Introduction

Iran is one of the biggest players in the world energy market with a wealth of over 11.1 percent of global oil reserves or 132 billion barrels of proven oil and 970.8 trillion cubic meters of gas resources.

Although Iran is an oil power, this product accounts for about 80 percent of the country’s total exports and 42.5 percent of the government’s revenues. Therefore, overreliance on oil revenues has turned the Iranian economy heavily dependent on petrodollars. Meanwhile, since Iran’s oil industries have not been renovated in the past years, petrochemical industries have not been properly developed and domestic energy consumption has been constantly on the rise, the country’s oil production has been falling and it has had to import oil products.

To solve the existing problems, Iran is in dire need of foreign investment in developing and renovating its oil industry. Therefore, according to official figures, at East, 145 billion dollars should be invested in Iran’s oil industry over the next 10 years in order to enable the country to maintain and increase production.

The need to foreign investment, however, has coincided with an oil embargo by the United States against the Islamic Republic of Iran which has greatly restricted chances for cooperation with the European companies and other Western investors. As a result, cooperation in oil projects between Iran and the European countries has greatly reduced. Iran, then, has been looking for other trustworthy partners in the world’s energy market. Due to high demand for fuel in Asian countries, Tehran has given priority in its foreign relations to such developing Asian states as India and China.

Economic and Political Reasons Behind Oil Cooperation with India

Assuming that Iran needs to work with other Asian countries, Iran’s oil policy toward India should be evaluated in terms of bilateral cooperation and multilateral collaboration. As for bilateral relations, Iran has been able to raise oil exports to India to the highest possible level. According to a report issued by the Indian foreign ministry, oil exports have dominated all aspects of bilateral trade between the two countries.

Therefore, gradual rise in Iran’s oil exports to India made Iran the third biggest exporter of oil to that country in 2009. Based on the existing figures, Iran exported a daily total of about 426,360 barrels per day of oil to India in 2009.

In addition to increasing oil exports to India, Iran has been trying to expand multilateral energy cooperation with India. Iran-Pakistan-India pipeline project and efforts made in collaboration with India to connect New Delhi to rich oil resources of Central Asia were just a few examples.

Iran’s efforts to boost multilateral cooperation, however, proved futile as such efforts were balked at firstly, due to deep-rooted differences between India and Pakistan and secondly, because of staunch opposition from the United States. As a result, although Iran is the best, the most economic, and the shortest route to connect India to Central Asia, Tehran’s efforts in this regard were once more thwarted by the influence of the United States.

Iran has been trying by establishing bilateral and multilateral relations with India to make New Delhi more dependent on the Iranian oil and keep that country away from the United States as much as possible in order to reduce Washington’s influence on India. Iran’s efforts, however, were made at a time that India had already become overwhelmingly dependent on the West.

India’s Economic Development and Foreign Policy

Economic reforms in India started in 1991 and greatly increased the country’s economic cooperation with various European states because India’s economic reforms were badly in need of foreign investment. As a result, the Indian government amended the country’s economic laws in order to make way for more foreign investment. Thus, foreign direct investment in India started to soar and based on available statistics, foreign investment in India has increased from 129 million dollars in 1992 to 46.5 billion dollars in 2008.

As a result of economic growth and development, demand for consumption of energy rose steeply in India though domestic oil production or other fossil fuel resources fell short of meeting that demand. Based on the same figures, India’s energy demand has increased from about 1.19 million barrels per day in 1991 to about 2.658 million barrels per day in 2006.

Under these circumstances, the Indian government has adopted a policy to provide necessary conditions for activities of domestic oil companies and to increase domestic investment in production of more oil and other forms of energy. Despite the aforesaid policy, India’s need to global oil has been constantly on the rise. The country imported as much as 80 percent of its needed fuel in 2009. Energy demand in India is steadily increasing. The Indian Prime Minister Mahnomen Singh has noted that energy demand in India will increase 40 percent over the next 10 years while domestic output will rise by only 12 percent.

Given the importance of energy, security of energy flow has turned into a strategic goal for the India’s foreign policy. To provide necessary energy resources, the India’s foreign policy has given priority to cooperation with oil producing countries of the Persian Gulf. As a result, the country has been enthusiastic about expansion of cooperation with Iran.

On the other hand, India has expanded relations with European and other Asian countries in order to attract more foreign investment. As a result, India has turned into a big market for the European countries and is currently ranking the 12th in the world in terms of the value of trade exchanges. It also ranks the fourth in terms of purchasing power.

India’s Dependence on the West in Relations with Iran

General increase in economic cooperation finally led to closer political relations between India and such countries as the United States, France, UK, Germany, Russia and China. Although such relations will help India to achieve its main goal, which is to become a global power, they have concurrently made India more dependent on the aforesaid states and have greatly damaged the independence of India’s foreign policy when it comes to those countries.

A major cause of India’s weakness is relative power of India in comparison to the world powers. Although India’s economic growth rate has stood between 7-9 percent in recent years, the country still lags behind other states in terms of military power and alleviation of poverty. In other words, India is still far from being a world power. As a result of this weakness, India has been very dependent on support from Western countries such as the United States and Europe in order to become a dominant power. Therefore, India has been largely following suit with the United States’ policies, especially in relation to Iran.

The United States and its allies have been putting various kinds of political, diplomatic, economic and international pressures on Iran. As a result, India’s compliance with the Western countries’ demands to reduce relations with Iran has been taken as a litmus test for the expansion of the Western countries’ relations with India. In other words, India should choose between Iran and the West when mulling its foreign trade benefits.

Recent positions taken by India with regard to Iran-Pakistan-India gas pipeline proved that despite its extreme need to energy resources, India gives priority to relations with the Western states and is not willing to go on with the above project in spite of the considerable price discount which has been offered by Iran. India has always been working against Iran in political sphere, especially in the nuclear case, where it voted for anti-Iran sanction resolutions in order to avoid of any step which may make its Western allies angry. That policy has finally led to reduction of political ties between Iran and India and has stymied further expansion of economic relations.

Making the Most of the Current Situation

Indian politicians have did everything in their power to make the most of relations with the West while following the dominant principle of their foreign policy which is to procure necessary energy resources. As a result, India has been successfully developing energy cooperation with the United States and some European states. Introduction of Saudi Arabia as India’s new oil partner, which was officially announced after King Abdullah’s visit to India in 2006, has also been supported by the United States. India is currently planning to expand oil relations with Iraq as another oil partner in the region.

In addition to replacing its oil partners, India has continued to import oil from Iran. New Delhi has been trying to capitalize on Iran’s current situation and make the most of dire conditions which govern Tehran’s foreign relations. An example of this policy is India’s refrainment of paying price of oil which it has imported from Iran.

This policy stems from the fact that New Delhi is sure that despite being aware of lame excuses offered by India, including international sanctions, Iran will not cut oil exports to India. They are aware that Tehran is not willing to sever economic relations with India and withdraw from its prerogative market in favor of other rivals.

Given the existing international sanctions and increasing isolation, Iran has few options to choose from. Under these circumstances, India has offered to pay the oil price in rupees or even export goods to Iran instead of paying oil price in dollars or rupees. Iran is undoubtedly under tremendous international pressure. Under these conditions, other countries are trying to make the most of the situation and India is no exception to that rule.

Conclusion and Proposal

The existing international system, which is based on interdependence among the states as well as military and economic dominance of the United States, governs all international political and economic equations, including international oil markets. As a result, Iran’s policy of looking to the East in order to replace Eastern countries for Western and European ones and find new oil and political partners has proven futile because the United States and its Western allies dominate the world energy market.

The West knows that oil revenues will enable Iran to solve its problems one way or another despite escalation of international sanctions. Therefore, new sanctions have targeted oil industry more than other areas.

On the other hand, oil majors, including the American oil companies, sway monopoly over modern oil industry technology. Therefore, even if Iran manages to improve relations with India (regardless of oil exports to that country) Tehran will not be able to achieve its goals. The main reason is that nascent Indian oil companies are not capable enough to help Iran with development of its oil industry, especially with regard to natural gas production.

Therefore, the policy of looking to the East and replacing the East for the West is an idealistic way of thinking. Its main outcome will not be determined by the level of independence of Eastern countries, but by the extent of their interaction with the Western states. The West will by no means allow Eastern states to take command of the Persian Gulf energy resources because it knows that Eastern countries are becoming increasingly dependent on the West.

It seems that the best policy for Iran is to maintain its independence by forging a balance between relations with the East and the West taking into account that when it comes to energy, inattention to the West will be neither practical, nor realistic.