India will not apply for U.S. sanctions exemption on Iran

Even as the U.S. steadily tightens the screws on the sanctions regime against Iran, energy-deficient, rapid-growth nations such as India are finding themselves walking a tightrope with their continued but declining reliance on Iranian oil imports.

Ten European nations and Japan have already been given an exemption from punitive actions by the U.S. for purportedly reducing their oil imports from Iran “significantly.”

Yet India in particular would appear to be purposefully walking a line that sacrifices neither its core interest, the need to meet the demands of more than 400 million Indians with no access to commercial energy, nor its commitment to adhere to United Nations sanctions regimes.

Last week the U.S. put out its most direct message on Iran yet — that India, along with other importers of Persian oil, could face sanctions by July if it too did not reduce such imports “significantly” — a term that has not been defined quantitatively in the U.S. 2012 National Defence Authorisation Act (Section 1245), except to allude, by comparison, to Japan's reduction of 15-22 per cent.

At this point India remains in compliance with United Nations sanctions against Iran, yet it has, however, refused to recognise any country-specific sanctions overlay above this globally accepted level.

Consistent with this position it appears that India will not be making an application for a sanctions exemption from the U.S.

Whether private companies engaged in the oil trade with Iran independently start reducing their volumes is another question.

Some of these companies are said to be facing constraints on their business in any case, given the broader sanctions against Iranian central bank and other financial institutions, and the knock-on effect that that has in terms of payment instruments.

If that trend continues India may find itself meeting the U.S.' demands without any extra effort to do so.

While India reportedly imported 21 million tonnes of Iranian oil in 2009-10, that dropped to around 18 million tonnes in 2010-11.

If further efforts had to be made, however, those seeking to press country-specific sanctions on Iran would have to take account of the fact that Indian refineries processing light crude from Iran would need to have their capital-intensive infrastructure modified, and that is likely to be expensive.

Alternative approaches that India may independently decide to follow, should the need arise, could entail the use of wheat exports to Iran that would help India avoid being branded as a contributor of hard currency to Iranian coffers.