LONDON — As India takes its seat on the U.N. Security Council as the new nonpermanent member after nearly a two-decade hiatus, its latest move vis-a-vis Iran has signaled New Delhi’s desire to be viewed as a responsible rising power and a potential permanent member of the Security Council.

The Reserve Bank of India has declared that oil payments to Iran can no longer be settled using the Asian Clearing Union mechanism — a system run by the central banks of nine countries, including India and Iran. This was a bold move as India imports 12 million barrels of crude oil every month from Iran with Iran accounting for 12 percent of India’s supplies. As the two countries try to find ways to solve this problem permanently, India will be paying for Iranian crude oil through a German bank based in Hamburg as an interim measure.

It was Iran that had asked India to use the ACU so as to avoid being targeted by U.S. sanctions. The ACU mechanism made it difficult for third countries to trace transactions and that ambiguity has troubled Washington for some time. The U.S. has complained that the transactions lacked transparency, allowing payments to be made to Iranian companies controlled by groups banned under the sanctions regime. The U.S. was quick to support India’s decisions, suggesting that the RBI “has made the right decision to carefully scrutinize and reduce its financial dealings with the Central Bank of Iran.”

The U.S. has long wanted India to scale down its dealings with Iran. But India continues to view Iran as an important regional player, especially in the context of the evolving security situation in Afghanistan where Iran is seen as a potential bulwark against growing Pakistani influence. Notwithstanding this convergence on Iran, recent months have seen a significant cooling in Delhi-Tehran ties. Iranian Supreme leader, Ali Khamenei has described Kashmir as a “besieged” region of the world. He has been speaking of Kashmir in the same breath as Pakistan and Afghanistan and asked the Islamic community to assist in the “struggle” against “aggressions” of the “Zionist regime.” When Khamenei’s diatribe was repeated in November, India made its displeasure known by issuing a demarche and as a first, abstained from voting on a U.N. resolution condemning the state of human rights in Iran.

The pace of economic and trade cooperation between Delhi and Tehran has slackened. Recent attempts by the two to insulate their oil trade from Western sanctions have not been very productive. Indian oil imports from Iran have declined this year in light of the Reliance Industries ceasing to use crude oil from the Persian Gulf State, even abandoning its plans to invest in an oil refinery in Iran. Those companies that have invested more than $20 million in Iran find it hard to deal with the Western corporate sector given their sanctions regime.

The Iran-Pakistan-India (IPI) project has not moved while the Turkmenistan- Afghanistan-Pakistan-India (TAPI) project has recently got the green light. After 15 years of negotiations, the four states signed the TAPI pipeline deal in December though it remains unclear how quickly the project can move forward.

India has continued to affirm its commitment to enforce all sanctions against Iran as mandated by the Security Council since 2006 when the first set of sanctions were imposed even though, like Beijing and Moscow, it has argued that such sanctions not hurt the ordinary populace of Iran. India and Iran have long held significantly different perceptions of the global nuclear order. Iran was not supportive of the Indian nuclear tests in 1998 and backed the U.N. Security Council Resolution that asked India and Pakistan to cap their nuclear capabilities by signing the NPT and the CTBT. Iran repeatedly has called for a universal acceptance of the NPT, much to India’s discomfiture. Though Iran has claimed that this was directed at Israel, the implications of such a move are also far-reaching for India. The conclusion of U.S.-India nuclear deal saw Iran warning that the pact had endangered the NPT and would trigger new “crises” for the international community.

The crucial regional issue where India and Iran need each other is the evolving security situation in Afghanistan. America’s Af-Pak policy has caused consternation in Delhi and Tehran.

Iran is worried about the potential major role of leaders of the almost exclusively Sunni Taliban in an emerging Afghanistan. Both New Delhi and Tehran are unlikely to accept a political dispensation in Kabul that serves as a springboard for the projection of Pakistani military’s interests. But that can happen only if Iran is also interested in stabilizing Afghanistan. If Tehran’s interests are primarily driven by its desire to see America’s withdrawal then New Delhi will be forced to rethink its approach toward Iran.

New Delhi’s outreach to Tehran will remain circumscribed by the internal power struggle within Iran, growing tensions between Iran and its Arab neighbors and Iran’s continued defiance of the global nuclear order.

Harsh V. Pant teaches at King’s College London.

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