With Iran ready to relinquish its commitments to the nuclear deal a year after the US abandoned it, all eyes are now on the remaining parties to save the Obama-era agreement in order to deescalate rising tensions in the Gulf region.
Over the last week, Tehran has indicated it will resume uranium enrichment if Europe, Russia and China don’t honour their commitments to the 2015 deal. President Hasani on Wednesday issued an ultimatum of 60 days to find a solution to the newly imposed trade sanctions, thanks to US president Donald Trump’s dangerous Iran policy. Since then, there has been a steady convergence of US aircraft and anti-missile defence systems in the region, prepared to respond to alleged Iranian threats against western troops.
Germany, France and the UK are now faced with a monumental challenge to circumvent the tyranny of US oil, banking and metals sanctions on Iran that is crippling the Islamic Republic’s economy without the desired effect: bringing Iran to the negotiating table to hammer out a more comprehensive and acceptable nuclear deal.
While Russia and China have openly condemned Trump’s saber-rattling with Tehran, Europe’s continued alliance with Washington, however frayed, poses a distinct dilemma. In a joint statement, the E3 on Friday rejected Iran’s ultimatums, sought restraint, and cooperation from all the parties. But it seems to regional experts that New Delhi, which was the largest importer of Iranian barrels until April 22 when Trump suspended the waiver on six Asian countries to purchase oil from Iran, can play a role in salvaging the deal.
Another name that has come up in bringing about a resolution is India’s.
India is the second-largest buyer of Iran’s oil, or it used to be until the US sanctions hit this part of the world.
Iran’s oil is known to satisfy 10% of the country’s oil needs, without which, New Delhi will probably have to resort to more expensive sources like Saudi Arabia, Mexico and Kuwait to fill the void. So the best thing for both Iran and India is to diplomatically resolve the nuclear issue by relaxing the economic sanctions.
Without tangible action, the European Union’s “determination” to pursue efforts that enable continuation of legitimate trade with Iran has not and will never work.
In the face of Europe’s impotence, Asian power centres Beijing and New Delhi can and must take a stand, by opting to continue oil trade with Tehran, under the alternative financial mechanism INSTEX that helps circumvent the US sanctions. The EU has at least cursorily agreed to increase its financial commitments to INSTEX.
Simply put, if two of Iran’s most powerful continental trade partners pump in the oil money vital for its economy, the P5+1 nations can pressurise Tehran into meeting its nuclear commitments.
But there is the issue of US sanctions on nations that violate the Iran oil ban. China increased imports of Iranian crude in April in open opposition to the unilateral US sanctions, but India, by contrast, almost halved its Iran oil purchase since the six-month-waiver period began last November.
EU officials said this week that China has agreed to buy Iran’s oil but risks facing more US sanctions; Delhi too has reporedly expressed interest in joining INSTEX to buy Iran’s oil. But the feasibility of the system poses a big question.
It is also worth noting that unlike China, India is an ally to both the US and Iran, which means that the next step has to be taken with caution.
Speaking to Fair Observer, expert Sumitha Kutty said: “India is keen to preserve its close partnership with the US but—like any other state—prioritises securing its own interests. It has to strike the right balance here and manages to do so with some bargaining and accommodation. The Modi government’s official position is that it only recognizes UN-endorsed sanctions. The previous Indian government also held the same stance. Any Indian government has to sell its position to a domestic audience first. Even though, in practice, India has met the US halfway by adjusting its imports and non-essential interactions with Iran.”
“What helped New Delhi in the past was that the Obama administration did not define what “significant reductions” entailed. That has now changed with Donald Trump’s push for zero. The move has certainly irked New Delhi, given its strong belief in strategic autonomy. It has always maintained this position even as it works closely with the US on aligned interests,” she said.
What’s the deal with INSTEX?
INSTEX, a special purpose vehicle (SPV) launched by European countries, has been in use since last year to nullify the threat of sanctions and primarily, to continue trade outside of US interference to monetary payment systems.
Experts have argued that the system is limited, and may even fail to meet the norms of legitimate financing, as laid down by the Financial Action Task Force. More importantly, it could invite more US sanctions.
Essentially a means of barter trade, it nonetheless sends a loud message that P5+1 will go their own way on Iran and US financial primacy, even if it won’t openly stand up to Trump’s disastrous foreign policies.
Since reports of a possible first transaction between the EU’s INSTEX and Iran’s mirror institution SATMA emerged Friday, the US voiced its concerns and hope that its European allies will prevent Iran from using the conduit to launder money or finance terrorism.
Between 2012 and 2016, when Obama-era financial sanctions disconnected Iranian banks from SWIFT, the largest international payments network tied to more than 11,000 banks around the globe, the US still levied heavy sanctions on European banks that continued to conduct businesses with Iran. In the intervening period, however, cryptocurrencies came to be increasingly adopted as a payment mechanism in dealings with Iran.
Since January, Iran has reentered into negotiations over the blockchain, with the UK, Switzerland, South Africa, France, Russia, Austria, Germany and Bosnia. There are further reports to suggest that following Venezuela’s suit, Iran launched its own state-backed cryptocurrency, digitising the rial via a gold-backed token called Paymon.
Iran-India relations vs Iran-US relations
While India’s relationship with the US has improved in leaps and bounds since the 2008 nuclear agreement, a 2005 BBC poll showed that 71% of Iranians think India’s influence is positive, not only in terms of trade but because neither nation presented a security threat to the other.
India has always depended on Iran’s energy while Iran needs India’s industrial products, generic pharmaceuticals, food grains like rice, and services. Bonds between the two Non-Aligned Movement heavyweights have strengthened ever since the 1990s when they supported the Northern Alliance in Afghanistan against the Taliban regime. Both countries also signed a defence cooperation agreement in December 2002. After the Pulwama attack, however, India hasn’t responded well to Iran’s warming up to Pakistan with which it shares the Balochistan border.
But that is nothing compared to the decades of animosity Iran shares with the US. The Islamic Revolution of 1979 had proven to be a tipping point in Iran-US relations when millions of Iranians overthrew the Shah—widely believed to have been controlled by the CIA—and put the clerical regime in power. Ever since, the US has not been able to infiltrate Iranian politics and the Republic’s policies soon became synonymous with anti-US rhetoric.
The US has been vetoing Iran’s bid to enter the World Trade Organisation (WTO) for over two decades now. The Trump administration has recently branded the country’s Revolutionary Guards (IRGC) as a foreign terrorist organisation. It also sanctioned 14 individuals and 17 entities linked to Iran’s sketchy Organization of Defensive Innovation and Research recently.
Tyranny of sanctions
US sanctions, imposed first in August 2018, saw many European companies back out for fear of sanctions, choking an already ailing Iranian economy. Recently, Huawei’s top executive was arrested in Canada at the request of US prosecutors that had charged her with violating Iran sanctions.
Oil sanctions began in November, following which foreign shipping lines started backing out of Iranian deals under pressure from US sanctions. These have cut Iranian oil exports by about one million barrels per day. With the complete end of exemptions, analysts now expect the Islamic Republic’s exports to fall by another several hundred thousand barrels per day.
Collateral damage from this renewed conflict is also being felt by Iran’s push for alternative energy. After the sanctions threat last year, British renewable energy investor Quercus pulled the plug on a $570 million solar plant, which would have been the world’s sixth largest, with a 600 megawatt (MW) capacity. Scheduled to have been up and running by 2022, it was part of Iran’s efforts to increase the share of renewable-produced electricity in its energy mix, partly due to air pollution and to meet international commitments.
What’s behind all the saber-rattling?
The official reason is to turn up the pressure on Iran and bring it back to the table to negotiate a more acceptable nuclear deal.
But Iran has no capability to deliver a weapon of mass destruction (WMD) inter-continentally from which the US would be unable to shield itself. In short, it poses no existential threat beyond the middle east and Iran’s signature to the JCPOA is the biggest proof of its distinction from North Korea’s nuclear ambitions. It may be worth noting at this point, that the US does not seem to have any objections to India’s own proliferating nuclear arsenal either.
These contradictory attitudes have led many experts to suspect that the scandalous disinterest of the Trump Administration in improving relations with Iran could be a part of the US agenda to empower regional rival Saudi Arabia, economically as well as politically, in a bid to control the region via proxy wars.
For Iran, the solo existential threat is posed by Sunni extremist groups like Al Qaeda, ISIS and their sponsors that ostensibly threaten Shiite interests, keeping Iran engaged in the proxy conflicts across the Middle East and North African (MENA) region.
While acknowledging that Iran’s regime is a prime funder of terror groups in the MENA region and an ally of Bashar al-Assad’s murderous rule in Syria, Jonathan Friedland writing for The Guardian, still condemns the US for being a rogue state risking global security for vested interests.
There can be no other explanation for arming the Saudis with billions of dollars. There is justification for deliberately picking sides in a schism raging in Islam since the 7th century AD that cannot be solved by military conflict.
Smartly, India has never taken a side in this war. But now it stands to bear the brunt of it, following the loss of Iranian oil.
According to Reuters, India’s oil imports, which stood at 24 million tons in 2018-19, fell about 57% year-on-year in April, the last month when New Delhi was allowed to load Iranian oil ahead of US sanctions stopping purchases.
Since November, only state-run Indian Oil Corp, Bharat Petroleum Corp, Hindustan Petroleum, and Mangalore Refinery and Petrochemicals have been buying Iranian oil. The period also coincided with the lacklustre performance of the rupee and a spike in petrol and diesel prices.
Meanwhile, the US has clearly refused to part with its own oil nor procure it at a subsidised rate from its OPEC partners, despite ensuring alternatives that are likely to include Saudi Arabia, Kuwait, Mexico, Guyana. Saudi shale company Aramco has already agreed to increase its oil supply to India to fill the gap. With the future of energy security as uncertain as this, India may have to end up purchasing Arabian or American shale that is a lot more expensive than the discounted barrels from Iran.
It is unjust to curate situations compelling developing countries to shell out a massive chunk of their GDP, when cheaper options exist. Furthermore, the end of exemptions over importing oil from one of the most important OPEC members will not only disrupt the existing energy distribution network but also destabilise the global economy.
As expected, oil topped $74 a barrel this Monday, its highest in six months on fears of shortage due to expected removal of supplies from Iran. It could hit $100 a barrel or more, about 0.6% could be wiped off global growth this year, and inflation could rise by 0.7 percentage points, reports Al Jazeera.
Besides the economic and energy deficits India is likely to face without Iranian oil, New Delhi also has a vital interest in the development of the Chabahar Port in the Sistan and Baluchistan province of southern Iran. As Iran’s only oceanic port, Chabahar is a strategic route that connects Iran, Afghanistan and India and completely bypassed Pakistan. India took over the operation of the port in December 2018.
Prarthana Mitra is a staff writer at Qrius.