US exit from the Iranian ‘Nuclear Deal’: Indian challenges and responses

Published: July 16, 2019 7:52:37 PM

President Trump’s antagonistic attitude towards the deal was clearly even during his election campaign when he called the deal as ‘horrible and one-sided’.

When Trump first pulled out off the nuclear deal, oil shot up to over a barrel and it fell to nearly after the US administration unexpectedly granted the waivers.

By Prof Anisur Rahman

President Donald Trump’s unilateral withdrawal from the Joint Comprehensive Plan of Action (JCPOA) on May 8th, 2018, raises concerns for Iran and other stakeholders of the deal. JCPOA or BARJAM a Persian acronym for “Iranian Nuclear Deal” was brokered between President Barack Obama and President Hassan Rouhani on July 14th, 2015 in Vienna. The agreement was a detailed blueprint for the denuclearization of the Iranian Nuclear Programs with provisions of intrusive inspection, ratified by China, France, UK, Germany and the other European countries.

President Trump’s antagonistic attitude towards the deal was clearly even during his election campaign when he called the deal as ‘horrible and one-sided’. Once elected, Trump began the process of re-imposing sanctions on Iran lifted under the deal. His policy of ‘maximum pressure’ on Iran is composed primarily of sanctions. According to figures compiled by the US State Department, the campaign of “maximum pressure” has put 26 rounds of sanctions, forced 1.5 million barrels of Iranian oil off the market, blacklisted more than 70 Iran-linked financial institutions, denied 75 tankers the flags to sail, and forced the exit of 100 plus corporations from Iran. More than 20 countries have ended all imports of Iranian oil that has resulted in the loss of $10 billion in revenue to the Iranian government.

The Iranian economy and currency value are declining day by day. Statistics show that one US $ is equal to 42,105 Iranian Riyal and the unemployment rate is 15 percent in the current year. Also, due to the earlier round of sanctions the Iranian aviation industry is facing acute shortages of spare parts. The defense sector too is facing research and ammunition shortages. The International Monetary Funds predicts that in the current financial year, the Iranian economy is expected to contract by six percent with an inflation of 32.2 percent, and fiscal deficit is projected to widen as incomes continue to fall due to lower tax revenues and oil exports. Although the other three signatories to the deal France, Germany, and the United Kingdom are trying to evolve an alternate mechanism for bypassing the U.S. sanctions (Instrument in Support of Trade Exchanges or INSTEX), but operational modalities, implementations, and outcomes remain a challenge.

The US decision to not renew waivers for oil imports from Iran is impacting India. Media reports quoting unidentified sources however indicated that New Delhi had lined up alternate sources to purchase crude oil from countries such as Saudi Arabia, Kuwait and Mexico. Iran in 2017-18 was its third-largest supplier after Iraq and Saudi Arabia and met about 10% of total needs. The rise in global oil prices will have a cascading effect on New Delhi’s oil imports and its subsidy bill. Since 2014, the fall in worldwide fuel prices has allowed the Indian side to perform well on the fiscal deficit front.

When Trump first pulled out off the nuclear deal, oil shot up to over $85 a barrel and it fell to nearly $50 after the US administration unexpectedly granted the waivers. Iran understands India’s problems in dealing with an unpredictable energy market and will do everything it can to ensure the security of India’s energy supply. India’s relations with Iran are also complicated by the impasse over Indian investment in developing Iran’s Farzad B gas field. On the other hand, India and the US signed a 20-year agreement for importing LNG from the US. The US also exports oil to India. Saudi Arabia is playing active energy diplomacy in the India energy market and will be able to export more oil to India. Iraq is also holding onto potential to export more oil to India.

Geopolitical, Iran’s foreign trade in the past decade has witnessed a growing tendency toward Asia. Over 60 percent of Iran’s crude oil has gone to China, India’s and Japan. Lack of accesses to the US-led global financial system has also driven Iran towards more imports from Asian countries with transactions increasingly based on local currencies rather than the US dollar.

Speaking at the ‘Urja Sangam’ conference in March 2015, the Prime Minister had said that India needs to bring down its oil import dependence from 77 percent in 2013-14 to 67 percent by 2022. But with consumption growing at a brisk pace and domestic output remaining stagnant, India’s oil import dependence has risen from 82.9 percent in 2017-18 to 83.7 percent in 2018-19, according to the oil ministry’s Petroleum Planning and Analysis Cell (PPAC). India stopped importing oil from Iran when American oil waivers came to a halt. To reduce Iran’s crude oil export to zero, the US ended waivers that had allowed the top buyers of Iranian oil, including India. India’s moves over the last few years to develop berths at the Shahid Beheshti port in Chabahar was a key part of its plans to circumvent Pakistan’s blocks on trade with Afghanistan and the new U.S. sanctions could slow or even bring those plans to a halt depending on how strictly they are implemented. The new U.S. National Security Adviser, John Bolton, have a tougher line on Iran and any further restrictions they place will make India’s Chabahar plans more expensive and even unviable.

Beyond Chabahar, India has been a founder of the International North-South Transport Corridor (INSTC) since it was ratified in 2002. It starts from Iran and aims to cut right across Central Asia to Russia over a 7,200-km multi-mode network, cutting down transportation and time taken by trade by about 30%. Plans for INSTC sped up after the JCPOA was signed in 2015 and sanctions on Iran were lifted. New U.S. sanctions will affect these plans immediately, especially if any of the countries along with the route or banking and insurance companies dealing with the INSTC plan also decide to adhere to U.S. restrictions on trade with Iran. Hence, to avoid any escalation regional and international players must show restraint.

(Author is Professor & Director, UGC-Human Resource Development Centre, Jamia Millia Islamia. Views expressed are personal)

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