India's determination to continue buying Iranian oil frustrates US

According to Economic Times, Ranjan Mathai, the Indian foreign secretary, made the rounds in Washington last week, describing India's relationship with the United States as one of growing comfort, depth and candor, if not perfect harmony. On that last point he could have been talking about the recent frictions between the two countries over Iran.

India's determination to continue buying Iranian oil, despite sanctions and growing political pressure from the United States and Europe, has frustrated officials in Washington at a time when the forward momentum in the US-India relationship has slowed, with differences over issues including civil nuclear cooperation, trade protectionism and military sales.

The situation was exacerbated last week by news reports that India had become Iran's top oil customer, while an Indian official announced plans to send a trade delegation to Tehran. In New Delhi, diplomats and analysts say India's purchasing of Iranian oil is a matter of economic necessity, given its dependence on imported oil. Some say the purchases also represent diplomatic hedging in a region bracing for the withdrawal of US troops from Afghanistan by 2014, or possibly sooner.

Indeed, many Indian officials, even those supportive of a stronger partnership with the United States, caution against turning issues like Iran into diplomatic litmus tests, considering the complexities of a neighborhood in which India represents a bulwark of stability, democracy and economic opportunity compared with Pakistan, Afghanistan and other countries.

"This can't be a test of our friendship," said Lalit Mansingh, a former Indian ambassador to the United States. "Washington must realize that we are in a neighborhood where Iran is a factor."

India's most immediate concern is fueling its economy, which has slowed in the past year. India buys about 12 per cent of its crude oil from Iran, and many Indian refineries have been built to run solely on Iranian crude, meaning they would have to be retrofitted in order to process oil from other countries.

"To shift is not something that can be done very easily," said one senior Indian official, who would speak only on the condition of anonymity given the delicacy of the situation. The official added: "Where would we get that refining capacity? Who would be our new suppliers?"

Even so, India has tried for several years to reduce its dependence on Iranian crude oil, partly because of the new sanctions by the Obama administration punishing any banks that do business with Iran

To work around these sanctions, Indian oil companies have made payments to Iran through a bank in Turkey that fell outside the US restrictions.

However, Indian officials are preparing for the likelihood that the Turkish avenue may soon be closed. The senior Indian official confirmed recent reports that India and Iran had agreed on a deal in which Indian companies would pay for 45 per cent of their imports in Indian rupees - thus avoiding the need to pay in dollars - and might even settle the remainder of the debts through barter.