Delhi and Tehran: A delicate dance

A Washington-Tehran rapprochement will allow India greater strategic space to pursue its diplomatic interests and as the situation in Afghanistan continues to unravel, this will be useful in shaping the regional environment to India's advantage, says Harsh V Pant.

In its first major diplomatic engagement of the new year, India hosted Iran's Supreme National Security Council Secretary and Chief Nuclear Negotiator Saeed Jalili last week. Jalili was in Delhi at the invitation of National Security Advisor Shiv Shankar Menon and met not only Menon but also Finance Minister P Chidambaram and Foreign Minister Salman Khurshid.

Despite bilateral ties between Delhi and Tehran losing their past sheen, Jalili underscored that 'there are very good relations between the two countries' and that the two nations remain 'friends'. The visit was also significant because Jalili is considered as a potential successor to Iranian President Mahmoud Ahmadinejad who completes his two terms in office this year.

The economic situation in Iran has deteriorated rapidly over the last few months. Because the Central Bank of Iran has been having trouble maintaining its currency peg of 12,260 rials to the US dollar, more and more Iranians are trying to trade their rials for foreign currency. This has led to a free-fall in the value of the rial.

The western sanctions have blocked Iran international bank networks, making it difficult for Iranian businesses to borrow money at a time when its central bank is having difficulty meeting demands for dollars. As a consequence, Iran is facing its worst financial crisis since the Iran-Iraq war of the 1980s.

It has therefore become imperative for Iran to reach out to non-western nations to seek help. Russia, China and India are natural players in this context and so Jalili's visit to Delhi is important. Jalili tried to project Iran as a destination where countries like India can fill the vacuum by suggesting that international economic sanctions on Iran were not a 'threat', but an 'opportunity'. Even the Iranian health care system is close to collapse under the weight of sanctions and Tehran has reached out to India to help with life-saving drugs. India is now exporting one of its largest consignments of medicine ever to Iran.

Iran is also trying to make a case to Delhi that it could be a reliable provider of energy security to India even though the past experience of India has been rather problematic. But Jalili argued 'Iran's capability is not just supplying oil and gas. Providing security of energy is one of the principles of Iran's policy in this respect. We have the best capability [among all neighbouring countries] in providing energy security for the region.'

Jalili made a case for the extension of gas pipeline with Pakistan to India underlining that Iran 'has the capacity to provide security.' But India has been trying to reduce its dependence on Iranian oil for some time now and it is not entirely clear if there will be a change of heart of New Delhi because of Jalili's visit though India recognises the benefits of using the Iranian territory as transit route into Afghanistan and Central Asia.

In terms of energy security, actions by the United States and the European Union considerably impede India's pursuit of resources in Iran, where India is the third-largest recipient of exported oil. This is well-illustrated by recent EU sanctions banning European companies from insuring tankers that carry Iranian energy resources anywhere in the world.

With nearly all tanker insurance based in Western nations, Indian shipping companies are reportedly forced to rely on state insurance, which only covers tankers for $50 million as opposed to the estimated $1 billion in coverage typically offered by European agencies. Shippers therefore face great risk in transportation.

Western efforts to undermine financial institutions in Iran have also complicated payments for Iranian oil exports. An executive order issued by the White House in November 2011 authorises the US secretary of state to impose financial sanctions on any entity failing to satisfactorily curb support of the Iranian market according to US terms, thus pressuring countries such as India to reduce imports supporting the Iranian economy.

China, like India, has a massive demand for energy security. China is present in nearly every geographic area of importance to India's energy security and Chinese state-owned companies have proved more willing and able to secure deals at any cost than Indian companies. This intricate challenge of remaining competitive with China and close to the United States is manifest in Iran.

While New Delhi faces pressure from the West to curb its ties with Iran, Beijing continues to pursue close bilateral relations with Tehran under a firm policy of non-interference to ensure the security of its energy and strategic interests. Beijing was a highly significant factor in Iran's acquisition of capabilities throughout the 1980s and early 1990s that helped initiate its nuclear program.

Although China curbed official support of Iran's nuclear program in 1997 under heavy US pressure, American officials suspect the continuation of informal support under the auspices of non-governmental entities. China continues to supply arms to Iran as well, and although the value of these transfers declined in the first decade of the 2000s, Chinese arms are still presumed to be supporting proxy militant groups in the Middle East via Iran, much to the dismay of Washington.

China also functions as a diplomatic ally that can offer leverage to Iran within the International Atomic Energy Agency and UN Security Council. Beijing is vocal in its support for diplomacy rather than force in dealing with Tehran and is adamant in denouncing unilateral or bilateral sanctions that prohibit economic interactions that would isolate Iran.

China thus retains significant value to Iran in a manner that would be difficult for India to emulate, particularly given its greater dependency on good relations with the United States and basic objections to Iran's nuclear program.

Tehran and the P-5+1 (the five permanent UN Security Council members plus Germany) are set to resume talks later this month, although the place and date for the negotiations have not been finalised. The talks would be the first high-level negotiations over Iran's nuclear program since the negotiations in Moscow in June, offering at least the prospect of a thaw in a standoff that has grown increasingly tense in recent months.

A Washington-Tehran rapprochement will allow India greater strategic space to pursue its diplomatic interests and as the situation in Afghanistan continues to unravel, this will be useful in shaping the regional environment to India's advantage.