By Andrew Quinn
KOLKATA | Mon May 7, 2012 6:52am EDT
(Reuters) – U.S. Secretary of State Hillary Clinton leaned harder on India on Monday to deepen cuts of Iranian oil imports, saying Washington may not make a decision on whether to exempt New Delhi from financial sanctions for another two months.
Clinton, on a three-day visit to India, said the United States was encouraged by the steps its ally had taken so far to reduce its reliance on Iranian oil but that “even more” action was needed.
The oil issue has become an irritant in ties between India and the United States. India is unwilling to be seen to be bowing to U.S. pressure and is reluctant to become too reliant on Saudi Arabia for its oil needs, which officials say privately would be strategically unwise.
The sanctions threaten to shut out Iranian oil importers from the U.S. financial system unless they make significant and continuing cuts to their crude purchases by an end-June deadline.
India is Iran’s second-biggest crude customer, so it is crucial to the U.S. strategy of choking off the Iranian economy to force Tehran’s leaders to curb their nuclear program.
“We do not believe Iran will peacefully resolve this unless the pressure continues. We need India to be part of the international effort,” Clinton told a townhall-style meeting in the eastern city of Kolkata.
Publicly, India has rejected Western sanctions but privately it has pushed local refiners to start cutting imports. India’s refiners signed new yearly contracts with Iran running from April 1 and Reuters calculations suggest imports could plunge about 25 percent in 2012/2013.
Indian Finance Minister Pranab Mukherjee said in April that India had already substantially cut Iranian oil imports. But Clinton’s comments on Monday suggested that Washington expected more action before it would grant the sanctions waiver.
The United States in March granted exemptions to Japan and 10 European Union nations. India and China, Iran’s biggest crude importer, remain at risk.
Clinton held up Japan as an example, saying it had cut imports despite having suffered a devastating earthquake and tsunami that crippled its Fukushima nuclear reactor. Japan’s cuts of between 15 and 22 percent were enough to get a waiver.
Washington has not stated specifically what cuts it expects from each country, only that they must be substantial.
“We think India, as a country that understands the importance of trying to use diplomacy to try to resolve these difficult threats, is certainly working toward lowering their purchase of Iranian oil,” Clinton said.
“We commend the steps that they have taken thus far. We hope they will do even more,” said Clinton, who was due to meet Indian Prime Minister Manmohan Singh in Delhi later on Monday.
ADEQUATE MARKET SUPPLY
Clinton noted that Saudi Arabia, Iraq and other oil-producing nations were supplying more crude to the markets to offset any loss of supply from Iran.
“If there were not the ability for India to go into the market and meet its needs we would understand that. But we believe there is adequate supply and that there are ways for India to continue to meet their energy requirements,” she said.
She added that the United States would make a decision on whether to exempt India from the U.S. sanctions on Iran in “about two months from now”.
An Indian official privy to the Indian talks with Iran and the United States had earlier expressed hope that Clinton might announce a waiver during her visit. The official said the government had done enough to secure the exemption.
A senior U.S. official said on Sunday that Carlos Pascual, the U.S. special envoy who has been negotiating with Iranian oil importers to cut their imports, would visit India in mid-May to discuss the issue.
Clinton said at the town-hall event that Iran posed a grave threat to the region and that Indians should not view it as a “far-off threat”. Iran had dispatched “terrorist agents” to target Israelis and others in India, she said.
Clinton’s trip coincides with a visit by a large Iranian trade delegation, which is in Delhi to discuss how the two countries can trade via a rupee mechanism set up to skirt sanctions. U.S. officials played down the importance of the Iranian visit.
Trade disputes and frequent U.S. complaints that it is difficult for American companies to do business in India have also strained ties. Ambiguously worded Indian proposals to crack down on tax evasion and tax indirect investments have also alarmed Washington and sown confusion among foreign investors.
Finance Minister Mukherjee announced in parliament on Monday that he would delay by one year, until fiscal 2013/2014, the introduction of the tax evasion measures.
In her meeting with Singh, Clinton was expected to push for the government to open up India’s retail sector to foreign supermarkets such as Walmart – a major economic reform that has stalled and become emblematic of the policy paralysis gripping Singh’s government.
Clinton held talks earlier with Mamata Banerjee, the firebrand chief minister of West Bengal and Singh’s key ally in government, who has blocked the retail reform. Clinton said before meeting Banerjee that she planned to raise the issue but the chief minister said afterwards that it was not discussed.
(Writing by Ross Colvin, additional reporting by Matthias Williams in New Delhi; Editing by John Chalmers and Jeremy Laurence)