BREAKINGVIEWS - India and U.S. try for uneasy alliance over Iran

MUMBAI Mon May 7, 2012 3:42pm IST

U.S. Secretary of State Hillary Clinton (L) speaks with Mamata Banerjee, chief minister of West Bengal, in Kolkata May 7, 2012. REUTERS/Rupak De Chowdhuri

U.S. Secretary of State Hillary Clinton (L) speaks with Mamata Banerjee, chief minister of West Bengal, in Kolkata May 7, 2012.

Credit: Reuters/Rupak De Chowdhuri

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MUMBAI (Reuters Breakingviews) - It takes chutzpah to host U.S. Secretary of State Hillary Clinton and a trade mission from Tehran on the same day. That's what India is doing - and it has so far played the two sides off rather well. While good relations with the United States are important, Iran's cheap oil is too attractive to pass up, and India has a long history of goodwill towards its Persian neighbour. A compromise looks likely.

India has been publicly dismissive of U.S. calls to stop doing business with Iran. Given its $185 billion trade deficit, it is not hard to see why New Delhi would rather keep trade flowing. Oil accounts for two-thirds of India's import bill, and Iran is a major supplier. India has even been able to negotiate payment in its own currency, the rupee. That's like a gift voucher which Tehran can only spend in Indian shops.

Clinton, meanwhile, has called for India to support U.S. sanctions. But she can't afford to push too hard. Given the current fragility of India's government's coalition, a big foreign policy spat is the last thing she wants to provoke. There are still many on India's left, including members of the ruling Congress party, who are firm believers in a policy of non-alignment, which dates back to the Cold War.

Privately, the Indians seem to be more co-operative. Under pressure from politicians, refiners have cut imports of oil from Iran by 15-20 percent. That strategy may be enough to win a waiver from U.S.-led sanctions during Clinton's two-day visit, assuming American politicians believe a quietly helpful India is better than an openly hostile one.

India's best outcome would be to keep both sides happy. As Iran's second largest customer, it is in a good position to secure a discount to the market price of oil - something it is unlikely to get from other suppliers like Saudi Arabia. And the United States may be prepared to bend its rules to keep an emerging superpower on-side. New Delhi's diplomatic balancing act might just work.

CONTEXT NEWS

- U.S. Secretary of State Hillary Clinton said she hoped India would do "even more" to cut its purchases of oil from sanctions-hit Iran as there was adequate supply available from other countries such as Saudi Arabia.

- Speaking in Kolkata on a visit to India on May 7, Clinton said there would be a decision in about two months as to whether India would be given a waiver from sanctions over Iran oil purchases.

- Indian's oilmeal exports to Iran rose more than two fold to 97,904 tonnes in April from 39,798 tonnes last month, Reuters reported on May 7.

- India is trying to boost exports to Iran in order to reduce its trade imbalance as it seeks ways to cut an $11 billion a year bill for oil imports that it is finding hard to pay for because of western sanctions.

(Editing by John Foley and David Evans) (The author is a Reuters Breakingviews columnist. The opinions expressed are his own)

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