US Tells India: No Waiver on Iran trade Transactions

If India believed that just like the first round of Iran sanctions, it could negotiate a softer deal with the US, those hopes were dashed.

After the US administration officials said Indian companies would be subject to the same sanctions as everyone else if they dealt with Iran, particularly in the energy sector, India will now bring this to the discussion table during the 2+2 dialogue, referring to the combination of Indian Foreign Minister Sushma Swaraj and Defense Minister Nirmala Sitharaman and their US counterparts Mike Pompeo and James Mattis, The Times of India reported.

Indian government sources say the US demands are “impractical” since there is a big difference between “significant reductions” and “zero” trade. During the pre-2015 round of sanctions, countries had to demonstrate they were consciously reducing energy imports from Iran. That helped India reduce its imports but maintain a relationship with Iran, nevertheless.

This time, that may not be the case, as US officials went on record to say they would not give out waivers to allies.

“We view this as one of our top national security priorities. I would be hesitant to say zero waivers ever. I think the predisposition would be ‘No, we’re not granting waivers’,” they said.

This time the situation may be different, if US officials’ briefings are anything to go by. The law remains the same that was applied before 2015, the carve-outs for Afghanistan and Chabahar Port remain the same. But the interpretation of the law appears to have become narrower and tougher.

Government sources said they would seek clarity from the Trump administration about exactly how far they plan to go, particularly in the case of secondary sanctions. But, read along with the apprehensions on Russia-linked sanctions, there could be a period of tense India-US relations.

In a similar briefing on May 5, US administration officials had said that they expected the threat of secondary sanctions to be more effective than the imposition of sanctions themselves. That may continue to be the case, but Washington sources say the US is keen on a kind of “economic warfare” on Iran, that could even push the country over the edge.

India imported 22 million tons of crude from Iran in 2017, which was down from 27 million tons the year before. This year has just started but with Indian and European banks already pulling out of the energy sector in Iran, the prospects for oil imports are diminishing rapidly. State Bank and other Indian banks with international exposure have asked their clients to complete existing transactions and wind down by August.

Indian Oil has already declared it’s cutting Iran imports. Indian sources said reinsurance for Iranian crude is also drying up. This means willy-nilly, there will be a huge drop in Iran oil imports in the coming months

The last time round, India had worked out a rupee-rial exchange system for India to pay for Iranian oil. In addition, Iranian government took on the reinsurance burdens. It is not clear whether these will be utilized in the same way this year.

The US had earlier taken a more strategic approach with India, but it is not clear whether the same will be on offer with the Trump administration, despite the fact that India is inching up to become a strategic and security partner.