Economic Highlights

New Delhi, 23 July 2018

                         Trump-Putin Meet

END OF SANCTIONS’ ERA?

By Shivaji Sarkar

The Helsinki meet between US President Donald Trump and Russian President Vladimir Putin has raised hopes for a better trade environment. This as Trump virtually gave a clean chit to Putin on interference in US elections. However, it also raised protests in some circles in the US and put Trump on the back foot.

While Trump’s conciliatory moves were watched carefully in India and other countries, the hardliners in the US are not keen on an ease of the situation as American business interests are involved. The US sanctions on Russia and even Iran are being seen as partial success.

The US industry wants to make progress and force its deals, be it arms or other areas, on countries across the world. Reconciliation on Iran or Russia is not acceptable to it. The way the US sanctions are tailored these extend not only to two countries but others having trade deals with them. This impacts many countries and India is no exception. New Delhi is keen on balancing between the US and Russia as it has strategic partnership with both countries.and is virtually being forced to do an act on the trapeze.

On the one hand, Russia is India’s top arms supplier for decades and on the other, the US has consolidated its position in the Indian defence market during the past ten years. In some areas, American traders have tried to ride the ‘Make in India’ move, whereas Russia is still cool on technology transfer and is not enamoured by ‘Make in India.’

Similarly, deals with Iran are easy and lucrative for India, be it oil or transporting to Afghanistan and central Asia through Chabahar port. Of late, Tehran extended credit on oil payments to three months, thrice the international practice along with more flexibility, much better than what Saudi Arabia offers.

Major part of India’s defence equipment is of Russian origin. During 2013-17, 62 per cent of arms imports were from Russia, according to Stockholm International Peace Research (SIPRI). Even as S-400 Triumf air defence system deal reaches final stages, the shadow of sanctions hangs. India is in talks with Russia to figure out alternative payment routes as the sanctions have created banking hurdles.

The U.S. law, Countering America’s Adversaries Through Sanctions Act, (CAATSA), is negatively affecting defense business with Russia. It is complex and extends beyond direct trade partners and India is working out ways to keep S-400 and Kamov helicopters, four stealth frigates and leasing of nuclear submarine from Russia out of CAATSA. The deal was struck by Putin and Prime Minister Narendra Modi in 2016.

This is amid the concern expressed by the US, which wants India to diversify its arms supply or in other words reduce its dependence on Russia. Army chief Gen Vipin Rawat says that it is critical to find ways to bypass CAATSA.

In a so far unipolar world, which has even hit Russia in terms of 3 per cent fall in its GDP and almost 15 per cent inflation, it is not easy to find new ways. But it has been found that sanctions, as in the case of Iran has helped it strengthen its self-dependence. The world now believes that the true economic impact of sanctions has been limited. The Russian slowdown is attributed to the global drop in oil prices.

Countries such as China, now the world’s biggest oil importer, and India, where demand is growing faster than anywhere else, had repeatedly expressed disapproval over the US measures that effectively forced them to curb Iranian crude imports. As Russia remained firm against sanctions, some European nations are questioning the sanctions in the face of Ukrainian crisis in 2012.

Globally it has been found that the average success rate of economic sanctions are limited to 20 to 30 per cent and it can be a double-edged sword as many Western Europe countries are now facing in the midst of eurozone crisis. Russia is the European Union’s third largest commercial partner, and the EU, reciprocally, is Russia’s chief trade partner, accounting for almost 41 per cent of the nation’s trade prior to the sanctions. In 2012, before the Ukrainian crisis began, the EU exported a record €267.5bn ($285bn) of goods to Russia.

With sanctions now hurting both sides, divisions are growing in Europe over whether to uphold the stringent measures. While Germany and the UK wish to maintain a hard line on Russia, other countries, including Greece, Spain, Italy and Cyprus, advocate lifting the sanctions. Europe is getting increasingly divided.

Trump’s Helsinki meet was apparently designed to send a signal to the EU. However, the domestic US situations has made Trump take some steps back and it is believed the NATO countries too are not happy as the US imposed additional expenditure on it. Trump is under pressure and on record that he does not believe that Russia is meddling in the US.

China and India are also acting against sanctions on Iran purely for economic reasons. Iran oil is not only better in quality, but the deal it has offered suits its buyers. Aware of it, the US is to hold talks with New Delhi on Chabahar. Indian diplomats are hopeful that dialogues would ease the situation, though it may take a bit of time.

To get around the problem, India and Japan offered State-backed insurance to ships, helping carriers resume shipments from Iran with protection against risks, including oil spills and collisions. Additionally, processors used tankers operated and covered by Iran to receive supplies. 

India initially paid Iran via a Turkish bank before routing payments through a domestic financial institution. It had a rupee-trade deal and worked out export of wheat, soybean and consumer products.

Gradually, the sanctions are eroding. The US industry would have to learn that it cannot rise on State muscle power for long. Trump realises this and is trying to mend fences with North Korea, Russia and certainly the next step would be with Iran and looking for a solution to the Syrian crisis.

The world is passing through a phase of belligerence, which has also led to a situation of intense dialogue. In this situation, it is the slow and steady which move ahead. India, though having a problem now, is possibly better placed to turn the tide as Prime Minister Modi’s whirlwind diplomacy would pave the way for its rise in international trade.---INFA

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