Context: U.S and Iran crisis and its impact on India.
US – Iran Problem:
- 1979: The US and Iran are at loggerheads since the 1979 Islamic Revolution, which witnessed the overthrow of the Shah, an American ally in the Middle East, and brought Iran under a clerical regime antagonistic to the US and its involvement in regional politics.
- 1984: Iran- Iraq War prompted Iran to restart nuclear programme.
- 1980s and 1990s: US sanctions in the 1980s and 1990s were intended to check Iran’s regional activities and compel it to cease support for terrorism.
- 2002-2015: UN and USA and EU put Economic sanctions on Iran
- July 14, 2015: Iran Nuclear Deal.
- May 8, 2018: US withdrew from Iran Nuclear Deal.
What was Iran Nuclear Deal?
- Formally known as the Joint Comprehensive Plan of Action (JCPOA), the nuclear deal was announced in 2015.
- The deal was signed between Iran and the P5+1 group (US, UK, France, Russia, China and Germany)
- It restricts Iran’s nuclear programme, in return for lifting most of the economic sanctions of against it.
Key Provisions of Deal:
- Limits on uranium enrichment: Iran’s uranium stockpile was reduced by 98% to 300kg (660lbs), a figure that must not be exceeded until 2031. It must also keep the stockpile’s level of enrichment at 3.67%.
Low-enriched uranium, which has a 3%-4% concentration of U-235, can be used to produce fuel for nuclear power plants. “Weapons-grade” uranium is 90% enriched.
- Limits on number of nuclear centrifuges: By January 2016, Iran had drastically reduced the number of centrifuges installed at Natanz and Fordo, and shipped tonnes of low-enriched uranium to Russia. In addition, research and development must take place only at Natanz and be limited until 2024. Centrifuge is a device used to enrich uranium.
- Restrictions on plutonium enrichment: Stopping Iran from operating at Arak nuclear site which was used to make plutonium.
- Iran also agreed to implement the Additional Protocol to their IAEA Safeguards Agreement, which allows inspectors to access any site anywhere in the country they deem suspicious.
- The deal increased the breakout time to 1 year. Breakout time is the time it would take Iran to produce enough bomb-grade material for a single nuclear weapon.
- Lifting of sanctions: Under the deal, Iran gained access to more than $100bn in assets frozen overseas, and was able to resume selling oil on international markets and using the global financial system for trade.
Why US withdrew from the deal?
Broadly, there are three contentious issues:
- The Iranian nuclear issue: While Iran has always maintained that its nuclear programme is for civilian and peaceful purposes, the US and its allies in the region (Israel and Saudi Arabia) refuse to believe that Iran’s programme is only meant for producing electricity or for medical purposes.
- The US has raised serious concerns on Iran’s missile programme. Iran has a robust military establishment that has developed medium- and long- range ballistic missile capabilities. Even after signing the JCPOA, Iran continued to develop and test ballistic missiles.
- Iran’s regional military expansionism and support for non-state actors including Hezbollah, Hamas, Ansar Allah, Iraq’s Popular Mobilization Unit (PMU) and Shia militias in Syria. The US and its regional allies see this as threatening their national security and regional interests.
Unilateral US Sanctions on Iran:
- After withdrawing from the JCPOA, the Trump administration reimposed economic sanctions on Iran including on its export of crude oil which came into full effect on November 05, 2018. However, a waiver was offered to eight countries on importing Iranian oil for 180 days, which came to an end on May 02, 2019.
- April 22: President Donald Trump decided to not ‘reissue Significant Reductions Exceptions (SREs)’ on Iranian oil exports to eight countries, namely China, India, Japan, South Korea, Turkey, Greece, Italy and Taiwan, when they expire on May 02 in order to reduce Iranian oil exports to zero and “deny the regime its principal source of revenue.”
- In order to apply “maximum pressure” on Iran, and curb its nuclear, missile and regional military activities, and compel it to seek renewed negotiations with the Trump administration, US further tighten the noose on Iran’s sources of revenue. Trump signed an executive order on May 08 to “impose sanctions with respect to Iran’s iron, steel, aluminum, and copper sectors,” considered to be its “largest non-petroleum-related sources of export revenue”.
Recent Tensions (2019):
- May 08: The first anniversary of the US withdrawal from the Joint Comprehensive Plan of Action (JCPOA) – Iranian President Hassan Rouhani announced that the Supreme National Security Council (SNSC) (headed by him only), has decided to suspend some of its commitments under the JCPOA toward “safeguarding the Iranian nation’s security and interests.”
- May 10: The US Department of Defense announced that it has “approved the movement of the USS Arlington (LPD-24) and a Patriot battery” to Central Command (CENTCOM) for deployment in the Persian Gulf.
- June 20: Iranian forces shoot down a US military drone over the Strait of Hormuz. The US says it was over international waters, Iran says it is over their territory.
- July 1: Iran announces that it breached the 300 kilogram limit on uranium gas enriched to 3.67 percent (202 kilograms of uranium by weight). The IAEA confirms that Iran has exceeded the limit.
- July 7: Iran announced that it would begin enriching uranium above a concentration of 3.67% permitted under the nuclear deal.
- India has strong bilateral relations with Iran. In addition to cultural and historical links, the two countries look at each other as important regional actors who have contributed positively to stability in their respective regions. New Delhi and Tehran have maintained robust political engagements since the 1990s.
- At the moment, the core of the relationship lies in strong bilateral trade, crude oil imports from Iran and cooperation in the development and operationalisation of the Chabahar Port. Iran is one of India’s major trading partners and accounts for nearly two per cent of its foreign trade.
- Energy is the most important component of bilateral trade and Iran contributes significantly to India’s energy security. Iran has been one of the top three suppliers of crude oil to India for over a decade, except during the period 2011-15 when it was under international sanctions. Moreover, India also buys natural gas from Iran and hence the total value of energy imports from Iran is even higher, accounting for 80-85 per cent of its overall imports from Iran.
- Chabahar Port: India deems the port as a gateway for its trade with Afghanistan and Central Asia.
Impact of Sanctions on India:
- Oil import: As noted earlier, the US has refused to renew the SREs issued for eight countries including India. This means that Indian companies will either have to stop buying oil from Iran or resort to a Rupee payment mechanism as was done in the past. However, during the pre-JCPOA sanctions period, the Obama administration had given exemptions to India on importing oil from Iran. Whereas now under the Trump administration, the likelihood is bleak for forging any informal arrangement to allow continued import of Iranian oil.
- Companies doing business in Iran: Other than the oil sector, India is not directly affected by US sanctions on Iran though Indian companies involved in the Iranian automobile, iron & steel and mining sectors will be affected due to additional US sanctions on these sectors.
- The Chabahar Port also does not come under US sanctions and hence Indian investments and involvement in it will not be affected. However, due to sanctions on the iron & steel sector and individuals and companies, part of India’s plan to develop Chabahar as a gateway to Central Asia, could be affected.
Road ahead of India: In the present situation, India has two options:
- To resort to buying Iranian oil through one or more informal arrangements including:
- Devising a Rupee payment mechanism to overcome the sanctions
- Joining hands with the EU, Russia and China through the INSTEX mechanism
- Teaming up with a Shanghai Cooperation Organisation (SCO) initiative to defy US sanctions.
However, if India were to undertake such a move, its multifaceted relations with the US will be hampered.
- To continue negotiating with the US to either secure a formal waiver or to have an informal understanding to buy Iranian oil.
In the meanwhile, India can offer to Iran to enhance its investments in the Chabahar Port development project as well as consider initiating other developmental and connectivity projects to strengthen linkages to Afghanistan and Central Asia. This will help India not openly defy the US or subvert its policy towards Iran but also at the same time ensure that its relationship with Iran is not completely derailed and it is also able to pursue an independent foreign policy.