Iran Nuclear Deal: Implications for India

10 Nov, 2015    ·   4932

Summaiya Khan examines the fall-out of the deal on India-Iran bilateral ties

The fruition of the nuclear deal between Iran and the P5 +1 seems rewarding to all involved. Iran, according to the Comprehensive Joint Plan Of Action (CJPOA), has agreed to conduct its nuclear programme in a restrictive manner. The plan requires Iran to freeze all uranium enrichment and to place its nuclear sites under IAEA safeguards. In return, Iran anticipates the termination of all economic and diplomatic sanctions imposed on it by the UN Security Council (UNSC), the European Union (EU) and the US.

The deal’s effect could impact India’s energy sector in particular. India is the second largest importer of crude oil from Iran next only to China. A stable and integrated Iran is in the national interest of India. It is because of this that India initially endorsed Iran’s right to a peaceful nuclear programme. Even when Iran was slapped with sanctions, India along with China and Russia continued transactions with Iran as India is against the unilateral imposition of sanctions. However, in 2005, with the ongoing Indo-US nuclear deal negotiation, India had to vote against Iran’s nuclear programme at the IAEA. India also had to limit trade with Iran as under mounting pressure from US.

Now with the deal being struck, India could re-engage itself with Iran in terms of transaction of energy resources. India and Iran have an annual bilateral trade of about US$ 14 billion. India owes Iran about US$8.8 billion dollars for oil that it was unable to clear due to sanctions and the scrapping of the Asian Clearing Union (ACU) by the Reserve bank of India (RBI). Though India tried to clear its oil bills through Turkey and other alternate means, it was made difficult by the US as it asked states including India not to carry out any trade until an understanding was reached. In the now changed environment, India would not only be able to clear its bills, but also purchase oil at a cheaper rate. Iran also gains from the deal as it can now have access to Indian goods that include pharmaceutical products, Basmati rice etc. The deal could open up other collaborative avenues between India and Iran. India could have a stake in various Iranian enterprises as Iran would require India’s assistance in the construction of ports, railway lines and so on.

The sanctions also stalled the transfer of natural gas to India through a pipe-line connecting India, Pakistan and Iran (IPI). The construction of this pipe-line was shelved due to security concerns between India and Pakistan. There are possibilities that talks on this project could be resumed. President Pranab Mukherjee at a conference on 'Cooperative Development, Peace and Security in South and Central Asia', addressed the need to revive the IPI, develop the Chabahar Port, and use the port to forge close ties between the Persian Gulf states. Chabahar is of strategic significance for India as its development would provide a route for India to trade with Afghanistan and Central Asia, bypassing Pakistan. The deal has geo-strategic implications for India as the lifting of sanctions could open up the possibility of establishing an international north south corridor that would allow quicker access to Eurasia. As Central Asian states have energy deposits in abundance, the route could be viable for India to access these resources.

The deal is also a spur to the Indian banking and insurance sector. Public sector banks that include the State Bank of India (SBI) and the Industrial Developmental Bank of India Ltd (IDBI) hope to revitalise financial transactions with Iran. While sanctions were imposed on Iran, trade with Iran was processed through a Kolkata-based public sector bank. With the sanctions now being lifted, these public sector banks could be empowered to support the expected trade with Iran and process the payment of India’s oil imports. India could anticipate an increase in foreign exchange through remittances by Indian expatriates in Iran.  

Despite these prospects, however, India has its own concerns regarding the openings afforded by the deal.  

India would have to bargain with Iran on a competitive basis as Iran might accord less preference to India with other stakeholders in Iran’s trade, which would include China, Russia, Turkey and the European states. India has begun to forge closer ties with Israel; it also has decades of linkages with the West Asian states - the Gulf Cooperation Council (GCC) in particular - with thousands of Indian expatriates that help bring remittances to India. As Israel and several West Asian states are at loggerheads with Iran, India must tactfully use its diplomacy to balance its equations. With a deal of this nature that has multi-dimensional implications for India ranging from the economic to the geostrategic, India must capitalise on the opportunities that the deal offers.