Iran Sanctions Kick In

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TOPIC: General Studies 2

• India and the World
• International Relations
• Policies of developed and developing countries and their impact on India’s interests

In News: The Trump administration has said it is confident that “the toughest ever” sanctions against Iran which came into force on 5th November will have the intended effect of altering the Iranian regime’s behaviour, even as it dodged a question on whether the US has firm commitments from India and China to stop all oil purchases from Tehran within six months.

What are these sanctions exactly: The sanctions cover Iran’s banking and energy sectors and reinstate penalties for countries and companies in Europe, Asia and elsewhere that do not halt Iranian oil imports.

Countries with exceptions to the sanctions: India and China, the two biggest buyers of Iranian crude, are among eight countries that have been given the rare exemptions from the Iranian sanctions. The Trump administration said it has asked these countries including Turkey, Iraq, Italy, Japan and South Korea to bring down their oil purchase to zero as soon as possible.

Why did the US reimpose sanctions on Iran: The restoration of sanctions is part of a wider effort by US President Donald Trump to force Iran to curb its nuclear and missile programs as well as its support for proxy forces in Yemen, Syria, Lebanon and other parts of the Middle East.

How will the sanctions impact Iran and oil trade?

• Oil is Iran’s main source of income and is also the third-largest producer among the Organization of the Petroleum Exporting Countries (OPEC). In 2018, Iran exported about 2.7 million barrels per day. Through its sustained pressure, the US has managed to reduce Iran’s oil exports from 2.7 million to 1.6 million barrels a month, according to internal US estimates.
• The sanctions also come at a time when Iran is already in the grip of an economic crisis. The rial now trades at 145,000 to $1, compared with 40,500 to $1 a year ago. The economic chaos prompted mass anti-government protests at the end of last year that resulted in nearly 5,000 reported arrests and at least 25 people being killed.
• In addition, the Brussels-based Swift network for making international payments is expected to cut off links with targeted Iranian institutions, isolating Iran from the international financial system. The measures will mainly affect Iranian companies in direct business with other foreign firms. Saudi Arabia, the leading player of the OPEC committee, has said that it would fill in for the lost supply.

Impact of American sanctions on India

• First, Iran is India’s third largest supplier of oil. There are not only rising costs of oil to contend with, but also the added cost of having to recalibrate Indian fuel refineries that are used to process Iran’s special crude.
• There would be the impact on India’s regional security situation, which could see the Iranian-Arab divide deepen, Afghanistan’s choices dwindle and an angry Iran pitched closer into the China-Russia corner.

India gets US waiver for development of strategic Chabahar Port in Iran: Considered as an endorsement by Washington of India’s major role in the development of the port on the Gulf of Oman, which is of immense strategic importance for the reconstruction of war-torn Afghanistan. This exception relates to reconstruction assistance and economic development for Afghanistan. These activities are vital for the ongoing support of Afghanistan’s growth and humanitarian relief.

New Delhi had pushed back on zero oil imports, citing its adverse fallout on the economy and the inflationary impact it would have. India is the world’s third-largest consumer of oil, with 85 per cent of its crude oil and 34 per cent of its natural gas requirements being fulfilled by imports. In 2016, India imported 215 million tonnes of crude oil and at 13 per cent, Iran stood third among India’s biggest oil suppliers, after Saudi Arabia and Iraq at 18 percent each.

The Way Ahead for India:

Delhi needs to pay attention to three major trends that are changing the big picture in the Middle East.

Nature of confrontation between the US and Iran: Their objective is not just about getting Tehran to renegotiate the terms of the nuclear agreement of 2015 that Iran signed with the US and the international community. Their goal is to change the “behaviour” of the regime if not the regime itself. To put simply, we are taking an economic war against Iran that could escalate into a military conflict.

The unfolding normalisation of relations between Israel and the Gulf countries: With the increase in minister’s visits, and beyond sport and culture, there have been unconfirmed reports on the growing intelligence exchanges and security cooperation between Israel and some Gulf countries.

A new framework for peace between Israelis and Palestinians – The “Deal of the Century”: The current Palestinian leadership believes the plan will be even more one-sided in favour of Israel than the one the US was backing before. The Trump Administration, which has discarded the traditional approaches to peace in the region, is betting that Saudi Arabia and other Gulf Arabs will help nudge the Palestinians into accepting a new deal. For Washington, the political crisis over the killing of Khashoggi has come in handy to pressure Saudi Arabia into facilitating peace deals in Palestine and beyond in Yemen and Syria.

Therefore, as USA’s stakes in the region grow by the day, Delhi needs to devote ever great amounts of diplomatic and political energies to deal with the unfolding changes in the Middle East.

Note: Chabahar Port

The port in the Sistan-Balochistan province in the energy-rich nation’s southern coast is easily accessible from India’s western coast and is increasingly seen as a counter to Pakistan’s Gwadar Port, which is being developed with Chinese investment and is located at distance of around 80 kms from Chabahar. It is also considered a gateway to golden opportunities for trade by India, Iran and Afghanistan with central Asian countries besides ramping up trade among the three countries after Pakistan denied transit access to India.