Sanctions on India

Patrick Crow
Washington, D.C.
[email protected]

About the same time the U.S. decided not to pursue certain trade sanctions that had failed to block oil and gas investment in Iran (see story, p. 18), it applied sanctions against India.

The U.S. and other nations strongly objected when India recently conducted underground nuclear tests, although Japan was the only other major country to use sanctions.

The Clinton administration terminated all foreign aid for India, except for food or other agricultural commodities and all defense aid. It blocked U.S. banks and federal agencies from offering loans, credit, credit guarantees, or other financial assistance.

The U.S. Export-Import Bank said that would affect about $500 million of pending U.S. exports and another $3.5 billion longer term.

The administration said it will oppose loans or technical assistance by international financial institutions. The World Bank has $15 billion in outstanding credits to India and planned to extend $3 billion more this year.

And the administration banned the export of goods and technology that the Commerce Department must license.

U.S. position

Sec. of State Madeleine Albright said India's new ruling coalition, led by the Bharatiya Janata Party, ordered the nuclear tests "to establish that India has a proven capability for a 'weaponized' nuclear program."

She said Indian officials claim they are concerned about border problems with China, the latter's ties with Pakistan, and "what they view as continuing hostility from Pakistan and Pakistani support for terrorism in the disputed territory of Kashmir."

Albright said, "We cannot see how any of these concerns will be effectively addressed by testing nuclear weapons."

She said, "India's decision is a repudiation of international efforts to contain the further spread of nuclear weapons and pursue nuclear disarmament."

Albright added, "We continue to respect India as a complex, democratic society, and we wish neither to diminish India's achievements nor underestimate its potential. But, we regret deeply that its current leaders believe that they must detonate nuclear weapons in order to be taken seriously as a nation."

Effect in U.S.

Albright said the sanctions "could cause major U.S. companies and financial institutions to rethink entirely their presence and operations in India."

The U.S. is India's largest trading partner and its largest source of direct foreign investment.

In the energy sector, sanctions will mostly affect the export to India of U.S. electric power generation goods and services, which were more than $300 million in 1997. About $105 million in U.S. oil and gas field equipment and supplies were exported to India last year.

The Indian government may have had geopolitical repercussions from the nuclear tests in mind when it recently proposed to allow domestic refiners to enter exploration ventures abroad to widen their access to crude supplies. It also proposed to double India's oil stockpiles to 90 days of supply and to allow refiners to establish joint stockpiles.

The U.S. sanctions may sting India, but the Iranian experience has shown the U.S. should not expect them to work long term.