Ironical as it may sound, in the stand-off between the West and Iran, more than anyone else, it is India that cannot afford to blink. Continued oil shipments not only underpin the country’s energy security but also its broader economy. The West is progressively tightening the sanctions screws on Iran, making it all the more difficult for the Islamic Republic to sell oil even to willing buyers like China and India. Since February 6, Turkey’s Halkbank, which was handling payments for Iranian oil made in euros by Indian refineries, has discontinued doing so in the wake of mounting US pressure. All crude oil payments to Iran will henceforth have to be in rupees deposited to an account operated by UCO Bank that can, in turn, be drawn by Iranian importers for purchase of Indian goods. Further, western reinsurers, who had previously stopped providing liability cover to tankers carrying Iranian cargo, have extended it to refiners of this crude as well. Insurance companies underwriting refineries processing Iranian oil are, thus, deprived of reinsurance support from Western reinsurers, since GIC Re, India’s sole provider, cannot bear the risk all on its own.

Of the above two latest sanction measures, the first one, by itself, may not hurt. India needs oil and a deal where payments are made solely in rupees is more than welcome. Iran, on its part, is desperately short of everything other than oil and wants to buy anything that can be exchanged for it; whether that is facilitated through dollars, euros or rupees matters little. It, then, opens up huge opportunities for Indian exporters, especially small and medium enterprises who aren’t terribly worried about losing business in the US or Europe: They could ship out just as much rice, oil-meals, tea, pharmaceuticals or engineering goods as the crude being imported from Iran. The fact that India’s oil imports, at $ 8 billion in April-December 2012, was four times its exports to Iran during this period only shows the potential remaining to be exploited.

But the sanctions on reinsurance can bite. No oil company would even dare to process Iranian crude if its refinery cannot be insured/reinsured against its risks. The time has come, perhaps, for the Government to seriously consider the feasibility of underwriting the risks that its insurance companies cannot singlehandedly bear. The fiscal costs involved might not be all that large when compared to the opportunity before the country to import a large part of its oil without draining precious foreign exchange. This arrangement can work so long as there aren’t any United Nations sanctions explicitly preventing India from buying Iranian oil. The unilateral embargoes by the US or Europe surely cannot pass off as international law binding on others. The West should recognise that India cannot be expected to conform to its view of Iran on nuclear proliferation matters, just as the former doesn’t accept the Indian position on Pakistani acquiescence to terrorism emanating from its borders.

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