Friday, 26 October 2018

The US warns of sanctions on India?

India has generally been a country that has tried to be friendly with the powers that be. Of course, Indira Gandhi did have the courage to ask the US take a walk when they tried to threaten her during the Bangladesh War in 1971 as did Shastri in 1965. Barring these two instances, India has been happy to work very hard to keep all the powerful nations happy. In the recent past, India has been brazen about two things which have not gone down very well with the US.
Firstly, India has refused to stop buying crude oil from Iran. India is the largest oil trading partner for Iran and the share of Iranian oil has been steadily rising in the Indian oil basket. The Iranian oil is relatively cheap and transport is quick to the ports on the Western coast. The problem is that US sanctions on Iran kick in on November 05th after which no dollar payments to Iran will be permitted.  But India has decided to circumvent this by either paying Iran in rupees or by converting the trade into an Oil-for-Rice exchange program.
Secondly, even as Russian continues to be under US sanctions, India has gone ahead and signed a $5 billion defence agreement with Russian for the supply of the S-400. This has again not gone down well with the US. Obviously, the US does not want to see friendly nations showing the thumbs-down and has now threatened India with sanctions. What does that mean?
Putting the Russia deal in perspective
India and Russia have been in talks over the purchase of the S-400 Triumf since 2015. This high technology system is considered the most effective surface-to-air system in its class, and is considered to be even better than the American Patriot missile system. The S-400 Triumf can hit targets, including manned and unmanned aircraft, cruise missile and ballistic missiles within a range of up to 400 KM. It can do all this while staying out of the radar of jamming equipment.
Even the US admits that the S-400 is superior to the US Patriot in terms of technology and also in terms of value for money. The problem for the US is that it cannot compete with Russia on costs and therein lay the problem. Also the US sees India going the way of another long term ally of the US, Turkey, which has also purchased these S-400 missiles from Russia. The Turkey order will be delivered by Russia in December. In the case of Turkey, the S-400 deal has angered Washington with calls to block the transfer of the US F-35 Joint Strike Fighters to Turkey. US Defence officials worry that the S-400 could be used to gather technical data on US designed fighter planes and that critical information could be passed to Moscow either intentionally or unintentionally through a back door in the Russian designed system. In the case of India, the purchase of the S-400 may result in the US refusing to sell “advanced fighter aircraft” in the future.
Real issue is the huge Indian defence market
According to a report by Royal Institute of International Affairs, UK India accounted for 10.3% of global arms imports between 2000 and 2016, with Russia supplying 72% of those imports. The US is catching up fast and has become India’s second largest arms supplier, ahead of Israel. In fact, Lockheed Martin has even offered to move its production of F-16 fighter jets to India, if the Indian government granted it a contract to supply fighter jets to the country’s air force. While the US would be keen to increase its market share in the Indian defence pie, it would not want to jeopardize its future order flow from India by imposing sanctions on India at this point of time. The need to maintain a strategic truck with India could impel Washington to overlook India’s purchase of the S-400.
Will there be sanctions by the US on India; or is it just a warning?
The US has confirmed that it is working to impose CAATSA Section 231 in a way that is lawful but will also leave the waiver authority leeway. However, it does look like the US would be unlikely to risk destabilizing its strategic alliance with India. So, while India does risk US sanctions following the $5 billion Russia defence deal, the US would also do its best to input waivers to make the hit more palatable. The deal is already signed between Modi and Putin and immediately on signing the deal, the US sanctions under legislation known as Countering America’s Adversaries through Sanctions Act (CAATSA), could come into force.
Why India may attract more exemptions than sanctions
In September, the US had imposed sanctions against China for its purchases of Russian military equipment, including the S-400, under CAATSA legislation. But, China is an emerging rival power for the US while India is seen more as a key strategic ally by the US. The US defence chiefs have worked hard to increase cooperation with Delhi in a range of areas in recent years and would not want to lose out on this traction. India purchasing Russian weapons systems effectively forces Trump to choose between punishing Delhi and destroying the fledgling defence relationship. A carefully worded exemption may be a better choice for the US; and for India too.

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