In his address to the United Nations General Assembly on September 25th, President Donald Trump commended multiple nations on both their efforts to elevate the quality of life for their citizens and their efforts to institute widespread reform. One of the nations was India. Trump praised India, noting it was, “…a free society of over a billion people successfully lifting countless millions out of poverty and into the middle class.” For India, a growing middle class comes with challenges, particularly a higher demand for energy. India is the world’s third-largest oil importer (16% of total imports) and the second-largest buyer of Iranian crude oil after China, with 11% of total crude oil import originating from Iran. Amidst US economic sanctions on Iran, India may need to rapidly divert its interests from the Iranian oil market.
According to a recent report by the Brookings Institution, New Delhi has begun to shift its strategic influence from a regional to a global power, more connected to Central Asia. The report touches on how international decisions such as President Trump’s choice to back out of the Iran Nuclear Deal, and continued US sanctions on Iran, affect the decision-making process of India’s policy makers. In Trump’s speech to the United Nations General Assembly he made it very clear that the US, “…cannot allow the world’s leading sponsor of terrorism to obtain the world’s most dangerous weapons.” The US increasing pressure on Iran puts India in a difficult position. India’s reliance on Iran for a portion of its crude oil and a potential future Iranian conflict with the US are risk factors for India’s projected economic growth.
As November sanctions against Iran’s oil markets near, India scrambles to reduce its crude import from Iran by nearly 50% and is presented with many challenges. In an effort to alleviate the supply situation for India, the United States has offered to replace the loss of Iranian oil. However, many Indian refineries are configured to process solely Iranian oil, making the switch to a different supplier that much harder.
This is not the first time that India has been forced to alter its energy strategy in response to US sanctions against Iran. In 2014, ASP’s Nathan Alvarado-Castle outlined the ways in which international pressure against Iran’s nuclear program forced India to withdraw its support for a 700-kilometer Iran-Pakistan-India oil pipeline. Today, any talks over the pipeline have ceased in part by a report by the Sustainable Development Policy Institute calling the deal, “a death sentence” for Pakistan. This is an example of how US led Iranian sanctions not only affected India’s energy expansion but hindered the potential betterment of the Pakistan-India relationship. Michael Hirsh at ForeignPolicy.com touched on the predicament India faces with regard to the US Iran policy:
U.S. sanctions threaten to cut off any business that facilitates an oil transaction with Iran from the U.S. financial system. For most major international businesses, banishment from U.S. markets and, more importantly, the American-dominated global financial system would be a death sentence.
India’s current economic standing puts it as the seventh largest economy in the world, next to France and the UK. US sanctions on Iran and the subsequent impact on India’s energy needs could hinder India’s 7.5% economic growth rate, eliminating the country’s title as fastest growing economy in the world.
Overall, it is uncertain whether India’s policy makers will be able to back off the Iranian crude oil market in in time for new US sanctions in early November. India adhering to said sanctions on Iran could present a kink in the country’s current expansive economic machine. However, ignoring US sanctions would mean India’s expulsion from a US dominated global financial system, and an even bigger blow to India’s economy.