Gather all ingredients.
Heat oil and margarine in a small skillet or wok over medium-high heat. Add onion and sauté until very brown, 10 to 15 minutes; do not undercook or sauce will taste funny.
Add garlic and ginger to onions; sauté for an additional 2 minutes.
Transfer mixture to a food processor and blend until smooth. Do not rinse the food processor. Place blended onion mixture in a large saucepan. Stir in coriander, cumin, cinnamon, black pepper, cayenne pepper, and turmeric; cook over low heat until mixture is thick and has a paste-like consistency.
Purée tomatoes, chile peppers, and cilantro in the food processor until smooth.
Add to onion mixture and stir over low heat, cooking off moisture from tomatoes and peppers.
Add yogurt a little bit at a time, stirring constantly to avoid curdling.
Blend mixture in the food processor until smooth
Return to saucepan, add water, and increase heat to high; bring sauce to a rolling boil. Cover saucepan and boil for 3 to 5 minutes.
Reduce heat and simmer until desired consistency is reached.
