Round  The World

New Delhi, 14 April 2015

Lifting Sanctions on Iran

INDIA TO BENEFIT IN TRADE, ENERGY

By Ashok B Sharma

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 skeptic to 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 election of Tehran’s one time nuclear negotiator, Hassan Rouhani as the new 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 on April 2, this year, the devil lies in the details for implementation which is slated to be finalized by July 1.

But 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.

The lifting of the sanctions imposed and thereby ending its economic isolation is likely to help Tehran repair its shattered economy, but also 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 after 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% more over 2013 levels – this caused Washington to raise its eyebrows. 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 later dropped to the seventh rank on the impact of sanctions imposed. Iran has the world’s fourth largest proven gas reserves, but due to the sanctions imposed, Indian companies are unable to exploit these resources. Further there are proposals for an Iran-Pakistan-India gas pipeline.

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 on 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 jewelry, engineering products, pharmaceuticals, automobiles and auto components holds out new promises.

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 transit route to India to Afghanistan, which Pakistan has so far denied. It has offered India to use its Chabahar port to transit goods to Afghanistan by road and rail. New Delhi has agreed to invest in this project but the progress has so far been slow and tardy. This connectivity to Afghanistan can also extend beyond to natural resource-rich Central Asian republics and Russia.

The phasing out of sanctions that will help Iran to develop economically, will also project it as an effective political power in the region. 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 Assad regime in Syria and Shia group in Iraq. The Sunni dominated Saudi Arabia is perturbed over the Yemeni President Abed Rabbo Mansour Hadi overthrown 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 are of the view after the Lausanne deal comes into effect, US may gradually distance itself from its ally Saudi Arabia and play a more balancing role between the Shias and the Sunnis in the region. Riyadh is therefore not pleased over Lausanne deal that may pave the way for a resurgent Iran. Israel, too, has made open its reservations over the recent deal with Iran. But President Obama has made clear that US will endeavour to see 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 the 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 his statement 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. For the deal to be a success, President Obama faces the challenge of the Republican hawks in getting ratified by the Congress for lifting of sanctions. If all goes on 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 the path of its economic recovery. India will also stand to benefit in the process.----INFA

(Copyright, India News and Feature Alliance)