Oil imports: India's tricky position on strategic ties with Iran

Perhaps the only thing more complex than the crude oil India imports from Iran is the relationship between the two countries on the energy front. Consider: despite sales of oil from Iran dwindling from 25% of total imports to just about 8% at last count, Iran is the only country that continues to have a stake in an Indian refinery; it is a 15% stakeholder inChennai Petroleum Corporation, a share it has held since the late '60s, with board representation to boot.

If there was any doubt on India's position on its strategic ties with Iran, Prime Minister
Manmohan Singh erased them a week ago. At a joint cabinet meeting with German chancellor Angela Merkel in Berlin, he made it crystal clear that Iran will continue to be a strategic partner for India even as New Delhi underscores the need for Tehran to come clean on its nuclear ambitions. No surprises here, for this has been India's stated position for decades. The ground realities, however, tell a different story.

Trade Barriers

India's declining trade and investments in Iran are not lost on the western world, although publicly it will appear to respect India's position. India's repeated pronouncements of "maintaining ties and trade relations with Iran" only speak of the compulsions that force it to speak a different language from its action.

Iran is increasingly becoming a forbidden word in the lexicon of western investors and financial institutions, posing huge challenges for Tehran and countries like India, China or Japan. Yet, India's increasing energy needs, coupled with its inability to find new sources of oil and gas at home, leave it with little choice but to try and maintain a healthy relation with Iran.

India has very few options and, even around those, the imponderables are far too many. For starters, the country needs to find funds as well as institutions that are willing to insure and reinsure crude shipments from Iran. In February, for instance, a couple of refiners processing Iranian crude plunged into a crisis when international reinsurers refused to cover them. The situation was salvaged when Indian company General Insurance RE stepped in to provide reinsurance.

India will need to find many more homegrown solutions if it wants to continue trade with Iran. Most of the crude imported is carried by foreign flag ships and this volume is only expected to come down as the US and Europe increase pressure and expand the scope of sanctions. The US and the EU have enacted thirdparty sanctions against countries that continue to do business with Iran's energy and financial sectors.