India’s energy and diplomatic dilemmas have been compounded by murky big-power geopolitics, which has allowed the oil monarchies to ride out the Arab Spring but brought the region’s two remaining anti-Western regimes in Iran and Syria under intensifying pressure. Add to this picture the equally ugly regional geopolitics, which pits the powerful “Sunni Crescent” led by Turkey, Saudi Arabia, Qatar and the United Arab Emirates against the beleaguered “Shiite Crescent” states — Iran, Iraq, Syria and Lebanon.

A key factor exacerbating tensions is the escalating U.S. geopolitical confrontation with Iran, with both sides currently engaged in a psychological war. U.S. Defence Secretary Leon Panetta’s warning of a looming Israeli attack on Iran and Tehran’s threat to shut down the world’s most important oil-export route — the Strait of Hormuz — are part of this war of nerves.

The danger that this show of threats could escalate to military hostilities has been underscored by the U.S. declaration of an indirect war against Iran — the imposition of an oil-export embargo to financially throttle Tehran. Given that energy exports account for 80 percent of Iran’s foreign-exchange earnings, the U.S. (and European Union) oil embargo and freeze on Iranian Central Bank assets increase the risks of a military confrontation — the very development these sanctions are meant to avert.

History attests to the linkage between an oil embargo and military hostilities. Although the 1941 Pearl Harbour attack took the United States by complete surprise, the attack was triggered in some measure by a U.S.-British-Dutch oil-import embargo against Japan as part of a larger economic squeeze that began in 1939.

Against this background, the risks of India getting sucked into this geopolitical fight or becoming a proxy battleground are real. Israel’s instant accusation that Iran was behind Monday’s car bombing in New Delhi serves as a reminder.

A key question that has not been answered is why Iran would conduct a terror strike on Indian soil just when the West is breathing down India’s neck to cease importing Iranian oil. This is the worst possible time for Iran to alienate one of its last-remaining economic lifelines, India, where there has been no past instance of Iranian terrorism.

Also, given that Israeli intelligence reportedly has carried out targeted assassinations of Iranian nuclear scientists inside Iran, why would Iran aim any reprisal at merely the wife of an Israeli diplomat? If anything, the car incident (like the one in Tbilisi) bore the characteristics of an amateurish job, despite the explosive device’s sophistication. If Iran indeed was behind the attack, it connotes sheer recklessness and incompetence. In any event, the incident only adds to the pressures on India to break its energy ties with Iran.

Sadly, the short-term logic driving U.S. policy in the Persian Gulf has trumped larger considerations, including the risks of aiding Islamist rulers or groups. Instead of seeking to reap long-term benefits by promoting genuine democratic transition across the Arab world, the U.S. has deepened its alliance with oil monarchies, including the tyrannical House of Saud and the ambitious Qatari royalty, and winked at Bahrain’s brutal suppression of a democratic uprising.

This partly explains why the Arab Spring has brought no change to the oil monarchies. It is the Arab states with a presidential form of government that today are at the centre of the ongoing profound changes, which, paradoxically, are sought to be influenced by the iron-fisted but deep-pocketed oil sheikhdoms.

Their already-swelling coffers — thanks to the U.S. energy embargo against Iran and rising oil prices — are set to overflow, increasing their leverage in the region and beyond.
The experience of the past half a century shows that the greater the transfer of oil wealth to these monarchies, the more they have funded fundamentalism and extremism, thereby contributing to the rise of international terrorism. In fact, the more wealth they have accumulated, the more the price of freedom has risen in the region.

In this light, the U.S. attempt to give international effect to its new Iran-sanctions law threatens a double whammy for strategic-partner India. First, it will sabotage India’s energy-import-diversification strategy by making it place all its eggs in the basket of the Islamist-bankrolling oil monarchies. India will become overly reliant on the wrong types of regimes, and thus exposed to the games they play.

Over the years, the share of Iranian crude in India’s total oil imports has declined to barely 11 percent. Slashing that share further will leave Indian refineries with a technical capacity to process only Iranian crude high and dry. Oils from different countries vary in terms of two basic properties — specific gravity and sulphur content. Retrofitting those refineries to process crude from other countries would be lengthy and expensive.

Second, at a time when the U.S. is quickening its Afghanistan disengagement and seeking to cut a deal with the Taliban with little regard for Indian interests, jumping on the American sanctions bandwagon will rupture India’s relations with the very country central to its Afghanistan strategy — Iran, which is the conduit the substantial Indian aid flow to Afghanistan. America’s Afghanistan-exit strategy — which is beginning to look like a sprint — only reinforces Iran’s geopolitical importance for India.

It should not be forgotten that India already has paid a heavy price for taking America’s side on some issues in its long-running battle against Iran, even though Washington doesn’t take sides in the India-China and India-Pakistan disputes. The Bush administration pressured India not to conclude any long-term oil and gas contracts with Iran and to abandon, in return for a civil nuclear deal with the U.S., the idea of a gas pipeline from Iran. And by voting against Iran at the International Atomic Energy Agency’s governing board in 2005 and 2006, New Delhi invited Iranian reprisal in the form of cancellation of a 25-year, $22-billion liquefied natural gas deal which had terms highly favourable to India.

Today, those states in favour of a total oil embargo on Iran (including the U.S., Britain, France and Germany) buy little or no oil from that country, while those countries advising caution (such as India, Japan, South Korea and China) are important importers of Iranian oil. The international division thus is between those that have nothing to lose and those that have much to lose.

Yet without offering any credible alternatives, Washington is mounting more pressures related to oil sourcing and payments that strike at the heart of energy-poor India’s efforts to secure stable, assured supplies. The Iran issue, in effect, has turned into a diplomatic litmus test as to whether India will stand up for its energy and geopolitical interests in the region or be co-opted to serve the short-term interests of its friends, particularly the U.S. and Israel.