The Iranian regime’s true colours

How did anyone expect India to achieve energy security with such partners?

Iran’s ruling ayatollahs lost no time in punishing India for voting against their nuclear shenanigans. They have informed the Indian government that Iran will not, after all, supply five-million-tonnes of liquified natural gas (LNG) that it had agreed to sell to India over a 25-year period beginning 2009. The record high oil prices may have encouraged them in this respect, but that the Iranians so readily repudiated what was touted to be a long-term deal with what many Indians believed was their strategic partner reveals that the only thing that interested Tehran was the ability to leverage its energy supplies into geopolitical clout. India, for them, was just a helpless proxy.

Critics of India’s vote against Iran at the IAEA have dubbed Tehran’s retaliation as a major blow to India’s energy security. But it is just as well that the impasse over their nuclear ambitions forced Iran’s rulers to show their cards early. Those arguing that India has begun taking its foreign policy cues from Washington would do well to consider where the cues would have come from had India built energy infrastructure (including that pipeline) around supplies solely centred around Iran. This is not so much a blow to India’s energy security but a wake-up call for India’s energy strategists.

First, it is abundantly clear that promises made by ayatollahs and generals cannot be relied upon in India quest for guaranteed long-term energy supplies.

Second, Iran’s ready retaliation suggests that merely being a big buyer is not good enough to secure fuel supplies. In the absence of a larger bilateral economic relationship — two-way trade and investment — it is quite easy for the fuel supplier to blackmail India by threatening to and actually cutting off supply. Therefore India must either procure fuel from countries with whom it has broad-based economic relations or rapidly build them up with those it doesn’t. Even ‘equity oil’, or the strategy of purchasing stakes in oil companies in producing countries may not provide sufficient protection against the risk of a suddenly-hostile regime turning off the tap, using nationalisation, for example, as a pretext. India can lose both its equity and its oil.

What India needs to do is build energy security by plugging more deeply into the global economy. It needs to reform its energy industry along free market principles. Relying as it does heavily on foreign suppliers of fuel, a competitive market can help ensure the necessary robustness and diversity. India needs to invest in energy infrastructure — power plants, refineries, processing terminals and ports — as well as create greater sophistication in the energy market. Instead of getting its hands all oily with running the energy business, the government is better off creating the environment where privately-run energy companies can go about their business. And when they do that well, India will find its energy security is no longer a worry.

But what should the Indian government do about Iran right now? It should, as it is doing, indicate to Iran that it sees the bilateral geopolitical relationship as concerning more than nuclear programmes and that it desires to expand the bilateral economic relationship to something more than just oil. And then, it should also point out that well, by the way, there are many more occasions where India may need to exercise its vote…

12 thoughts on “The Iranian regime’s true colours”

  1. A False Friend is worse than an enemy. Iran has shown that long term agreements mean nothing to it in consideration of short term goals. India will do well not to place such important trust on a country that would so quickly turn on her. India must pursue a strategy similar to China, searching out energy sources all over the world, so as not to place all the eggs in one basket. AND, it must open up more to the global economy.
    Meanwhile, we Americans welcome our future Sino-Indian overlords; please remember we were on your side (mostly).

  2. Just a tidbit of news; reports in BBC and Forbes say that Iran has denied reports of calling off the LNG deal. And, so does the GoI. Though it is too early to say, I hope Iran takes calculated steps in reviewing their ties with India.
    -SBR

  3. Absolutely agree with you here…
    This pipeline deal is being signed between a country that doesn’t seem to be honoring agreements entered into (whether nuclear or otherwise) and transit is being sought to be through a hostile state and hence it is an idea that should be consigned to its rightful place.. the dustbin.

    It is clear that setting up those oil terminals and other downstream infrastructure would be a better idea. It would create jobs and boost the economy through the demand for this infrastructure while competitive forces would ensure supply is adequate and in the end we are not hostage to a single pipeline with its attendant Pakistan-related risk.

    This might well be a negotiating tactic by Iran to ensure that the November vote goes its way. But, this should force some rethinking on the harebrained pipeline (through Pakistan) idea in the corridors of power.

  4. Playing devil’s advocate, how is what Iran is doing right now (canceling the energy partnership it was craving for just until last week) any different from US Congress canceling or taking a go-slow approach to its nuclear agreement with India had India voted to support Iran? Yes, the episode does expose shallowness of India-Iran relationship. Would India have done any differently if it had the gas and Iran the vote?

    The suggestions to tackle energy issues for India are good but unlikely to solve near-term India’s energy needs. India does have strong board-based economic relationship with Iran – has had for decades (if not for centuries); India already has one of the world’s large refineries capacity now (currently one of the largest foreign exchange earner); privatization will help in the long run, but in the short run investors may actually punish companies that want explore in unstable places like Sudan, Venezuela, and Central Asia.

    There is really very little India (and most consuming countries) can do when it comes oil and gas. However, unlike India, most other countries are much smaller consumers and can buy oil and gas from open market. Being a late comer to the energy scene, India is already getting whacked by China on most deals. It needs to be careful when playing the moral game. Only US with its economic size and military reach can play the selective moral game – mullahs are bad but wahhabies are okay. This vote was a tough choice. In future India has to be consistent with its foreign and energy policies – probably unlikely given history. India has to play what it is dealt; at the moment it has few levers.

  5. Iran is being hypocritical. Europe voted against Iran as well, but I don’t see the mullahs threatening to cut off their oil supply.

  6. Iran would do well to take decisions with balanced mind rather than hasty and miscalculated. It is regrettable that the usual suspects (left parties and some mainstream newspaper editorials like The Hindu) have followed the biased and dogmatic path riding on anti-imperialism, anti-west, anti-NAM talk. They fail to see how the break from the past is a bold move in itself and more importantly, it has come from Congress government, that has traditionally taken up those stands. This vote will encourage India to explore alternative sources of energy than taking a long and highly risky path to conventional sources of energy.

  7. Finland Again Ranks First Among Global Competitors. India Ranks 50th because of law eduction and law end technologyu use. China 49th.

  8. Absolutely agree that we are doing the right thing by forcing Iran’s hand. Nuclear certainly is the way to go – break these oil/gas shackles forever. Never have to wonder what’s going on in the ayatollah’s or the general’s mind, as they are the system.

  9. The Acorn is shocked, yes shocked, that Iran objects to India’s vote.

    Irregardless of whether Iran has actually cancelled the deal, and irregardless of whether building a pipeline over Pakistan is a good idea (I don’t think it is), I dont see anything wrong with Iran possibly retaliating at all.

    After all, this article could be titled:

    “India shows its true colors”

    and

    “that the Indians so readily voted against with what many Iranians believed was their strategic partner reveals that the only thing that interested New Delhi was the ability to leverage its geopolitical clout. Iran, for them, was just a helpless proxy.”

    If you take a vote against the Iranian regime interests, of course Iran is going to retaliate. Blaming the Iranian regime is stupid.

    India’s vote may have been the right step if it ensures our relations with the US, but as with all such votes, it was a game of trade-off, and its silly to claim otherwise and display phony outrage. Some adroit diplomacy may help to mend fences with iran.

  10. Ramesh,

    What shock? There is nothing in the post that questioned Iran’s right to retaliate. There was nothing there which claimed that there are no trade-offs involved. And there was no outrage there either, phony or otherwise.

    You should really elaborate what you mean by ‘the only thing that interested New Delhi is the ability to leverage its geopolitical clout’ and that ‘Iran was a helpless proxy that India used’.

    I can’t speak for the rights and the wrongs of Iran retaliating, but I certainly advocate India taking such positions that do not end up having to suffer ‘retaliations’, rightful or otherwise. That is the the point this post makes.

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