EU wants India, China to join Iran oil embargo

EU wants India, China to join Iran oil embargo

Indrani Bagchi

NEW DELHI: As European Union readies its oil embargo plan against Iran, EU countries have asked two of the world's largest importers of Iranian oil, India and China, to join the embargo.

India is unlikely to join any such international effort unless they are mandatory UN sanctions. However, the financial curbs on Iran's central bank by the US as well as Iran's reciprocal threat to shut off the Straits of Hormuz have prompted India and other Asian economies to diversify their oil sources anyway.

While top European officials have proposed the idea to India, German chancellor Angela Merkel is expected to push the case with China when she visits Beijing in a couple of weeks, sources said. Germany has significant business interests in Iran, and is also home to a large number of Iranian expatriates. India in 2011 started using a German-Iranian bank to route its oil payments to Iran, before that came under sanctions.

While EU has not implemented US sanctions against Iran's central bank yet, sources said this would happen soon, affecting large quantities of German business with Iran. EU countries are reportedly working on an oil embargo plan that takes effect in six months.

Iran is India's second largest supplier of oil, but sanctions against Iran's banks have made it increasingly difficult for India to pay for Iranian oil. India has also been reducing its exposure to Iran of late, with Saudi Arabia making up the bulk of the difference. Other countries like Iraq, Kazakhstan, Venezuela and Nigeria are now part of India's basket of supplier countries.

Indian oil companies took out oil contracts for this year earlier this week and signs are that the diversification programme will continue. However, India remains politically allied with Iran, while opposing its nuclear weapons ambition. India considers Iran to be an important power in the Gulf and has several important stakes in that country. Therefore, India is fighting to keep a toehold of influence in the country and not lose it to the Chinese.

China is the largest importer of Iranian oil and has openly dismissed the US sanctions. Much more than oil, China has almost $120 billion investments in Iran which it would be concerned about. However, sources said China would come around when everybody else did. China too is diversifying its oil sources, and this week, Chinese Premier Wen Jiabao is travelling in Saudi Arabia, Qatar and UAE, all of whom oppose Iran.

This week, reports said the US imposed sanctions on China's state-run Zhuhai Zhenrong Corp, which it said was Iran's largest supplier of refined petroleum products. Reuters reported that US also imposed curbs on Singapore's Kuo Oil Pte Ltd and FAL Oil Company Ltd, an energy trader. While India remains quiet about its financial institutions in Iran, it is believed that a smaller nationalized bank, Union Bank of India, is being used for Iran buys.

The fear in India's policy leadership is that because of external circumstances, India might lose out to China in Iran. Reports have surfaced that China might be squeezing Iran for cheaper oil, and might be leveraging its position as the one defying US sanctions to push its influence further.

[Times of India]