Originally Published 2014-01-17 05:33:24 Published on Jan 17, 2014
Iran's cancellation of $500 million funding to Pakistan for the Iran-Pakistan gas pipeline indicates Iran's clout in regional energy affairs. It is unclear why Iran took this sudden step. Is President Rouhani merely fine-tuning some of the policies of his predecessor? But there is certainly more to this than meets the eye.
Changing US-Iran relations and India
"Amidst fresh threat of sanctions from the US Congress, Iran's terms of rapprochement with the West, following the successful breakthrough in its nuclear talks with the P5+1 in November last year, are all set to be implemented from 20 January. Tehran seems unfazed by such reports and the region is abuzz with the coming changes as countries are readying to align themselves on the right side of Tehran.

The recent interview of the Sheik of Dubai (BBC, 13 January), who candidly stated that lifting of sanctions on Iran is good for the region, is just one such indication. For good measure, he added that the policies of Dubai are different from that of Saudi Arabia and of Qatar - the two countries that have actively promoted Islamic Jihadists to overthrow the regime of Syrian President Assad, an implacable ally of Iran. The Sheik said that his country does "not believe in interfering with its neighbours but in helping them". The fact that a minor potentate of the GCC has broken ranks to speak out against the avowed policy of the group is a significant move.

There are good reasons for this. The tiny city-state has benefitted immensely from the smuggling and re-selling of Iranian oil, besides maintaining huge off-shore accounts of the Iranian elite in its banks. Though it maintained a political stand-off, economic relations with Iran have bloomed through the informal sector. And during the sharp foreign exchange crisis in October 2011 and again in December 2012, when dollars began to disappear from the Tehran bourse and the value of the Iranian Rial collapsed, it was to Dubai that Tehran turned to ship-in plane-loads of dollars.

The Dubai Sheikh's recent utterance is an indication not only of the Sheikdom's desire to catch up with the high tide of Iran's rise in the region, but also a definite weakening of the Saudi clout among the Gulf monarchs. This is heightened by the latter's troubled relationship with the US. In the regional calculus, not only among the unelected gulf monarchs but also among the rulers from Cairo to Islamabad, there is one simple theorem - 'if your relationship with the US is bad, you suffer and not the other way round'. Only those that quickly adapt and align their position to the winds blowing from Washington hope to survive and cash in.

Even prior to the Iran rapprochement, the US had already left its allies in Saudi Arabia, Qatar and Turkey in the lurch, letting them hold on to their Jihadists facing a rout in the hands of a recalcitrant Assad who merely handed over chemical weapons and held on to the rest of his armory to slaughter the foreign mercenaries. The fretting and fuming of Saudi Arabia that refused to take up its elected position in the UNSC as a protest against this turnaround in US policy on Syria did not help the cause.

The monarchies who had just about started breathing easy with the fading of the 'Arab Spring' and the re-assertion of the old military regime in Cairo have now to battle with a new reality - a resurgent Iran that challenged the mighty West and survived decades of punishing sanctions. It must be noted that all these years of isolation and sanctions have neither bankrupted the economy nor have led to civic strife causing upheaval and overthrowing of the regime. Incidentally, all these happened to America's best ally in the region, Egypt, which was neither isolated nor sanctioned.

How will a resurgent Iran respond to its foes and the foes of its closest friends, Syria and Iraq remains an exciting story that will unfold in the coming years. Will Iran take up the unfinished revolution in Bahrain; will it reignite the burning embers in eastern Saudi Arabia where the Shia minority has been crushed to silence or will it first focus on consolidating the hold of its ally, Noori al-Maliki, facing a civil war in Fallujah?

Iran has been true to its friends, particularly those that stood by it during its period of isolation. And will now assert its 'Energy clout' on the region. Let me start with Oman first. The Sultan of Oman who had all along maintained a steady friendship with Iran, despite his long land border with Saudi Arabia has been amply rewarded. Under a memorandum of understanding signed with Oman in December 2013, Iran is to start exporting within 2 years as much as 1 billion standard cubic feet per day (bscfd) of gas by underwater pipeline to the sultanate, which will use 70% of it domestically and the rest for liquefaction at an underutilized plant at Sur. It is free to sell the balance amount to Japan, India and South Korea.

With Iraq too, Iran has a contract to deliver by pipeline 850 million standard cubic feet per day (MMscfd) of gas and is negotiating a second contract that would push export rates to 1.6 bscfd by next year. It's building a 227-km pipeline between Ilam and Khosravi near the border. Iraq is building a 220-km pipeline to deliver gas to power plants near Baghdad, but completion has been delayed by security problems. Iran is also negotiating construction of a pipeline connecting Khoramshahr, Iran, with Basra, in southern Iraq, for delivery of 700 MMscfd.

In sharp contrast to these developments comes the news of Iran cancelling the funding for the Iran-Pakistan gas pipeline. In mid-December 2013, Iran announced cancellation of its proposed funding of $500 million to the construction of the Pakistani side of the gas pipeline. The announcement came as 'a sudden change in heart' considering that the two sides had met just a week before and mutually agreed to 'formulate a road map' to complete the project. Energy analysts in the region consider this decision of Iran as a 'death knell for Pakistan economy'.

This decision indicates Iran's clout in regional energy affairs in choosing who its customers and clients would be. Has Iran decided that Pakistan does not need any concessions? Was the offer of loan made only to a Shia President of Pakistan, Ali Zardari, and does not hold good for his successor? Or is President Rouhani merely fine-tuning some of the policies of his predecessor? It is as yet unclear, but there is certainly more to this than meets the eye.

How will Pakistan now meet its contractual obligation of completing the pipeline project by end 2014 and, failing which, how will it pay the penalty of a million dollar per day, as per the terms of contract, remains to be seen?

In this context, India's own relationship with Iran has been quite complex, to put it mildly. While we maintain high levels of political exchange, our trade with Iran has undoubtedly suffered. Our Prime Minister's visit to Tehran for the NAM summit in August 2012, followed by the visit of Vice President Hamid Ansari for the swearing in of President Rouhani in August 2013 and the visit of Foreign Minister Salman Khurshid for the Joint Commission Meeting have kept up a steady pace of high level exchanges between Tehran and Delhi, during its worst period of international sanctions. Delhi has also kept up the annual security dialogue with Tehran at the level of the two NSAs, despite the ups and downs of an Iranian attack on an Israeli diplomat in the heart of Delhi in February 2012. We have not been able to establish that it was either orchestrated or executed by the Iranian intelligence, partly because the Israelis have not substantiated their claim nor has Iran has fully cooperated in the investigations. The fact that all three bombings that took place around the time in Delhi, Bangkok and Tbilisi were so botched-up, indicate a level of planning and execution that makes it hard to blame a Nation's intelligence organization for such incompetence.

Our trade, mainly consisting of oil imports from Iran, suffered immensely due to pressure from the US. We reduced our oil imports from a high of 21.81 million tonnes in 2008-09 to 14 million tonnes in 2012-13. We almost halved our oil imports from Iran in five years. The Iranians have consistently argued with us as to how could we let a third country dictate to us on a purely commercial transaction between two friends. And we maintained all along, quite justifiably, that the difficulty was in the payments in hard currency as all international banking channels got shut, one by one. The Hulk Bank in Turkey remained the lone exception with Turkey converting its dollar holdings into gold and smuggling it to Iran.

As Iran's relations with the US improve, India can certainly look forward to a more robust relationship with Tehran, shorn of the pulls and pressures from Washington.

(Ravi Joshi is a Visiting Distinguished Fellow at Observer Research Foundation, Delhi)

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Anjali Birla

Anjali Birla

Anjali Birla is an Indian Civil Services Officer(Batch 2020) working in the Ministry of Railways and has done her graduation in Political Science from Delhi ...

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