Explained: How US ending sanctions waiver for countries importing Iran oil will affect India

US President Donald Trump is ending sanctions waivers for allies importing oil from Iran. On Monday, April 22, Secretary of State Mike Pompeo is expected to announce that the US will no longer exempt countries from the sanctions placed on Iran’s oil supply.

India, Japan, South Korea, and Turkey— all US allies—will likely be hit with this decision, as will China.

Reports say the Trump administration will not renew waivers that protected its allies from sanctions placed on Iran. The waivers are set to expire on May 2.

ABC News says, “It was not immediately clear if any of the allies would be given additional time to wind down their purchases or if they would be subject to US sanctions on May 3 if they do not immediately halt imports of Iranian oil.”

The US initially granted waivers to allies to safeguard them from the sanctions if they eventually end their supply from Iran.

Italy, Greece, and Taiwan cut off oil imports from Iran last year in November. But Japan, China, India, Turkey, and South Korea did not.

Turkey has publicly stated that its energy needs are dependent on Iranian oil imports and that it cannot close off its borders to its neighbour.

When did the sanctions on Iran come…

Trump imposed sanctions on Iran after he made the US pull out of the Obama-led Iran nuclear deal of 2015.

The 2015 deal, formally known as the Joint Comprehensive Plan of Action (JCPOA), lifts sanctions on Iran in exchange for the country ensuring its nuclear programme is “exclusively peaceful”.

Under this deal, Iran was to get billions in relief on lifting of sanctions on its trade, technology, finance, and energy sectors. The country’s oil sector alone had suffered a loss of $160 billion under sanctions.

Iran agreed to get rid of its centrifuges and most of its bomb-making material and promised not to acquire or develop nuclear weapons in the future. The country even agreed to regular, on-ground monitoring and inspections by international officials.

Although Saudi Arabia and Israel protested to the deal, claiming Iran is dishonest about its nuclear intentions, the US, China, Russia, UK, France, Germany, and EU at large signed the deal with Iran.

The signatories agreed that the deal wasn’t perfect but a step in the right direction. However, after being elected, Trump made the US back out of it, saying the deal was “terrible” and “defective at its core”.

He also said it is ludicrous to believe Iran’s “murderous regime” only wants a peaceful nuclear energy programme. He added that the 2015 deal was a gateway to Iran acquiring a nuclear arsenal that could be used against the US.

Hence, in 2018, Trump announced that he would cancel the previously negotiated deal and threatened Iran with “consequences the likes of which few throughout history have ever suffered before”. He also re-imposed sanctions on Iran’s oil exports.

…And why?

Later that year, he said he was “ready to make a real deal” with Iran but offered no details. In contrast, the UK, France, and Germany agreed to honour the 2015 deal and condemned Trump’s actions because they believe that the deal is the current strongest deterrent to an arms race in the Middle East.

The US believes that oil sanctions will help increase pressure on Iran because they will choke its import revenue. US National Security Adviser John Bolton said, “The policy is not regime change, but we definitely want to put maximum pressure on this government.”

Iran disagrees and has accused the US of violating international law by backing out of a signed agreement. President of Iran Hassan Rouhani has also said he will initiate an “economic war” with the US if required.

Iran Foreign Minister Javad Zarif tweeted that the US was bullying Iran, and Trump’s isolationist mindset cannot be allowed to destroy the international order.

Impact on the Indian economy

Trump said companies that do business with Iran will not be working with American companies. The US can blacklist Indian companies and seize their assets.

However, India, China, and Turkey said they weren’t willing to cut off business ties with Tehran.

Andreas Schweitzer of Arjan Capital told Reuters that the impact of sanctions depends on the exposure of a country to the US market.

US-India trade stood at $142 billion in 2018, including $83 billion in exports from India. India is the ninth largest trading partner and 10th largest exporter to the US.

Prior to the 2015 Iran nuclear deal, India was weaning off its oil imports from Iran. However, the deal opened up more avenues for India.

Hence, as the country’s third largest importer of oil, India stands to benefit from an association with Iran. In 2018, despite the threat of sanctions, India imported six million barrels from Iran.

Minister of External Affairs Sushma Swaraj said India only abides by sanctions imposed by the UN, not other countries.

India and Iran also bypass Pakistan and connect through the Chabahar port where India has reportedly invested $500 million to counter the China Pakistan Economic Corridor.

Experts also say Trump’s decision to impose sanctions threatens the US’ influence in the South Asian region where India is a major power and a traditional American ally.  

Rhea Arora is a Staff Writer at Qrius

Iran Nuclear DealOilUS-Iran