Even before US Secretary of State Hillary Clinton arrived in New Delhi recently her intentions were clear. Speaking in Kolkata she told her audience that her mission was to persuade India to cut down its oil imports from Iran. She also clarified that there was enough extra oil output available with Saudi Arabia, Iraq and the UAE to enable India to forego the Iranian supplies. In Delhi this was the main theme in her presentations to the Indian leadership and she pressed her case hard with her characteristic flair. At present India imports about 12% of total Iranian oil exports and is also a major supplier of refined oil back to Iran with the refinery at Mangalore dependent on Iranian oil.
For India to cut back on Iranian oil supplies is simply not a question of demand and supply, but it has wider connotations. It is highly unlikely that Iran will sit back and watch its export markets wither away. It is indeed a geographical oddity that most of the oil bearing areas in West Asia are in areas dominated by the Shiites. Southern Iraq, North-East Saudi Arabia, Bahrain and of course Iran are Shiite areas that come to mind. With the Gulf region holding 27% of the world’s oil and 57% of its proven oil reserves along with 45% of the world’s natural gas reserves makes this a very strategic and an immensely important area. The Iranian leadership is skilful, well versed in state craft and can play the Shiite card with easy facility; thus disrupting oil supplies from the region without any recourse to military action.
A growing economy such as India just cannot afford any disruption in energy supplies no matter how important the issue is. The bulk of India’s oil imports, about 45%, come from West Asia. Thus if economy going. India’s oil import bill is likely to surge from 2.9mb/d in 2010 to 6mb/d in 2030. Presently, India is the 6th largest market for oil in the world.
For India the choice is rather stark for West Asia is in its close proximity. Dubai is nearer to Mumbai than it is to Cairo or even Amman. Muscat is only 967 miles away from Mumbai. Access to and the ability to import oil unhindered is a facet of state security. It goes without saying that the Indian economy is entirely dependent on energy and any disruption or volatility in oil prices causes considerable stress to the Indian economy.
About 3.5 million Indians live and work in the Gulf region and are the largest expatriate community there. Indians remit about US $12 billion annually to India. The Gulf region is the 3rd largest destination for Indian exports behind only North America and the EU and account for nearly 16% of India’s total exports. India has substantial economic investments and strong cultural links with these countries. Any disruption therefore, particularly for political reasons, would inevitably result in the displacement of Indians living there as it happened in the case of Iraq and Kuwait earlier and more recently in the case of Libya. Thus India stands to lose not only its main source of supply of the vital commodity -oil, but the economic disruption as a result would be enormous and might even send the Indian economy into a downward tailspin.
On the other hand, friendship with the United States is also a vital component of Indian foreign policy. It simply cannot afford to antagonize the Unites States on an issue the latter terms as vital to its foreign policy interests. Therefore by cutting down Iranian oil imports by as much as 15% this year, India hopes to satisfy the US and thus avoid debilitating US sanctions. This is also driving India to seriously look at other sources away from the Gulf region from where its energy needs could be imported. India has started to look at Canada, Nigeria, Venezuela and even Brazil as new sources, from where it can import its oil and gas requirements. Canada with gas reserves of an estimated 62 tc/ft and with the third largest oil reserves in the world, much of it in tar sands, is a very attractive option. Canada and India could form a vital energy bridge. Nigeria already a major supplier of oil to India is however beset with internal political difficulties, with some terror groups beginning to infiltrate there. On the other hand, Venezuela is trying to diversify its oil exports away from the US and Reliance of India is already refining some Venezuelan oil. Some oil experts in India have ventured to suggest that a deeper study of the geology of the Indian Ocean is necessary and it is possible that this area could yield to more energy discoveries nearer to India. This is expected to form part of the discussions when Hillary Clinton’s energy expert from the US State Department visits India shortly.
Thus as the impasse over the Iranian nuclear issue continues, India and other countries such as China are likely to come under greater pressure to firstly cut back on their imports from Iran and secondly to diversify. For India the choice is between a rock and a hard place. How to handle this delicate issue is a task for Indian diplomacy.
Views are those of the author
* The author is a former Secretary, Ministry of External Affairs.
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