Strafor Global Security Intelligence Reports
Saudi Arabia has reportedly made a deal with India to supply the South Asian nation with 3 million barrels of additional crude in the month of August. The move comes right after Iran announced that it was suspending crude supply to India because of a payment issue that’s been lingering between the two countries for several months now. This issue is yet another example of the Saudi-Iranian rivalry being play out in South Asia.
Analyst Kamran Bokhari examines a new oil deal between Saudi Arabia and India, which is a Saudi attempt to exploit crude oil payment dispute between Iran and India.
At the heart of the problem between India and Iran is the method of payment. It’s not as if India is not willing to pay. It’s the form of payment. Iran and India had an arrangement under a clearinghouse system for many years that is longer applicable because of the sanctions regime against Iran that’s become tighter over the years. Now, Iran is trying to go back to a system that it is more comfortable with, while India is trying to pull Iran into a more transparent direction. And, therefore, there is the disconnect and the inability of India to make those payments.
Therefore, we have the current situation, in which Iran is now trying to apply pressure onto India by saying that we’ll suspend crude. Now, the Saudis coming in allows for India to relay a message to Iran that it has other options. At the same time, the Saudis are using this situation fully to their advantage to try and weaken Iran. From the Saudi point of view, they can step in and reduce Indian dependency on Iran that would be a blow to Iranian revenues in the long run.
The Saudi-Iranian rivalry, the main arena for that rivalry, is the Persian Gulf. Now in the Persian Gulf, the Iranians have the upper hand. So Saudi Arabia is trying to look for ways and means to counter Iranian moves in the Persian Gulf. And one such arena is South Asia. We’ve already seen the Saudis and Iranians try to play it out in terms of Pakistan and the wider Afghanistan jihadist arena. Here, we have a situation where Saudi Arabia is trying to take advantage of another fault line that Iran has in South Asia, which is with India and this whole issue of outstanding payments. If the Saudis are able to steer India into their orbit, then that would be a significant gain for Riyadh, against Tehran. It is not as if India is completely willing to dump Iran in favor of Saudi Arabia. India likes to keep a very diversified foreign policy portfolio, whether it’s security, geopolitics or economics.
Therefore, it is too early to say whether India will completely leave Iran in favor of Saudi Arabia. But as long as there is a problem between Iran and India, the Saudis can take advantage of that. If, at some point, a new mechanism for payment is agreed upon, then this becomes a short-term tool for the Saudis to use against Iran. But until then the Saudis can be expected to fully exploit the situation.