Last week, a Committee of Secretaries headed by the National Security Advisor decided to first approach Washington to keep Indian entities out of the sanctions using the exemption clause wherein the US President certifies that the waiver is vital to US national security interests.

Pending that, Indian enterprises would be advised to consider venturing into Iran in consortium with Russian, Chinese or Kuwaiti companies to make it harder for the US or the European Union to single out a country or company.

Another option from the Ministry of External Affairs is to create new corporate entities that will not have any financial exposure in the US or EU so that they are insulated from any retaliation.

“Political engagement with Iran, while of great importance, may not be sufficient to ensure that our interests are protected. Economic engagement with Iran is also necessary and would help us in promoting our energy security, connectivity and opening of new markets, and to underpin our political objectives,” said the MEA paper on “International Sanctions on Iran and Way Forward for India-Iran Relations”.

While the prime reason for India’s continued interest in Iran is the need for energy security through steady flow of crude oil and natural gas and acquisition of oil and gas fields there, a concern was raised at the July 20 CoS meeting that India’s withdrawal would give China an additional handle to enlarge its presence in Iran.

The MEA said that China was taking “a conscious decision to step into the vacuum created by the exit of western and other companies” since sanctions were strengthened in 2007. It had stepped up its petroleum product exports to Iran and signed three pacts on oil and gas fields.

Other “creative mechanisms” recommended by the MEA were:

n A Rupee-Rial arrangement for settling bilateral trade to avoid a ban on Indian banks from access to the US or EU financial system.

n An arrangement to open letters of credit in Rial, as suggested by the Iranians at the 16th session of the India-Iran Joint Commission.

n Investment by Indian firms through joint ventures in mining, fertilizer, food processing, pharmaceuticals and automobile projects that are not currently sanctioned.

n Opening of warehouses for fast-moving Indian products in Iranian Free Trade Zone with a mechanism to provide insurance cover for political and economic risks.