the nonaligned movement, which in theory was a middle ground for countries that did not take sides in the cold war.
Long after the collapse of the Soviet Union, nonalignment persisted in India, evolving into a pragmatic approach to troublesome neighbors like Iran, analysts say. In the past, India has seen Iran as a potential bulwark against Pakistani influence in Afghanistan.
But in recent years such considerations have taken a back seat to India’s wider aspirations. It has stood against Iran on nuclear issues as it pursues international recognition and acceptance of its nuclear status.
India is seeking a permanent seat on the United Nations Security Council, and wishes to be seen as a responsible global player, said C. Raja Mohan, a strategic analyst.
“India is not going to jeopardize its own interests because as a nonaligned country it must support Iran,” Mr. Mohan said.
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