US withdrawal from Iran-Nuclear Deal: Impact on India

by Rameez Raja Mir     11/5/2018

 

Introduction

The US President Donald Trump on May 8, 2018, announced US withdrawal from the historical 2015 nuclear deal with Iran. Trump stated that the 2015 agreement which included p5+1 was a “horrible one-sided deal that should never have been made.” He further stated that the United States “will be instituting the highest level of economic sanction.” He mentioned that any country that helps Iran in its quest for nuclear weapons could also be strongly sanctioned by the United States. The statements come as a shock to US allies which are supporting the deal.

Historical Facts about the 2015 Nuclear Deal

The Iran nuclear deal or Joint Comprehensive Plan of Action (JCPOA) was signed in 2015 during the Obama administration under then-Secretary of State John Kerry. It was a multi-nation effort to keep Iran’s nuclear program in check. The agreement was negotiated between Iran and p5+1- the United States, the United Kingdom, Russia, France, China, Germany and the European Union. The landmark agreement lifted all the sanctions on Iran that damaged its economy and cut its oil exports roughly in half. Iran agreed to limit its nuclear program and reduce its uranium enrichment activities. Moreover, Iran also allowed international inspectors to inspect all of its nuclear facilities, supply chains, and uranium mining sites. The deal had been an effective arms control deal that has kept Iran’s nuclear program frozen for three years.

What led to the US to the Withdrawal of the Deal

Trump criticized the deal as “defective at its core.” He said that he fears the 2015 deal will allow the Iranian regime to generate nuclear weapons. He cited the evidence of the documents that were recently released by Israeli Prime Minister Benjamin Netanyahu. Netanyahu, a leading critic of the deal, had recently revealed documents seized by Israeli intelligence, which showed that Iran had attempted to develop a nuclear bomb in the previous decade, especially before 2003. Iran has denied ever pursuing nuclear arms. The Trump administration also declared it would again impose sanctions on Iran that were suspended under the deal but allow grace periods for businesses to slow down activity gradually. The US Treasury Department said there would be ‘certain 90-day and 180-day wind-down periods’ but didn’t specify which sanctions would fall under which timelines. The department said that at the end of the periods, the sanctions would be in full effect. The newly elected US National Security Adviser John Bolton also urged everyone to avoid signing any new business contracts with Iran.

Reactions from the US allies

The leaders of US’s closest NATO allies – Britain, Germany, and France expressed ‘regret and concern’ over Trump’s decision and said they intend to continue the 2015 agreement. The leaders of the three nations in a joint statement on May 8 called on Iran to continue implementing the deal and urged Trump to avoid taking any action that would prevent them from implementing the agreement. The leaders also urged the United States to do everything possible to preserve the gains for nuclear non-proliferation brought about by the Joint Comprehensive Plan of Action (JCPoA), the deal’s official name.
Impact of the withdrawal

The withdrawal means that the US will not renew the sanctions waiver it had imposed earlier.
Though Iran’s foreign minister had previously said that re-imposition of US sanctions would make the deal null and void, leaving the nation with little choice but to abandon it as well.

On May 7, President Rouhani said that Iran could stick with the deal if the European Union, whose economies do far more business with Iran than the US, offers a guarantee that Iran would keep benefiting. However, if the nuclear deal does collapse, Iran would be free to resume its prohibited nuclear program and enrichment activities. On the other hand, businesses and banks doing business with Iran would be forced to exit such arrangements or go against the United States. For the US, though the exit fulfills one of Trump’s campaign promises, it threatens to strain US relations with some of its closest allies and disrupt a significant source of the world’s oil.

Impact of the withdrawal on India

India could face the impact of the U.S decision of the deal as well as instituting the highest level of economic sanctions in several ways.

1. Increase in inflation and degradation of the value of rupee:

The immediate effect of dismantling Iran nuclear deal will be an increase in the price of oil. Any increase in oil prices will affect India’s economy negatively as inflation is likely to increase. Furthermore, an increase in oil prices is likely to devalue the rupees which have reached to 67 to us dollar currently and any change in the oil market will impact the market as Iran is India’s third biggest supplier of oil after Saudi Arabia and Iraq. The signs of oil getting costlier have begun to show as crude prices have crossed 70/bbl barrel level. There was a commitment after president Rouhani visited New Delhi in February to increase the oil imports from Iran. New Delhi was about to double the quantity to reach 396,000 bpd barrels per day, from about 205,000bpd in 2017-18. The effect on nonoil trade with Iran will be minimal (which stood around 2.6 billion of about 12.89 billion in 2017-18) as both the countries have instituted the mechanisms including allowing investment in rupees and initiating new banking channels.

2. Chabahar:

India’s move to sideline Pakistan’s blocks on trade through building shahid behest port in Chabahar will come to a halt depending how new sanctions are implemented. India who has already spent $85 million on the development of Chabahar with total costs going up to $500 million is also looking to construct a railway line at about the cost of 11.6$ billion. All these projects and investment plans would be affected seriously if the US decided to implement a harsher sanction.

3. INSTC:

India is a founding member of international north-south transport corridor (INSTC) since its ratification in 2002. The mammoth 72000 km multimode network, which starts from Iran and aims to cut across Central Asia to reach Russia, can save time and transportation costs by 30%. The plans to speed up for INSTC were doubled after sanctions were lifted on Iran. If any of the countries among INSTC decided to join the sanctions regime of United States the INSTC project will be severely affected.

4. Shanghai Cooperation Organization:

SCO where both India and Pakistan joined last year, Iran is considered by China to be included into the eight-member Eurasian security organization. If the proposal is accepted by SCO, which is led by Russia and China, India will b seen by joining a block which is anti-American. The move may upset governments other initiatives, for example, the Indo Pacific Quadrilateral whose members are U.S, Australia, and Japan. The move may affect India’s relations with other countries who are adversaries of Iran like Saudi Arabia and Israel, with whom Modi Government has been keen to improve relations.

5. International commitments:

India has long been an advocate of ‘rule-based order’ that is based on multilateral consensus and international commitments made by states. By dismantling the deal unilaterally, the united states has given the signal that international agreements made by states any time by overruled if government changes. This will affect the behavior of India towards the United States as it has to choose the future course of multilateral and bilateral agreements. Especially in situations of ideological governments came to power as Mr. Trump’s who has scraped international agreements such as U.N Climate Change Agreement (Paris Accord) and Trans-Pacific Partnership with East Asian trading partners. New Delhi will have to reconsider its ties with Washington in these circumstances.

rameezrajapol91@gmail.com'
Rameez Raja Mir
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