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Modi’s Visit to the Holy Land

05 Sun Mar 2017

Posted by in India, Israel, Middle East, South Asia

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The long awaited visit by an Indian prime minister to Israel will finally occur in June or early July as Narendra Modi will head to the Holy Land to celebrate 25 years of full diplomatic relations. Although details about the trip are still closely held, Indian National Security Advisor Ajit Doval is in Israel presently to prepare the ground for Modi’s visit. Doval will be followed by Foreign Secretary S Jaishankar and Minister of State for External Affairs, MJ Akbar, in a run-up to Modi’s visit.

Although there have been plenty of indications over the past two years that India was headed down this road, what is noteworthy about Modi’s trip to the Middle East is that he will visit Israel without a complementary visit to Palestine as has been the custom in the past. Modi is not the first Indian leader to do this: Home Minister Rajnath Singh visited Israel in November 2014 without stopping in Palestine. Yet in its careful diplomatic balancing act, India sent MJ Akbar to Ramallah in November 2016 without the obligatory stopover in Tel Aviv as it now hosts Palestinian president Mahmoud Abbas before Modi’s scheduled trip to Israel. Additionally, Modi has already visited important Arab capitals such as Riyadh, Doha, and Abu Dhabi that signal no rapid shift in Delhi’s policies regarding the region.

The prime minister’s departure from custom has irked many and Palestinian ambassador to India, Adnan Abu Alhaija, has regretted the Indian decision. Domestically too, there is bound to be criticism as the political class is too unimaginative to look beyond a foreign policy whose ossified principles were forged in the quarter century before independence. However, the status quo has not served India and Modi’s gesture indicates that there may be some new thinking at Raisina Hill. Despite criticism of India’s new policy towards Israel under Modi, the prime minister has not actually been bold enough to signal a real shift in policy. Nor is one necessary – the Israeli-Palestinian question is not for South Block to resolve. What is required is that Delhi desist from minor yet constant provocations of Tel Aviv in terms of symbolism and rhetoric.

The fear that a solo visit to Israel by an Indian prime minister would disrupt the fragile regional balance is a bit of self aggrandisement – India has a small footprint in the Middle East and even less in the Fertile Crescent. It does not provide military, economic, or political assistance to either party and is not an important calculation in their politics. While both the Palestinians and Israelis would appreciate Delhi’s added support, they can also live without it without much difficulty. India does not have a Middle East policy to speak of; besides the bland and common goals of promoting national interest, Delhi neither sees itself as a provider to the regional commons nor does it have innovative ideas to resolve the three-quarter-century old imbroglio.

The importance given to the Palestinian question is largely a figment of the Indian imagination. Several states, the United States and China, for example engage with both Israel and Palestine on a footing commensurate with their value to Washington or Beijing and yet maintain healthy relationships with other Arab capitals. There is no reason for India to choose a side. One fear of not doing so is that a pro-Israel position would somehow anger Indian Muslims. This is not entirely unwarranted – the Khilafat Movement is a reminder of how many in India have an eye firmly set on the Middle East. However, treating Israel differently from Palestine does not negate support for an amicable resolution to the Palestinian situation.

There is also an irrational concern that leaning towards Israel may turn off the Arab oil spigot. It is unlikely that Arab nations would engage in such a tit-for-tat over Palestine or they would have to first excommunicate Egypt and Jordan from their brotherhood! With the availability of Iranian oil again and the possibility of US shale, the Arab stranglehold on their black gold has slipped. Furthermore, the Indian economy now is in a far stronger position to weather an oil shock than it was in the 1970s. It is also true that Israel maintains clandestine ties with several of the other Muslim and Arab states and in the aftermath of the Iran nuclear deal, Riyadh and Doha were seen drifting closer towards Tel Aviv themselves.

Another worry is that Arab states may strike back at India by ejecting Indian workers in the Gulf who remit some $33 billion back to India. Such a response would not only be mutually destructive but would also require a high degree of cooperation among the various Arab states. It is not to be overlooked that those states also have labour requirements that cannot be immediately addressed.

On the other hand, India relies on Israel for invaluable security cooperation and the two countries have expanded their partnership into other equally beneficial areas such as agriculture and high-tech trade. It makes little sense to jeopardise such an important relationship by antagonising Tel Aviv with ineffectual moral harangues in international fora or a misplaced sense of equivalence between Israelis and the Palestinians. There is no need to hyphenate the two countries. Indeed, India has itself struggled with the United States to dehyphenate itself from Pakistan and Delhi would not take it kindly if every US leader that visited India stopped by in Pakistan as well. Israel would hardly feel differently.

While much is being made of Modi’s visit as a departure from tradition, the balancing act the Bharatiya Janata Party continues to play belies this accusation. Rather, Modi has jettisoned empty symbolism in favour of genuine relations – for this trip, with Israel, but potentially both states – that are sustained by mutual worth. This sense of realism may be a welcome first step in India becoming a more mature and engaging partner in its region.

What Scope For India-Iran Ties?

15 Wed Jul 2015

Posted by in India, Iran, Middle East, South Asia

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With a nuclear deal between Iran and the N5+1 (Britain, France, Russia, the United States, China, and Germany) finally concluded, Narendra Modi’s meeting with Hassan Rouhani on the eve of the BRICS and SCO summits a few days ago gains more significance than it might have earlier. Leaders, geopolitical analysts, and businessmen are all keen to see what hints may be gleaned from the early interactions between Rouhani and Modi about how relations between two aspiring regional powers will develop. The fact is, however, that there are some very difficult days ahead for both countries and it will require burning a fair amount of the proverbial midnight oil.

Despite the jet-setting Modi has been accused of, the Indian prime minister is yet to visit Iran. An invitation was extended to him in January at the Vibrant Gujarat Summit and has been accepted though the dates have not yet been decided. However, other Indian leaders and officials have made their way to Tehran in recent months. Most notably, the Minister for Roads and Transport, Nitin Gadkari, visited the Middle Eastern country in May of this year and came back promising that upgrades to the Iranian port of Chabahar will be completed by December 2016 – India had won the contract in 2003. Additionally, Foreign Secretary S. Jaishankar visited Tehran in June and External Affairs Minister Sushma Swaraj was scheduled to make a trip towards the end of July for a meeting of the Non-Aligned Movement that has now been postponed by Venezuela until the first quarter of 2016. If Modi is to visit Iran this year, it will have to be between now and November when he is scheduled to visit Turkey for the G-20 meeting, Malaysia for the East Asia and ASEAN-India summits, and Israel and Singapore on state visits. Russia has been penciled in for December.

While the world expects a commercial bonanza from Iran in terms of lucrative contracts to modernise and develop the country’s industrial infrastructure and lower oil prices, India will most likely miss out on most of the party. However, its interest in Iran, now free from US pressure, is far deeper and lies in strategic initiatives more than commerce. In the post-sanctions era, Delhi hopes to see Tehran revive three or four projects of crucial bilateral importance that have languished in the doldrums for over a decade.

Security

Whenever Modi and Rouhani do meet, security will be high on their agenda. Ironically, India has had better relations with the Islamic Republic than with the Shah despite initial concern over the outcome of the 1979 Iranian Revolution. Tehran has been critical of Islamabad’s attempts to use fora like the Organisation of Islamic States to pass resolutions condemning India and in the 1990s, the two countries cooperated with the Northern alliance to fight the Taliban in Afghanistan. The latest situation in Afghanistan, however, does not bode well for either.

The fledgling appearance of ISIS in Afghanistan is of great concern to its neighbours. In the 1990s, Iran and India supported the Northern Alliance against the Pakistani-backed Taliban. However, Tehran sees the emergent ISIS as a far greater threat and may now be lukewarm to India’s concerns about their former enemy; India’s policy on the Middle Eastern terrorist syndicate is as yet unclear. In February 2015, ISIS killed a Taliban leader in Logar province and in April, claimed credit for a suicide bombing in Jalalabad that killed 35. US drone strikes have killed a few ISIS commanders in the country but the number of dissatisfied Taliban fighters heading over to the newcomers is steadily increasing though still small. The ultimate nightmare scenario for both India and Iran would be if ISIS spilled over into Pakistan’s toxic soup of terrorist safe havens. Both Tehran and Delhi need to develop a strategy that does not strengthen their old enemy, the Taliban, but also keeps ISIS out of the region. If US reports are to be believed, Iran has already made a few small shipments of arms and other supplies to the Taliban.

According to some analysts, ISIS has made an appearance in Afghanistan to stake a claim to a portion of the profits of the narcotics trade. US airstrikes against oil facilities in Iraq and Syria and the loss of important towns along the Turkish border have diminished their finances and ISIS hopes to find new economic pastures in Wilayat Khorasan – what they call their imaginary province in the Afghanistan-Pakistan area. If so, it could prove the task of eliminating them much harder as poppy traders have always been.

Economics

On a less dire front, much has been made of the potential for trade between India and Iran. Before US sanctions and pressure brought trade between the two countries to a trickle, it stood at approximately $15 billion per annum. There is no doubt that hydrocarbons will boost commerce between India and Iran quickly back to this level – India is already back to importing 370,000 barrels of Iranian crude per day – but questions remain on the emergence of a broader trading portfolio. Iran’s most immediate needs are in the upgradation of its hydrocarbon infrastructure, its factories, and other high-tech goods that are available in Western rather than Indian markets.

Iran will also want to improve its transport, education, health, and cyber infrastructure but with the prospect of the sanctions lifting, Iranian negotiators have become tougher negotiators and told several Indian delegations that they could acquire their needs from other sources at lower cost. One deal to be hit by Tehran’s increasing confidence was a $233 million State Trading Corporation venture to supply Iran’s railways with tracks; India was able to hold on to the deal but after lowering its price by seven per cent and officials are still worried that further cuts may be demanded or the order split. Iran has also withdrawn its offer to India to develop the Farzad B gas field since it was made in 2013 and free shipping as well as discounts on oil purchases have been canceled. Part of the reason is that India is seen as low on delivery; in 2007, ONGC Videsh was bumped from Yadavaran oil and gas field in favour of China’s Sinopec despite a memorandum of understanding.

Tehran has also reduced its purchase of Indian rice after its frozen assets were released from Indian banks. Exports from India may still include iron, edible oils, meat, diesel, tractors, turbines, grains, computers, machinery, and medicines, but they will face stiffer competition from the international market than before.

Regional Infrastructure

While the stars do not seem too favourable towards booming India-Iran trade, the Islamic republic still sees India as a valuable partner. In a recent interview, Iran’s ambassador to India, Gholamreza Ansari, expressed his country’s interest in developing the International North-South Trade Corridor through his country. Indian goods would reach European, Central Asian, and Russian markets sooner and at lesser cost if this corridor were completed. As a country along the route, Iran would also piggyback its imports and exports on the same network; Chabahar will already have been upgraded from 2.5 million tonnes to handle 12.5 million tonnes per annum. Coincidentally, Modi mentioned a similar proposal that linked Bombay to St. Petersburg in his discussions in Uzbekistan and Kazakhstan a couple of days ago. Such a project would be of immense economic as well as strategic value to India. it would bypass Pakistan and offer an alternative to China’s One Belt, One Road project; extending the INSTC from Bombay eastwards to Haiphong would alter trading patterns in the region.

Iran is still keen on building an undersea gas pipeline to India, another project hanging on from the previous decade. With improvements in technology and less US pressure, this might be a project India takes up with alacrity. This pipeline would diversify India’s hydrocarbon imports and certainly be more secure than the other project India has signed on to, the Turkmenistan-Afghanistan-Pakistan-India gas pipeline.

India also has the opportunity to develop a stronger naval presence in the Sea of Oman and the Arabian Sea. Iran is just as concerned as India about the safety of sea lanes in the area, its two major ports of Bandar Abbas and Chabahar both lying in those waters or adjacent to them. An expansion of the Indian Navy’s role westwards would improve Delhi’s grasp over the Indian Ocean Region as well as dilute the effect of Chinese presence in Gwadar.

Foreign Policy

Will India’s ties with Iran not interfere in Delhi’s relations with many of Tehran’s foes such as Israel, the United States, and Saudi Arabia? Absolutely not. India’s links to Iran are almost entirely commercial and overlap with US and Israeli interests where they are not – Afghanistan. Despite some literary affinity in the north, India does not share, to employ an overused expression in international affairs, a “strategic/special relationship” with Iran. In all likelihood, American companies will have a greater presence in Tehran after the sanctions are lifted than will Indian companies.

For similar reasons, there is little reason for Saudi Arabia to be alarmed by India’s ties to Iran – they are largely economic. South Bloack’s long-held belief that friendly relations with Riyadh would temper Rawalpindi’s misbehaviour has been proven wrong over the decades and has therefore diminished the Arab capital’s importance to Delhi. Nonetheless, Saudi Arabia still hosts almost two million Indian workers who make considerable remittances back to India. Yet greater economic interaction with Tehran hardly constitutes antagonism towards Riyadh and is no more than what the Gulf country has extended towards Pakistan.

Despite outward appearances, Israel has a somewhat intimate relationship with India that will take a lot to disrupt. India is a large country and has many needs both in volume and diversity; Israel is a useful partner in several arenas of its security framework and economy that India will not jeopardise. Renewed links to Iran do not change the fundamentals of India’s world view and should in no way concern Israel. Delhi’s influence in Tehran and jerusalem may be limited yet but a voice without geopolitical baggage in both capitals cannot hurt either side. Modi’s upcoming visit to Israel has caused some flutter as has India’s recent vote in the United Nations, abstaining from censuring Israel. This scaling down on rhetoric reflects a marginal course correction in Indian policy towards the region but ultimately, India has no skin in the game and is hardly a major player in the region to change the course of nations.

There is a lot on Modi’s plate whenever he visits Tehran. Though the scope for any rapid expansion in direct trade remains uncertain, the potential to transform trade routes in the region and with them local economies lies latent as does the hope that some stability if not peace will be brought to India’s mountainous northern borderlands. This is certainly too ambitious an agenda for one trip but perhaps the first steps may be taken.

This post appeared on FirstPost on July 16, 2015.

The New, Old Geopolitics of Oil

29 Sat Nov 2014

Posted by in Opinion and Response, United States

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One of the great barometers of the world economy, the price of oil, has been in steady decline over the past four months. From slightly above $115 dollars per barrel in June 2014, the price of black gold has fallen to a five-year low of below $66 in December 2014. It seems like just yesterday when analysts were talking about the possibility of oil  prices breaching even $200 per barrel. After all, oil was selling at $120 per barrel already, Fukushima had temporarily scared some countries off nuclear power, sanctions on Iran were were cutting off their contribution to the global oil supply, war clouds were looming on the horizon in the Middle East as the war of words between Israel and Iran was heating up, and the spread of the Arab Spring into Syria and the descent of Libya into chaos further curtailed supplies. The second half of 2014 has gone against all expectations.

Oil pricesA few factors contributed to this 40+ percent decline in oil prices. First, the world economy slowed down and major consumers like the European Union, Brazil, and China began to consume less oil; second, countries like Mexico and Canada expanded their oil production with new investments in offshore assets and tar sands extraction; third, the United States began to import less oil because of a shift to alternative energies as well as the development of shale oil; fourth, many countries began to shift some of their imports from crude oil to natural gas; fifth, Russia was able to boost its oil production despite sanctions against it by the West as the second stage of their Eastern Siberia-Pacific Ocean pipeline began operations; and sixth, countries like Libya, Iran, and Iraq have been able to increase their production despite the strife and instability in their countries.

Last week, a summit meeting of the Organisation of Petroleum Exporting Countries along with other oil exporting countries such as Russia and Mexico was held in Vienna. The twelve member countries – Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela – discussed the falling oil prices and contemplated a cut in production to maintain prices around $90 per barrel. However, no agreement could be reached and instead, Saudi Arabia threatened a price war against American shale. For anyone not exposed to the oil industry, this bodes well. For example, India has finally started to make noises about economic reforms after five years of sluggish economic growth and the low price of hydrocarbons may be just the lubricant needed to hasten the results of those reforms.

The plummeting of oil prices and OPEC’s relative inability – or at least unwillingness – to stem the downward slide also reveals a new reality in the oil industry: OPEC no longer calls the shots on oil. With new players entering the market, OPEC’s total share of the international oil market has slipped to only 42 percent and its influence correspondingly weakened.

Yet why would Saudi Arabia want to get into a price war with US shale? The argument goes that if prices are low enough, Riyadh may force the shale oilmen out of business. For the House of Saud, this price war is not about earnings but about market share and it is willing to endure lower revenue in the short term. However, there are snags in this logic: if the price of oil were to fall to $40 and remain there for a while, it would certainly force some of the shale producers out of business but some oilfields can still be profitable at that price and continue to function. Thus, Riyadh’s strategy would only partially be successful. More significantly, lower oil prices would presumably increase demand and that would nudge the prices upwards again and make more shale profitable. The Saudi game is costly, risky, and painful to sustain over even a medium period of time.

Minimum oil pricesAn even more intriguing wrinkle in Riyadh’s willingness to bear the difficulty of lower oil prices is that the kingdom has, along with other Persian Gulf oil economies, invested heavily in social sector spending. In order to stave off the spread of the Arab Spring, the Gulf oil economies embarked on massive infrastructure development projects and increased subsidies substantially. Lower oil prices would mean that these states will not be able to balance their expanded budgets. According to the International Monetary Fund, most of these economies need the price of oil to be well over $100 per barrel. Refusing to cut production and engaging in a price war that may well see oil prices fall to $40 per barrel makes little sense and the shortfall of $60 per barrel is not a mere inconvenience but a body blow to their economies. Admittedly, most of the Gulf states have strong financial assets but the slower world economy has not been too kind on those either. However, some level of mitigation is found in the Gulf’s pegging its currencies to the dollar: the US Federal Reserve has a strong influence on Gulf monetary policy and therefore Gulf currencies move along with the dollar. The strengthening dollar over the past six months has also made the Gulf’s imports cheaper.

Saudi Arabia’s strange moves all add up to one possibility that Thomas Friedman of the New York Times and Paul Richter of the Los Angeles Times alluded to last month: the United States and Saudi Arabia are waging a secret war against their enemies through oil prices. At first glance, this may seem utter nonsense given the burden on Riyadh itself but the countries likely to be hurt the most – Russia, Iran, and Venezuela – are all antagonistic towards Washington. Saudi Arabia also has a keen interest in debilitating Iran in the region as well as individually, and Russia has proven to be a hindrance to Saudi interests in Syria.

The idea of a quasi-covert operation to sap the economies of the United States’ and Saudi Arabia’s enemies is not at all far-fetched. In 1986, at the height of US-Saudi involvement in Afghanistan against the Soviet Union, President Ronald Reagan leaned on his Gulf ally to turn on the oil tap in an effort to hamstring the Soviet economy. Reagan’s policies were based also on domestic energy price considerations and the Soviets sold much of their oil at fixed prices to their Warsaw Pact clients, but the net effect was the same – a shrinking of Soviet oil revenues and a run on the rouble.

In 2014, it is calculated that lower oil prices would exert pressure on Tehran to negotiate in earnest over its nuclear programme; it will also reduce funds available for Iranian misadventures in Syria, Iraq, and Lebanon. This is to the benefit of the United States, Saudi Arabia, and Israel. Similarly, lower oil prices would make the sanctions against Russia due to the Ukraine crisis bite more; it would be harder for Moscow to woo China and India, the Russian military modernisation programme will have to take a break, and Russia’s ability to meddle in Syria would be restricted. Again, this is all to the benefit of the United States and its allies.

An important piece in this geopolitical jigsaw is the US ban on the export of oil. Keeping US shale off the international market reduces competition to Riyadh’s advantage. From a purely economic point of view, it would be in Washington’s interests to lift the ban and capture market share as well as sizable revenue. It is difficult not to wonder if there is not a secret agreement between the oil sheikhs and Foggy Bottom to maintain low oil prices for a period of time in exchange for Washington staying the ban on its oil exports to give the Gulf the opportunity to make up in volume for its losses in capital.

Of course, the impact of lower oil prices might be mitigated through various mechanisms like barter. There have already been some noises from Tehran and Russia about trade in local currencies and barter of essential commodities. Russia may even take out its frustration with the West on the nuclear talks with Iran or step up its weapons sales to less savoury clients. This may stave off the worst but is not a solution for the long term.

If the United States has indeed orchestrated this drop in oil prices, it is the first intelligent and aggressive move by the Obama White House. It is surprising that Vladimir Putin, the suave, realpolitik, ex-Soviet intelligence officer, did not learn from the lessons of 1986 or 1998 and left Russia vulnerable to fluctuations in oil prices. Fun as it is to speculate on the causes of the “oil holiday,” countries like India will make hay while the sun shines.

This post first appeared on Swarajya on December 11, 2014.