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On June 11, crediting reductions in Iranian oil consumption, Washington approved 6-month exemptions on its Iranian sanctions to India, South Korea, Turkey, Malaysia, South Africa, Sri Lanka and Taiwan. This development follows the first round of extensions granted to 10 European countries and Japan on March 11.

The US has recently stepped up efforts to pressure Iran to end its nuclear program by implementing tougher financial penalties on countries continuing to trade with the Islamic Republic. Under the National Defense Authorization Act (NDAA), foreign financial institutions that conduct petroleum sales transactions with Iran's central bank will be barred from maintaining associated operations in the US. However, a provision within the bill allows the US to grant temporary waivers on its penalties to countries that have attempted to reduce their imports of Iranian oil.

The selectivity of these concessions reflects not only the US’ ability to wield the sanctions as a deft political device, but also an exercise in restraint. International security is about the stabilization of global trade and commerce just as much as its about the freedom from physical threats.

EU states have extensive cultural, economic and military ties with the US, popularly highlighted by the continued existence of the NATO alliance. Other Asian states like Taiwan, South Korea and Japan require American support counterbalancing the perceived expansionist threats of North Korea and China.

Leveraging the ‘Linchpin’

Beyond the obvious trading partners, India also qualified for sanctions relief, fitting within the wider scope of the third annual US-India Strategic Dialogue on June 13. Designed to warm otherwise cool relations between New Delhi and Washington, these talks focused on broadening mutual defence cooperation through increased technology transfer, intelligence sharing and joint research.

"To grow and prosper, we need open, free, fair and transparent global economic systems. We both seek security and stability in South Asia and the Asia Pacific," stated Hillary Clinton. Over the past few years India has awarded $9 billion worth of defence contracts to American companies. Bilateral trade and investment is up $100 billion this year, an increase of 40% from 2009 when the first US-Indian Strategic Dialogue was launched.

India in turn wants reassurance of the United States’ regional guardianship over the continuing stabilization process in Afghanistan and Pakistan beyond 2014, the deadline for other NATO states to meet timetables for withdrawal. Both countries acknowledged the critical importance of expanding private investment and trade in Afghanistan to achieve this end.

As the largest non-military actor in Afghanistan, India has contributed $2 billion in aid to guarantee stability once NATO fully departs. Reported in the Economist, New Delhi wants to be confident that Afghanistan never again becomes a "Talibanised client of Pakistan", referring to claims that Pakistan funded Taliban and Haqqani insurgents in Afghanistan.

This is an outlay the US is happy to make, so long as it can also earn a return on its investment. Dubbed the "linchpin" of the State Department's re-balancing strategy in Asia by Secretary of Defense Leon Panetta, India is a growing competitor the US needs on its side to check Pakistan, but more importantly counter China’s rising regional influence.

Reaching that position begins by investing sufficient diplomatic capital in India, a channel through which the United States can siphon greater influence into the coffers of the Indo-Asian regional leadership. The US has publicly endorsed India’s Look East policy, but the corollary of that support is greater US encroachment on other exclusively Asian institutions. Commenting on the US-India relationship, Hillary Clinton stated:

Both our countries have significant stakes in the future of the dynamic Asia Pacific region, and we need to expand our work both bilaterally and through multilateral institutions such as the East Asia Summit and the ASEAN Regional Forum to work to build a regional architecture that will boost economic growth, settle disputes peacefully, and uphold universal rights and norms.

Ensuring that the design of this framework will also reflect US economic and political interests can be better assured by contracting a closer partnership with India. As a stronger regional ally, India can provide the gateway to a larger Asian sphere of influence.

"Harnessing Asia's growth and dynamism is central to American economic and strategic interests...Open markets in Asia provide the United States with unprecedented opportunities for investment, trade, and access to cutting-edge technology", reiterated Clinton.

However, barriers to investment in India's economy still aggravate US and other Western companies, which complain of inconsistent policy-making, entry barriers, and stalled reforms leading to market uncertainty and a loss of confidence in India’s formerly favorable "Inc." status. "Things are not happening at the required pace, so that has been the basic problem," commented Soumya Kanti Ghosh, a director at the Federation of Indian Chambers of Commerce and Industry.

Timing is always of the essence. Within two days of bilateral meetings with New Delhi in June, Washington issued a formal waiver to India, Iran's second largest oil importer. Perhaps this diplomatic trade-off can help leverage other economic solutions in India to come.

Brianna MacGillivray is an Economic Policy Analyst and Conference Coordinator at the Atlantic Council of Canada. This article was first published by the Atlantic Council of Canada.

July 15, 2012

Ronald Lertoff, PhD Fellow, YATA member, (9)

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Thank you Brianna!
Very interesting article.
I think that Canada also can elaborate own approach for India. It will be Canada's crucial contribution into international security landscape that as you mentioned 'is about the stabilization of global trade'. West will try to create counterbalance among Asian states using political influence and flexibility. But also we should consider especially India as equal partner among big players. It means that we should not look at India as competitor for West and it is important not to put India and China against each other on the world political field. You said that 'as a stronger regional ally, India can provide the gateway to a larger Asian sphere of influence' for West. But may be vice versa the good bilateral relations with India can assure that India's growing power will include West interests in Asian region.

July 18, 2012

Joshua Clapp, Atlantic Community, Platinum Contributor (158)

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I wonder how India's recent economic performance comes into play. The IMF cut its forecast for India's growth (even if this is related the Eurozone crisis). And Obama just criticized India's disdain for foreign direct investment.

For example, the WSJ reports: "Foreign investors' perceptions about India also have been tarnished by two tax-related proposals made this year: one to impose a retroactive tax on overseas acquisitions that involve the transfer of an Indian asset; another to establish an anti-tax-avoidance policy that investors worried would give the government sweeping powers to penalize investments into India from offshore havens such as Mauritius."

So it appears that things are not just not happening at the required pace for the Indian economy but apparently going in the wrong direction.

July 19, 2012

Vikas Kumar, Azim Premji University, Silver Contributor (62)

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Let me first begin by commenting on the point about investment climate. There are three positions:

1. Unlike most Western countries, India has millions of poor people to protect. And unlike certain preferred destinations for international capital India is a democracy - the ultimate goal of Western international order. So, before it opens a sector to international investors, India needs to consider a variety of things that are non-issues elsewhere.

2. The United States cannot continue squeezing Indian software industry through unfair regulations and still expect India to open up such a vital sector like multi-brand retail. Let the United States open its agriculture, etc sector and then Indian policy-makers can reciprocate and so forth.

3. There is another way of looking at this issue, which I think it is more sensible. India and the United States are the two largest democracies of the world - forget their imperfections for a while. Barely a decade ago they were sworn enemies. And now they closely coordinate their moves in a variety of international fora. Such a dramatic improvement of bilateral relationships is a great acheivement for these mamooth, unwieldy democracies. The credit goes to US presidents Clinton and his successors and Indian prime ministers Vajpayee and Singh. They had to invest a lot to change their cold war bureaucracies and domestic political formations.


Iran:

1. India is not fan of the present Iranian regime. The last thing India wants is another religiously driven nuclear power close to South Asia. Indian policy-makers have also not forgotten the role, even though minor, played by Iran's revolutionary regime in Kashmir. But given that Pakistan - armed to teeth by the country that is one of the most favoured destinations of international capital - posits an immediate danger to its internal and external security, India has no option but to keep channels of communication open with all countries concerned with Pakistan's designs in Afghanistan and elsewhere.

2. Plus India would not like to leave itself to the mercy of Sunni petro sheikhs. Diversifying oil purchases is a sensible strategy.

3. Even otherwise India's ties with Iran are older than the United States' ties with the United Kingdom or even England's ties with Greece. So, just because Iran is under a suicidal regime at present, does not mean that India should shut the door completely. Even in the worst scenario India has to leave the door open. (The same holds for India's relationship with Pakistan and Sri Lanka.)

See point 3 (see Investment above), where I argued that India and USA need time to resolve their differences. But in the meantime India is a vital channel of communication with Iran and I hope the United States recognizes this.


Af-Pak:

Here the differences are most difficult to bridge. For want of space I have restrict my comment to just one point the way India and the United States view Islam is so completely different that to expect convergence is unrealistic unless (a) India suffers another devastating terrorist attack, (b) Pakistan hurtles towards meltdown, and/or (c) the United States revises its world view.

July 22, 2012

Brianna Marie MacGillivray, Atlantic Council of Canada, Bronze Contributor (12)

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Thank you everyone for your insightful comments!

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