US sanctions on Iran threaten PM Modi’s major foreign policy achievement

“Any nation that helps Iran in its quest for nuclear weapons could also be strongly sanctioned by the United States,” warned US President Donald Trump on Tuesday afternoon, shortly before unilaterally pulling out America from the Joint Comprehensive Plan of Action (JCPOA), or the Iran nuclear deal.

US’ National Security Adviser John Bolton informed mediapersons later in the day that US had reinstated sanctions in place against Iran, before 2015, straight off the bat following Trump’s announcement.

Buying oil from Iran would be seen by the US government as defiance of the new sanctions. Companies already doing business with Iran have been given a grace period of three to six months to wind up their dealings.

For India, the fate of the Chabahar port project stands to be affected by the current round of economic sanctions.

An Iranian embassy official in New Delhi told NH that renewed American sanctions on Iran would make it further difficult to transfer funds to the country. The banking channels have not fully recovered from the last round of economic sanctions before 2015, the official said, adding that offers to start making payments in local currency and setting-up of an Iranian bank in India were not being encouragingly pursued by the Indian government wary of the US administration.

The $20 billion Chabahar Port project, and the International North-South Corridor (INSTC) agreement between Iran, India and Russia, could be protected from US sanctions if India could speed up the funding for these projects, said the Iranian diplomat.

The official noted that Israel had been pressuring India to dump the Chabahar port and the INSTC, as a blowback from intensifying Israel-Iran rivalry in the Middle-East. How receptive was Prime Minister Narendra to such suggestions from Israeli PM Benjamin Netanyahu when the two leaders met earlier this year is a big question.

According to the Iranian official, Tehran wouldn’t hesitate to involve China in the Chabahar project if India fails to keep up its funding commitments. Such an eventuality would be a major setback for the Prime Minister Narendra Modi’s government, which is selling off the sealing of agreement on Chabahar as its major foreign policy achievement, the official noted.

During his visit to Pakistan in March, Iranian Foreign Minister Javad Zarif invited Pakistan and China to participate in the Chabahar Port.

The embassy official said, “Until India could demonstrate its policy of strategic autonomy through actions, Indian government’s words would just be seen as mere rhetoric.”

Involving China in Chabahar would also mean that the strategic significance of the project would be significantly reduced, since the Iranian port is viewed as a check on the China-funded port of Gwadar across the border in Pakistan.

Oil trade

India pays Iran for its oil in Euros. The very fact that major European powers- France, Germany and the United Kingdom- have reiterated their commitment to upholding the JCPOA means that energy trade between the Tehran and New Delhi wouldn’t be impacted, at least in the short run.

Iran is India's third-largest oil supplier behind Iraq and Saudi Arabia. It supplied 18.4 million tonne of crude oil during April 2017 and January 2018 (first 10 months of 2017-18 fiscal).

Iran was India's second biggest supplier of crude oil after Saudi Arabia till 2010-11 but western sanctions over its suspected nuclear programme relegated it to the 7th spot in the subsequent years. In 2013-14 and 2014-15, India bought 11 MT and 10.95 MT, respectively from it.

"Immediately there will be no impact but we have to wait and watch how other nations particularly the European block, react," AK Sharma, Director (Finance) of Indian Oil Corp (IOC), the country's largest oil firm, told PTI news agency.

“If the European Union (EU) were to continue status quo and not re-impose sanctions, Iranian supplies to India will continue unhindered,” he said.

Ashok Dhar, a petroleum expert with the Indian government, told NH that India-Iran energy relations had stood the test of time.

“There have been times when, due to difficulty in payment clearing mechanism, some temporary disruptions were created for payments, but the ties between Iran’s state-owned oil companies and the Indian Oil Corporation (IOC), and other private players, have always been based on natural trust and understanding,” said Dhar, now a Director at the Observer Research Foundation (ORF).

He, however, went on to caution that trade in natural gas between Iran and India could be a “major casualty” of the current round of sanctions, noting that Iran had the largest reserves of natural gas in the world.

India has been involved in negotiations for bringing Iranian gas to the country, either through the $7.5 billion Iran-Pakistan-India (IPI) pipeline, or a subsea pipeline through Oman to Porbandar. It has been estimated that importing natural gas from Iran could save India around $1 billion in import bills annually.

Dhar said, “India has to find a way to protect its trade in natural gas with Iran the same way it has done in the case of oil imports.”

(with inputs from PTI and IANS)