Iran, India Confident on Continuing Cooperation, But Nuclear Deal's Survival Uncertain

While the Iranian delegation was in town to hold talks with India on retaining oil imports, a US team had also arrived to urge New Delhi to drastically cut down on the oil trade with Tehran.

New Delhi: Even as a senior Iranian diplomat expressed confidence by saying he had “a very good sense” that India will continue cooperation with the country despite US sanctions, both New Delhi and Tehran are anxiously banking on talks with European capitals to devise a practical solution to keep the payment channel well-oiled before August 6.

Iran’s deputy foreign ministry Seyyed Abbas Araghchi, one of the key negotiators of the Joint Comprehensive Plan of Action (JCPOA), was in Delhi to lead foreign office consultations with Indian foreign secretary Vijay Gokhale on Monday morning. Thereafter, Araghchi called on the minister of state for external affairs, M.J. Akbar.

While the Iranian delegation was in town to hold talks with India on retaining oil imports, a US team, led by assistant secretary for terrorist financing Marshall Billingslea, had also arrived to urge New Delhi to drastically cut down oil trade with Tehran.

Araghchi told reporters on Monday evening that he had “very constructive discussions” with his Indian counterpart.

“I think there is room and many possibilities for Iran and India to cooperate in important fields for both sides, especially energy, Chabahar (port project) and other areas,” he said.

A press release issued by the Indian Ministry of External Affairs said that views were also exchanged on “the efforts being made by various Parties to address issues that have arisen over the Joint Comprehensive Plan of Action”.

After the visit of Iranian foreign minister Javed Zarif in May, Araghchi is the second senior Iranian dignitary to hold talks with Indians after the US withdrew from the JCPOA and announced new sanctions against Iran. The first set of sanctions will take effect from August 6. Thereafter, a 180-day ‘wind-down period’ will mark the countdown to the imposition of the rest of the sanctions from November 4, which is the anniversary of the start of the 1979 US embassy hostage crisis.

Referring to the US sanctions, Araghchi sounded optimistic that India will not scale down imports from Iran.

“Well, we know that there are pressures from outside. But we count on the Indian government to make a proper decision in favour of the national interest of India,” he said.

On today’s discussion with India, Araghchi noted, “What I can say is that I have a very good sense that cooperation between the two countries would continue. Of course there are difficulties, but we have to work hard in order to face those challenges and find solutions for that. I am quite hopeful.”

With US sanctions on the way, major Indian refiners had already started to cut down on oil imports. According to Reuters, India’s oil imports from Iran in June declined by 16% compared to May.

However, the senior Iranian diplomat claimed that their figures did not show any decrease, but also left it open whether future bilateral oil trade will be impacted.

“The news we have is not saying that. The current level is the same as the previous months, but colleagues are talking about next month’s purchases from Iran, which is an open issue,” said Araghchi.

Sources pointed out that the Indian government could not control commercial decisions of private oil refiners like Reliance, who have much more exposure to the US market.

While Reliance is the biggest importer of Iranian crude to India, there are also Indian public sector companies in the fray who would be more obedient to a political directive.

US officials had said last month that it was pushing all major countries, including India and China, to cut oil imports to zero by November. The US had said that they would be sending out teams to all the countries, including India.

Ahead of talks with the US delegation, there were reports that seemed to indicate a softening. “We want people to reduce oil purchases to zero, but in certain cases if people can’t do that overnight, we’ll consider exceptions,” US treasury secretary Steven Mnuchin said.

India is especially interested in getting a carve-out for the Chabahar port project, whose development is of critical importance to New Delhi’s plans of connectivity to Afghanistan and Central Asia.

During her visit to India, US permanent representative to the UN Nikki Haley had called on Indian Prime Minister Narendra Modi to join in on the sanctions against Iran. She added that Washington was mindful of Indian interests in Chabahar and “understands the logistics that come into play with Iran”.

Last week, Iran’s chargé d’affaires Massoud Rezvanian Rahaghi had said at a seminar that India could lose “privileges” and revert back to dollar-denominated trade. A day later, a clarification was issued that Iran will “do its best to ensure security of oil supply to India through offering various flexibility measures which facilitates our bilateral trade in particular Indian export to Iran”.

While retracting the sharp tone, the Iranian side also reiterated the need for expediting Indian investment and execution of projects at the strategically located Chabahar port.

In answer to a question whether India had indicated whether it will stick to current deadlines on the project, Araghchi said it was of “ultimate interest to India to continue the project”.

“This has big political and strategic importance for both countries and I am confident that we can find ways and means to work together on this important project,” he added.

After the US withdrew from the JCPOA, Iran had also said that it would pull out of the regime which had put restrictions on its nuclear programme, unless a way was found to mute the impact of US sanctions.

The Iranian side briefed the Indians on the status of the talks with the Europeans, especially the ministerial-level discussions in Vienna last week.

Diplomatic sources indicated that Iran and the EU have realised that their effort to compensate for the US absence is more difficult than expected.

While there is no official deadline for the talks, sources said that “things have to be settled by early August, when the early part of the US sanctions is in place”.

There are two “practical steps” that would be in place by August 6. One is the “blocking statute” that stops EU persons and companies from following extra-territorial sanctions.

While it does also have a provision for compensation for EU firms from the sanctions regime, the ground reality is that large multinationals companies would prefer to withdraw from the Iranian market rather than risk their US business. But it would be helpful in protecting and incentivising smaller firms, who would not be present in big territories like the US, to remain in Iran.

With small and medium firms in mind, the European Commission also extended the mandate of the European Investment Bank to finance activities in Iran.

However, guaranteeing the smooth flowing of Iran’s oil trade is proving a more difficult job, according sources.

Iranians have said that if the level of purchase of crude by India, China and European countries is maintained, then the JCPOA would survive.

While ideas are being tossed for a euro-based mechanism, talks between Europe and the two Asian countries are also part of this effort in the path to salvage the Iran nuclear.

New Delhi is largely depending on the Europeans to not buckle under US pressure and find a solution on the payment channel.

“If all the parties can come together, then a solution can be reached. Otherwise the deal is lost. And we don’t have much time for that,” said a diplomatic source.

During the last period of sanctions, India had reduced the Iranian component of its oil import basket from 16% in 2008 to 6% 2013.

According to sources, India has more options on paper on finding a payment channel quickly now than it did in the previous period when there were sanctions against Iran from the US-EU-UN triumvirate.

During the previous period, India agree to pay for 45% of the oil payments in rupees, which was deposited in UCO bank. Iran used those rupee payments to purchase food, drugs and chemicals. All the rest was paid in euros through a Turkish Bank based in Ankara.

With the Iranians describing the JCPOA as currently “in the ICU”, Tehran is maintaining ambiguity on what it plans to do with the nuclear programme if Iran finally decides to walk out. While there was no clarity on whether Iran would go back to their previous enrichment levels, Tehran insists that it will not be manufacturing nuclear weapons.

With Europe being the lynchpin in the efforts to save the JCPOA, it remains to be seen whether the Europeans, who are also at loggerheads with the US over other issues like Russia and NATO defence, will be able maintain unity and not crumble under pressure from the Donald Trump administration.