Lifting of sanctions on Iran: India to benefit in trade, energy security
by Ashok B Sharma on 15 Apr 2015 0 Comment

The recent interim deal with Iran and the western powers has given the country a chance to come out of its economic isolation. Tehran has been facing a series of sanctions imposed by the UN Security Council since 2006, on the basis of IAEA reports relating to its non-compliance with its safeguards agreement under the Nuclear Non-Proliferation Treaty. Further sanctions were imposed by the European Union and the US. But Iran remained adamant, maintaining that its uranium enrichment and reprocessing was not for development of arsenals but for peaceful uses. The western powers were sceptical about this assurance.


Several attempts were made in the past, both back channel and open negotiations, including the Geneva Accord of November 2013, to resolve the issue. But hopes were raised after the election of Tehran’s one-time nuclear negotiator, Hassan Rouhani, as Iranian President in June 2013. The US became pushy for a deal with Tehran to end the impasse.


Though the broad parameters of the recent deal between Iran and P5+1 (US, UK, France, Russia, China, Germany) at Lausanne in Switzerland in the April 2, this year, the devil lies in the details for implementation which is slated to be finalized by July 1. 


What has been achieved at Lausanne was to not to deny Iran of its uranium enrichment but to delay its programme. It will not produce or house any fissile material for at least 15 years. It will reduce its installed enrichment centrifuges from 19,000 to 6,000, only 5,000 of which will be spinning – all being first-generation centrifuges – and none of its more advanced models can be used for at least 10 years. Fordow, the enrichment facility buried deep within a mountain will be turned into a physics research centre. The nuclear programmes would be subjected to IAEA inspections. But, on the conditions for lifting of sanctions both US and Iran have given out “duelling” fact sheets.


The lifting of sanctions and ending its economic isolation will help Tehran repair its shattered economy, and benefit India in terms of oil imports on 90-day credit terms and at a discount. New Delhi is Iran’s second biggest buyer of oil after China, and once sanctions are lifted, Indian can source any amount of oil from its nearest neighbour. Sanctions have caused oil payments to Iran difficult. While India deposited rupees in an Indian bank by way of payments, Iran used these funds to pay for imports from New Delhi. Previously India used to route its payments through a Turkish bank or by following the Russian route. These complications caused delays in trade.


Last year, India imported 276,800 bpd of Iranian oil, being 42% above 2013 levels, raising eyebrows in Washington. Iran emerged as the seventh largest oil supplier to India in 2014. Till 2006, Iran was India’s second largest supplier of crude oil, but fell to seventh rank due to the impact of sanctions. Iran has the world’s fourth largest proven gas reserves, but due to the sanctions imposed, Indian companies are unable to exploit these resources. Proposals for an Iran-Pakistan-India gas pipeline remain on the drawing board.


India’s exports to Iran have also increased two-fold in the last couple of years, facilitated by the rupee-riyal payment mechanism and supported by the complementarities between the two countries. There are hopes that the bilateral trade that has not even scratched the surface will achieve its full potential after the sanctions are lifted. As Iran is likely to embark upon its new development programme after the sanctions are lifted, project exports from India will be promising. Keeping in view the long-term potential of project exports to Iran particularly in the railway sector, an umbrella financing agreement for rupee credit has already been signed between the EXIM Bank of India and Iranian banks. The financing will be on commercial terms and in rupees. India’s exports of meat, agricultural products, gems and jewellery, engineering products, pharmaceuticals, automobiles and auto components hold new promise.


India can be a partner in many development programmes in Iran and Indian companies would find new avenues for investment. The most important aspect is that Iran is prepared to offer India a transit route to Afghanistan, which Pakistan has so far denied. Tehran has offered India use of its Chabahar port to transit goods to Afghanistan by road and rail. New Delhi has agreed to invest in this project but the progress so far has been tardy. This connectivity to Afghanistan can extend beyond to natural resource rich Central Asian republics and Russia. Iran’s involvement in Afghanistan will be conducive to India and the region.


India had earlier been harping upon the proposed International North-South Transport Corridor (INSTC) that would connect Nhava Sheva in Mumbai to Bandar Abbas in Iran and Amirabad in Iran to Astrakhan in Russia for onward shipment to Moscow. But Bandar Abbas port is already congested and unable to handle heavy traffic load; Iran therefore planned to develop Chabahar port as a viable alternative. Also the proposed land and rail transit from Chabahar to Afghanistan and beyond would be more cost effective.


The phasing out of sanctions will help Iran to develop economically and project it as an effective regional power. In the current situation of Shia-Sunni divide in West Asia and North Africa, the Shias in the region look upon Iran as their natural leader. Iran is supporting the al-Assad regime in Syria and Shia group in Iraq. Sunni-dominated Saudi Arabia is perturbed over the overthrow of Yemeni President Abed Rabbo Mansour Hadi by Houthi rebels reportedly backed by Iran. It is also perturbed over Iran gaining support in its Eastern Province and in Bahrain. Riyadh, therefore, is in no mood to tolerate a resurgent Iran.


Several analysts believe that after the Lausanne deal comes into effect, Washington may gradually distance itself from its Saudi Arabian ally and play a more balancing role between the Shias and Sunnis in the region. Riyadh is therefore not pleased over the Lausanne deal that may pave the way for a resurgent Iran. Israel, too, has made open its reservations over the deal, but President Obama has emphasised that US will ensure that the existence of Israel is not endangered. Thus in the days to come, a new balance of power is likely to emerge in the region between Saudi Arabia and Iran.


Iran has so far been able to silence the hardliners at home over its deal with P5+1. Iranian Revolutionary Guards Corps are supportive of the deal, but supreme leader Ayatollah Ali Khamenei still has the last say. He has said, “What has happened so far neither guarantees a deal - or talks leading to a deal.” Perhaps this is to pacify the hardliners. In fact, Iran does not stand to lose if its nuclear enrichment is put on hold. It would gain much if sanctions are lifted.


But for the deal to be a success, President Obama faces the challenge of Republican hawks in getting it ratified by the Congress for lifting of sanctions. If all goes well and an amicable settlement for implementation of the deal is reached by July 1, 2015, all sanctions on Iran will be lifted and the country will be on a path to economic recovery. India will benefit immensely in the process.

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