September 28, 2005 ☼ Foreign Affairs ☼ Security
This is an archived blog post from The Acorn.
Iran’s ruling ayatollahs lost no time in punishing India for voting against their nuclear shenanigans. They have informed the Indian government that Iran will not, after all, supply five-million-tonnes of liquified natural gas (LNG) that it had agreed to sell to India over a 25-year period beginning 2009. The record high oil prices may have encouraged them in this respect, but that the Iranians so readily repudiated what was touted to be a long-term deal with what many Indians believed was their strategic partner reveals that the only thing that interested Tehran was the ability to leverage its energy supplies into geopolitical clout. India, for them, was just a helpless proxy.
Critics of India’s vote against Iran at the IAEA have dubbed Tehran’s retaliation as a major blow to India’s energy security. But it is just as well that the impasse over their nuclear ambitions forced Iran’s rulers to show their cards early. Those arguing that India has begun taking its foreign policy cues from Washington would do well to consider where the cues would have come from had India built energy infrastructure (including that pipeline) around supplies solely centred around Iran. This is not so much a blow to India’s energy security but a wake-up call for India’s energy strategists.
First, it is abundantly clear that promises made by ayatollahs and generals cannot be relied upon in India quest for guaranteed long-term energy supplies.
Second, Iran’s ready retaliation suggests that merely being a big buyer is not good enough to secure fuel supplies. In the absence of a larger bilateral economic relationship — two-way trade and investment — it is quite easy for the fuel supplier to blackmail India by threatening to and actually cutting off supply. Therefore India must either procure fuel from countries with whom it has broad-based economic relations or rapidly build them up with those it doesn’t. Even ‘equity oil’, or the strategy of purchasing stakes in oil companies in producing countries may not provide sufficient protection against the risk of a suddenly-hostile regime turning off the tap, using nationalisation, for example, as a pretext. India can lose both its equity and its oil.
What India needs to do is build energy security by plugging more deeply into the global economy. It needs to reform its energy industry along free market principles. Relying as it does heavily on foreign suppliers of fuel, a competitive market can help ensure the necessary robustness and diversity. India needs to invest in energy infrastructure — power plants, refineries, processing terminals and ports — as well as create greater sophistication in the energy market. Instead of getting its hands all oily with running the energy business, the government is better off creating the environment where privately-run energy companies can go about their business. And when they do that well, India will find its energy security is no longer a worry.
But what should the Indian government do about Iran right now? It should, as it is doing, indicate to Iran that it sees the bilateral geopolitical relationship as concerning more than nuclear programmes and that it desires to expand the bilateral economic relationship to something more than just oil. And then, it should also point out that well, by the way, there are many more occasions where India may need to exercise its vote…
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