Iraq: Modi’s black swan moment

This column first appeared in Mint, on June 23, 2014.  Like other products of the Brookings Institution India Center, this is intended to contribute to discussion and stimulate debate on important issues. The views are solely those of the author.

In the grand scheme of candidate, and now prime minister, Narendra Modi ‘Iraq’ never featured either benignly or as a potential cause of concern. Yet, these four letters, coupled with the dreaded acronym ISIS (variously elaborated as the Islamic State of Iraq and Syria or the Islamic State of Iraq and the Levant), have landed a triple-whammy on the nascent Narendra Modi government.

First, there is the emotionally charged issue of 40 Indian hostages in Mosul and concern for the well being of other Indians (estimated to be anywhere between 10,000 and 20,000—though no one has an accurate count) in Iraq. The fact that most of the Mosul hostages and another group of 46 trapped in Tikrit are from Punjab and Kerala respectively—states not ruled by the BJP—could have domestic political repercussions.

In addition, although India imports only around 13% of its oil requirements from Iraq, the ISIS control of Iraq’s oil-rich areas and the battle for the country’s main refinery has, predictably, shot up the global price of crude oil from a steady $105 per barrel to a volatile $115 per barrel. This spike will add on an estimated Rs8,000 crore per month to India’s already massive oil bill.

Finally, to make matters worse, the higher oil prices and the resultant higher trade deficit have weakened the rupee against the dollar, further increasing India’s import bill and economic plight.

Iraq has become a classic “black swan event”—one that no one predicted and that is likely to have a profound impact on India’s development agenda. It also underlines the contemporary dilemma: India can afford to ignore developments outside its immediate neighbourhood only at the risk of its own well-being.

Until recently India’s Middle East policy, according to David Malone, author of Does the Elephant Dance?, has provided “significant dividends” ranging from huge remittances from the Indian diaspora to uninterrupted energy supplies. Indeed, “this traditionally inhospitable terrain for the diplomacy of non-regional actors has yielded highly successful results for India”. However, given the dramatic upheavals in the region—triggered from within and without—the traditional Indian policy is providing diminishing returns and needs to be revised.

In the short term, India may well resolve the hostage crisis by working with the Iraqi Red Crescent and other actors in the region (Ajit Doval, the current national security adviser had previously negotiated the successful release of passengers from an Indian Airlines plane hijacked to Kandahar in 1999). Similarly, it might also manage to mitigate the rising oil prices and alleviate the depreciating rupee crisis. But these are all likely to be temporary measures.

In the medium-to-long term India will have to fundamentally rejig its approach to ensuring the safety and security of its citizens, moving towards energy independence and strengthening the rupee.

To secure its citizens, India will have to get more involved with the ongoing political transformations in the region. While this is beyond the capacity of New Delhi alone, it would do well to work with other carefully selected partners (the Arab League is not credible). The US, pushing for the rights of migrant workers in Qatar and being the primary external sponsor of the regional transformations, would have to be engaged by Modi. Similarly, the UN, the G-20 and IBSA might be other logical venues for India to use to support political changes in the region.

On the energy front, the crisis might be an opportunity to reduce crippling subsidies and also launch an initiative to wean India off its dependence on Middle East oil and gas by exploring other sources and energy options, particularly nuclear.

Clearly, the Iraq/ISIS crisis has caught the Modi administration off-guard. However, it might provide just the right incentive to rework India’s policy to this volatile region: the long-term gains will, clearly, outweigh the short-term pains.