US Secretary of State Pompeo’s 4-nation visit

On June 24^th, Pompeo embarks on a four nation tour. On his menu are visits to Sri Lanka, South Korea, India and North Korea.

Addressing the 44th annual meeting of the US-India Business Council, Pompeo spoke of a “free and open” Asia Pacific. Under running this strategy is the thought to counter China in the region. His comment was particularly telling in this regard; he spoke of Trump regime throwing its weight behind India to “deal with” Islamabad and Beijing.

Ahead of the visit US removed India from the GSP, with a complaint that India was not providing US goods with reasonable access in their market. With this one step US$5.6 billion worth of Indian exports that were earlier duty-free in the US become taxable. This will hit Indian industry hard. In particular some farm products, chemicals, leather products and pharmaceuticals.

As a tit for tat, India increased tariff on 28 American products. This includes a wide range of products. Tensions between both nations have been on the rise. With Trump administration wanting to use India to curtail Beijing, an objective shared by India, it needs to be analyzed how effectively both can work together in times to come.

At the same time as the trade tit for tat between the two, in a recently published US Department of Defense Indo-Pacific Strategy Report focuses in the importance of developing new links and strengthening the existing ones with nations sharing similar values. Also, based on talks between Trump and Modi in 2017, the US had reportedly agreed to sell to India, surveillance version of the Sea Guardian drones. This is a juicy carrot for India.

There will be three points of conflicts between the two nations upon the visit; taking away of the GSP status from India, S-400 purchase from Russia and US policy towards Iran and subsequent oil imports from Iran by India.

India was the biggest beneficiary of the GSP status since 2017. It paid zero duty on the $5.7 billion worth of Indian goods making its way to the American market. US. The step is aimed to force India to view again its trade negotiations. US desire for a more equitable access to Indian markets have fallen on deaf ears and for two years any negotiation on this issue is at a standstill.

US sanctions on oil imports from Iran also causes issues for India. India is the third largest oil consumer, with Iran being its third largest oil supplier. Iran has extended to India in this sale a “60 day period credit, free insurance, and cheaper freight.”

The Trump administration desires Tehran to accept terms set out by the US for renegotiating the nuclear deal and the other powers. The cancellation of sanction wavers by the US to the eight countries buying oil from Iran will not lead nonetheless to the desired goal. Also, US assumptions that can curtail/stop sale on Iran oil may not work out as US may want it to work out.

US assumes UAE and Saudi Arab will increase the production so the quantum loss of Iranian oil in the market can be made up. There is an assumption that this will stop cost of oil from spiraling up. US assumes that India, China and Turkey, the main buyers of Iranian oil will stop all oil purchases from Iran.

However ground realities are different. “Saudi Arabia and the UAE are unlikely to sustain higher production levels for very long, out of concern for stability in oil markets. Iran’s “heavy oil,” which many countries need for refined oil products, cannot be replaced by Saudi light crude. Turkey, China, India and possibly some European allies will find ways to work around U.S. sanctions for both economic and geopolitical reasons. And Iran can reduce oil supplies leaving the Persian Gulf. It has threatened to close the Strait of Hormuz, and could conduct cyber operations against oil infrastructure on the other side of the Gulf.” (AARON DAVID MILLER & RICHARD SOKOLSKY: April 24, 2019)

Trump administration is however so focused on its doubling down policy on Iran that it is not taking into consideration the policies of the nations affected and implications on their economies-including India.

In 2018, in spite of threat of sanctions, under CAATSA, India had linked the deal with purchase of five S-400 batteries worth to the value of roughly $5.30 billion. Though no waiver was provided to India,this was viewed as a special privilege granted to India. US is however offering India alternate systems made in US. Rather than India purchasing it from other nations.

Will Modi administration compromise and give in to US demands? Or will, Trump blink and negotiate with better understanding of Indian national interests?

Disclaimer: This op-ed originally appeared at Pakpotpourri2’s Blog and has been reproduced with  permission. Surkhiyan believes in freedom of expression and providing space for views and opinions from all sides. But we may not agree with everything we publish. The views expressed in this op-ed are that of the author and do not necessarily reflect the editorial policy of Surkhiyan. We do not assume any responsibility or liability for the same.