By Sreeram Chaulia
The European Union's announcement of a ban on importing Iranian oil has unleashed an economic war that is bound to draw in Asia's booming economies in spite of their reluctance to take sides and enter into the muddle....http://www.sikharchives.com/?p=4365
The six-day sojourn through oil and gas-rich Arab countries in the past week by China's Prime Minister Wen Jiabao was clearly organized in this context of rising tensions over fresh Western sanctions against Iran and its consequences for energy security in Asia.
On Monday, EU foreign ministers decided to close off Iran's second-biggest market for crude oil, responsible for a fifth of oil exports over Iran's nuclear program, suspected in some quarters - and denied by Iran - of being designed to create nuclear weapons.
The EU and the United States are pushing major importers of Iranian oil such as China, Japan, South Korea, India and Turkey to join the economic embargo. Although China has rebuffed Western entreaties to reduce oil imports from Iran, the choice of Saudi Arabia, the United Arab Emirates and Qatar as the only destinations in Wen's Middle East itinerary told a tale of precautionary diplomacy.
These three Arab states are pro-Western, Sunni Arab suppliers of oil and gas to Asia's growth engines, and they are assaying the roles of Western accomplices in the economic war by presenting themselves as substitutes to energy products that Iran has been providing.
While China publicly plays down talk of forsaking Iranian oil and replacing it with Arab alternatives, Wen repeatedly raised the prospect of drastically increasing energy imports from the anti-Iranian Arab regimes he just visited.
Chinese communiques during Wen's Middle East tour cited "complicated regional trends" and shaky energy horizons due to "geopolitical factors", codes for the growing chorus in the West to compel Iran on its suspected nuclear weapons development.
Counter-threats from Tehran to shut down the Strait of Hormuz, through which much of Asia's oil imports flow, and the ever-present danger that Israel might unilaterally attack Iran, have creased brows in Beijing as they coincide with China's slowing economic growth.
Yet, China is confident that its size and economic leverage over the US are such that ignoring Washington on embargoing Iranian oil would not incur real damage.
When one Chinese oil firm, Zuhai Zhenrong, was recently placed on the financial sanctions list for trading with Iran, Beijing reacted furiously and conveyed "strong dissatisfaction and adamant opposition". There is no automatic trigger for closing American financial markets to all foreign companies that trade in Iranian oil, and this discretionary element in the sanctions architecture gives China and other Asian powers scope to wiggle out of the proposed embargo.
Moreover, none of the Asian states are certain that the embargo on Iran will be long-lasting, given that anti-Iranian Arab petro-kingdoms cannot fill in the supply gap beyond more than one month. Barring a sudden fall of the Iranian regime, the embargo's success through universal participation would only mean a huge spike in the price of crude oil and a big setback to the industrial machines of Asia.
Economic recessions have frequently followed "oil shocks" and the embargo on Iran could usher one more cycle of downturns.
Despite their strategic closeness to the US, countries like India, Japan, South Korea and Turkey are equally wary of costly economic fallout from sanctions and war in the Persian Gulf. New Delhi has decided not to heed the West on abandoning Iranian oil imports, and it is proceeding to negotiate alternative payment processing mechanisms to continue trading with Tehran.
But since India is not in a position to prevent a violent conflagration involving Israel and Iran, it is being reported that India's Petroleum Ministry has instructed its public sector oil refining companies to "reduce their dependence on crude imports from that country [Iran]".
As with other Asian importers of Iranian oil who are on tenterhooks because of the cold war between Iran and the West, India will eventually have to diversify away from (though not totally renounce) a politically unstable oil exporter like Iran and the supply chain originating from the Middle East as a whole.
With international sea freight rates declining steadily, India can think of entering into long-term contracts to raise oil imports from geographically more distant but predictable countries such as Venezuela, Brazil and Angola. Currently, India depends on the volatile Middle East for 70% of its oil and gas imports, an unhealthy addiction laden with grave international political risks.
While seeking to gradually free itself from Iranian and other Arab energy producers, India and other Asian powers must also factor in the larger structural implications - for the Middle East as a region - of deserting Iran at a time when the US and the EU are aiming at Tehran's jugular.
If the Iranian regime falls to a mix of economic woes and US-Israeli sanctions or war, it could leave the Middle East bereft of any counterbalancing force to the West. Democracy in Iran through popular internal mass mobilization is more preferable as the new regime that emerges is unlikely to be a stooge of the West.
It is in the interests of Asian powers to avert a Middle East entirely under the Western thumb simply because India and its continental peers profess a desire for a multipolar world where there is no single global hegemon. It makes tactical sense to slowly retrench from Iranian oil, but it would be a strategic disaster for Asian powers to become reliant on Western approval to access Middle Eastern energy, which will remain important in Asia's energy mix for at least some more years.
This geopolitical balance-of-power imperative is often lost in Indian strategic thought, which is prone to calculating more narrowly about the benefits and losses from a supply disruption in oil or inflation of barrel rates for crude.
China and Russia have the grand strategy of resisting Western hegemony in the Middle East, and they try through various developments, such as the imbroglio over democracy in Syria, to deny the onset of West-friendly regimes in that region.
Indian lenses are less global and New Delhi does not see itself as a counter-balancer to maintain multi-polarity on a global scale. There is also an implicit consensus in India that its only balance-of-power concern lies vis-a-vis China and that being seen openly as entering into a troika with Russia and China on issues in the Middle East would hurt India's chances to assert its claim to be even-steven with China.
But the current standoff over embargoing Iran, which supplies 11% of India's oil needs, is so vital to New Delhi's national interests that it begs for more proactive diplomacy on the question of hegemony in the Middle East.
Unlike China, which has a first-mover advantage, India is also realizing the value of Africa and Latin America as stable sources of energy and trade rather late.
The economic war via Iran's oil embargo should be a wakeup call to redouble Indian diplomacy and foreign investment in these two hitherto neglected continents, while not passively turning one's back on the still pivotal Middle East.
Playing it safe and seeking more assured oil supplies is an evolutionary process for Asian powers. The interregnum period, until they tether their economies firmly to Africa and Latin America, will require joint positioning for maintaining a power balance in the Middle East....
This is really breaking news .The two rogue states US and Israel are holding the world to ransom .Washington has obstructed all Indian attempts to organise energy security .It even got minister Mani Shankar Aiyar dismissed .
US is bankrupt with its debt as much as its GDP .It is surviving because of over three trillion dollars stimulus created based on nothing . The last IMF chief had allegedly indicated that US does not even have the gold it claims to have!
China might follow the Indian line .It will encourage many other countries of Asia like Japan and S Korea who buy Iran oil. Enough of US highhandedness .Some Gulf states are ready to sell oil to China for Chinese currency.
India's is the first major step to weaken position of US dollar as the reserve currency .The dollar will thus weaken .Under US pressure EU which has issued sanctions against Iran , a collection of bankrupt nations ,they will suffer too .They are welcome to be even more reliant on Russia for its energy .
India to pay for Iran's oil in gold
January 24, 2012 18:27 IST
India has decided to pay Iran in gold for its oil purchases, writes Faisal Kidwai
India has decided to pay Iran in gold for the oil it purchases...
India had earlier indicated that it was in talks with Iran to pay for the oil in either rupees or in yen, but now it seems that India has decided to switch to gold.
An Indian delegation visited Tehran last week to discuss payment options in view of the new sanctions.
The two sides were reported to have agreed that payment for the oil purchased would be partly in yen and partly in rupees. Plan to make the payment in gold was apparently kept a secret.
India has been looking at ways to switch from dollar as the US and EU have imposed sanctions on Iran's oil industry and financial institutions.
The embargo means any bank dealing with Iran would be banned from transacting with American and European financial institutions.
India has refused to join the sanctions, saying it will only support United Nations-backed embargo. The move by India, if true, will have other unintended consequences: it will bring down the value of dollar.
If India does decide to pay Iran in gold, the decision will certainly push the price of gold high, especially as vast sums are involved in such transactions, and that would hurt the value of the dollar.
India buys around $12 billion a year's worth of Iranian crude, or about 12 per cent of its total requirements. It will manage the deal through UCO Bank [ Get Quote ], an Indian bank [ Get Quote ] which has no financial links with the US, and Halk Bankasi, a Turkey-based bank, according to reports.
Sanctions dodge: India to pay gold for Iran oil, China may follow
Published: 24 January, 2012, 12:53
India has reportedly agreed to pay Tehran in gold for the oil it buys, in a move aimed at protecting Delhi from US-sanctions targeting countries who trade with Iran. China, another buyer of Iranian oil, may follow Delhi’s lead.
The report states that Iran and India are negotiating backup alternatives with China and Russia, should the US and EU find a way to block the gold payment mechanism.
Delhi’s move is seen as surprising, as earlier India and Iran said they would switch to yen and rupees. China, another major importer of Iranian oil, may follow Delhi’s lead, the report adds.
India and China need to switch from the dollar in bilateral trade, since the US and EU have issued unilateral sanctions against the Iranian oil industry and financial institutions. The sanctions would ban any bank involved in oil trade with Iran from dealing with American and European counterparts.
Both India and China, two major buyers of Iranian oil accounting for 22 and 13 percent of its total export respectively, have refused to join such sanctions. This means they have to establish a reliable way of paying for crude, independently of the parts of the global financial system controlled by New York and London.
Delhi’s current plan is to effect payments through two state-owned banks, India’s UCO Bank and Turkey’s Halk Bankasi, Turkey being another country refusing to join the sanction spree.
The US issued sanctions against Iran in December, aiming to put pressure on the Islamic Republic and make its controversial nuclear program more transparent. The EU joined the initiative on Monday, banning new oil contracts with Iran, but allowing current ones to be fulfilled.
Australia on Tuesday became the latest country to voice plans for such an embargo, although the move would be more symbolic than practical, considering the country’s small share in Iran’s oil export.
Japan and South Korea, two other major buyers of Iranian crude, are in talks with Washington over the issue, although both Seoul and Tokyo are worried that stopping their imports could hurt their economies.
Iran, which is highly dependent on its sales of oil, is reacting to the sanction campaign nervously. Tehran says it will not yield to pressure, and threatens to block the Strait of Hormuz, a key oil tanker route in the Persian Gulf.
German political analyst Christoph R. Horstel told RT that amid the economic crisis the embargo on Iranian oil imports could backfire on the EU, while Iran “will do quite well even under the embargo.”
“All the present faithful customers to Iran oil are set to continue buying this oil, and they will find a way, rest assured,” he said. “This is the signal I get from Tehran.”
“I was personally present when the deputy economics minister of Iran was talking to a foreign society in Berlin,” he added.“And the gentleman said very openly to the shocked audience ‘OK. You don’t want to buy our goods. Well, the Chinese do.” ....