When Narendra Modi was sworn in for a second term as prime minister of India, it became time for the Indian government to address issues that had been postponed until after the general election. America’s cancellation of sanctions waivers on India’s import of Iranian oil was one such issue.
India’s non-alignment strategy of previous years has shifted to a more multi-alignment strategy, with the Modi administration driving a hard line for its strategic interests. New Delhi’s ties with Tehran have strengthened even while India pursues relationships with Iran’s adversaries in the region such as Israel, the United Arab Emirates and Saudi Arabia. Its recent decision to continue buying oil from Iran using the already established mechanism of rial-rupee trade reaffirms Modi’s multi-alignment strategy.
However, this strategy could become a thorn in the side of the US-India relationship, and it would be in Washington’s and New Delhi’s interests to re-evaluate this dynamic through a mutually beneficial venture. The Indo-Pacific region might present that opportunity through energy trade.
The Indo-Pacific region’s increasing dominance in global energy demands and capacity to shape international relationships makes it a key market for energy. Recognizing this, the administration of US President Donald Trump has been swift to make energy the central economic component of its “Free and Open Indo-Pacific” strategy – an effort to defend a rules-based order in concert with democratic partners – a significant part of the US policy toward Asia. It underscores America’s commitment to strengthening energy security in the region, with India being a major partner.
India has been reliant on autocratic nations for its energy needs. Importing 80% of its crude oil and 45% of its natural gas, India’s energy dependency has shaped its ties to resource-rich nations including Saudi Arabia, Iran and Venezuela. With the Trump administration’s recent decision to end the waiver for US sanctions on Iranian crude-oil sales to India, New Delhi’s regional ambitions are hindered and further distance India from America’s ambitions in the Indo-Pacific region.
Energy disruptions are undesirable and unsustainable for New Delhi and without a course correction, are a threat to India’s energy security. They not only create economic instability, but also constrain strategic choices, especially at times when India is forced to choose between its traditional energy suppliers and geopolitical goals. US sanctions on Iran highlight vulnerabilities in India’s path to energy security. The United States has found India to be a skeptical and hesitant partner in the Indo-Pacific region, with the latter’s lack of commitment to the Quadrilateral Security Dialogue. But with the recent installation of the Indo-Pacific desk in its Foreign Office, India’s commitment and acknowledgement of the strategic importance of the Indo-Pacific region is reassured.
It is in Washington’s best interest to meet India halfway by remaining active and in the region. The US should make it attractive for India to increase energy commerce between the two countries and reinforce America’s commitment to the Indo-Pacific region. This will serve to elevate India’s role and advance US economic interests in the region. While the United States cannot directly influence the price of crude oil since it is traded by private players, it can incentivize companies trading with India through subsidies, thereby reducing the price offered to India.
For the first time in more than half a century, the US has become a net oil and gas exporter and has the potential to reshape global energy dynamics. India may have been slow compared with other Asian countries – including China and South Korea – to start importing US oil and liquefied natural gas (LNG), but its imports have ballooned since 2017. The US-India Strategic Energy Partnership now includes both fossil fuels and renewables, and runs the gamut from joint research to infrastructure investment. Expanding energy trade between the two countries is in both India’s and America’s interests.
First, increased imports of US crude oil and LNG will help to reduce America’s trade deficit with India, a perennial headache for American policymakers. Second, India benefits by reducing dependence on imports from geopolitically risky suppliers, such as those in the Middle East. Third, with India looking to increase LNG usage from 6.5% to 15% by 2030, natural gas will be an economic bright spot for both economies. The US will fuel nearly three-quarters of the world’s LNG export growth between now and 2023, and it should leverage the newly established US-India joint task force on natural gas to secure more opportunities in this space.