India and Iran sanctions

The Wall Street Journal, Since Iran announced its intention to build a nuclear bomb, it has had a friend in India. The world's most populous democracy has hosted Mahmoud Ahmadinejad, invested in Iran's energy industry and criticized U.S. efforts to curb the regime's money lifeline. How encouraging, then, that Delhi is changing its tune as sanctions momentum builds.

Last Monday, India's central bank banned local companies from doing business with the United Nations' Asian Clearing Union—a clear slap at Tehran, which uses the opaque organization to evade U.N. and U.S. sanctions. Delhi didn't cite that as the reason for its actions; its statement noted only "difficulties" in payments and receipts. But Iran reacted a day later by refusing to sell oil to India, which means the mullahs got the message.

It may be going too far to interpret this news as an Indian about-face. India imports about 14% of its oil from Iran and isn't likely to abandon a key supplier. Reacting to last week's news, India's largest corporate lobby suggested companies might evade sanctions by settling in currencies "other than the euro and the U.S. dollar."

There are still plenty of jurisdictions in which to do that business. Malaysia, Hong Kong and France, for instance, host Iranian banks that the Treasury Department has banned from the U.S. While it's laudable that India is making trade with Iran more difficult in the short term, its action won't matter much if companies simply shift their trade to other willing conduits. Iran still exports around three-quarters of its oil to Asian nations, including China, Japan and South Korea.

Yet the more countries that enact sanctions, the harder it will be for companies to justify the business. Under U.S. law, Treasury can ban companies that transact with Tehran either explicitly or through a third party. Whatever their public rhetoric, Indian companies will not want to be on such a U.S. blacklist.