“Few people have been more closely related in origin and throughout history than the people of India and the people of Iran” said Nehru.
As US and Iran are trying to bury their differences by agreeing to a Nuclear deal even though there is stiff opposition from influential section on both sides. Israel and Saudi Arabia, one of the most trusted US allies have their own reasons to be skeptical of this deal. The recent political development in the Middle East especially in wake of the rise of Sunni Militia, ISIS has its own impact the reasons being the urgency of restructuring power dynamics in the region and ensuring stability in the Middle East. The Geo-politics surrounding the deal could change with US elections scheduled this November (and total pullout of US troops from Afghanistan) and releasing of sanctions on Iran with its Oil & Gas reserves may pave way for better economy of country. But to understand the effect of this deal on Indian economy, we need to understand the nuclear deal and its significance.
Nuclear Deal: Joint Comprehensive Plan of Action (JCPOA)
Obama administration sets up a plan to contain Iran from further acquiring centrifuges that are required for enriching of Uranium to bomb grade(90% enriched uranium). The present deal provides a window for Iran’s peaceful nuclear program. P5 +1 (US, Russia, China, France and Britain + Germany) was involved in long negotiations with Iran’s leadership which resulted in lifting of harsh economic sanctions and ending Iran’s international isolation in 2006. As per the present agreement, Iran has agreed to transform its deeply buried plant at Fordo into a centre for science research. Another uranium plant, Natanz, is to roll back its enriching plans. Some 6,000 centrifuges for enriching uranium will remain spinning there, about one-third the current numbers that were earlier spinning in the facility. Iran has also agreed to limit enrichment to 3.7 percent and to cap its stockpile of low-enriched uranium at 300 kilograms for 15 years. That is considered insufficient for a bomb rush. Iran has also agreed to redesign and rebuild the Arak reactor so that it will not produce weapons-grade plutonium. All said , but a lot depends on Iran’s compliance with the stringent inspection and verification mechanism of the framework. Under the terms of the framework agreement, inspectors from the IAEA will be able to inspect any facility declared or otherwise, as long as it is deemed to be suspicious. The agreement also states that Iran will address the IAEA’s concerns about its Possible Military Dimensions (PMDs) program. Some nuclear experts are skeptical about fulfillment of the terms by Iran as they point to Iran’s past history of deception with regards to its nuclear programs. In return for complying with the agreement, Tehran will get phased relief in stringent economic sanctions that were imposed by US and its allies which would be instrumental in integrating Iran’s economy with the global economy. For Iran which has world’s second largest proven oil reserve this can be very beneficial in terms of utilizing countries oil reserve to augment the standard of living of its citizens.
The jubilation among the people demonstrates the upbeat mood in the country. Citizens are optimistic that in the long run, the deal will change the course of the country’s economy for good and will be bring new opportunities, which according to economists mean few digits increment in the GDP growth of the country.
Now let’s move our focus on how developments in Tehran are going to impact New Delhi’s economic and political interest.
Nuclear Deal: The Indian story
This deal will have a wider and deeper impact on the Indian economy for the reason that India being the fourth largest oil consumer and Iran has the proven second largest oil reserve in the world, this demands greater collaboration between the two countries. Due to stringent sanctions, India had to reduce its oil imports from Iran and increase its imports from other OPEC countries. The value of trade between India and Iran was approximately $14 billion last year with the balance of trade heavily in Tehran’s favor. Indian exports to Iran were around $4.2bn last year. India had to pay for the oil it imported from Iran through other countries primarily through Russia and Turkey. Apart from this, the payment could only be made in Indian rupee (account to be maintained by India) which resulted in huge outstanding of more than $ 6 billion. Recently Iran agreed to utilize this outstanding fund in a phased manner for investment in mutually beneficial projects in both countries.
Importing goods or sending shipments to Iran is currently expensive because of high shipping charges. India hopes the removal of sanctions will make it easier for companies to get shipments. This new agreement also brings in few short term challenges for Indian interest as this will give Iran greater room for price negotiations with India for different projects that India has either taken up or willing to take up in the future. Due the continuous fall of Euro some of the eastern European nations can offer competitive price advantage to Iran. For oil assets and infra projects, countries like China and Russia have clear advantage over India since they have maintained closer relations with Iran, even during sanction period.
India is the largest exporter of rice to Iran and is planning to export other agricultural produces in the coming years. In the IT, textile and pharmaceutical sector India has huge presence and this means more business opportunities. Lifting of trade sanctions will give us opportunities in these sectors, which could mean access to significant portion of Iran’s market. The most important implication of this agreement is going to be in the strategic arena, with Iran being a prime strategic location, as a gateway to Central Asia it which could give India the much needed access to Central Asia. Both countries have signed a deal to develop the Chabahar port in southern Iran, Chabahar’s strategic location makes it a critical transit point for trade between India, Iran, Afghanistan, and also provides connectivity to Central Asia and Europe, via the International North South Transport Corridor (INSTC), which is estimated to be 40 percent shorter and relatively less expensive than trade via the Red Sea-Suez Canal-Mediterranean route. India will look forward to a greater role of Iran in stabilizing Kabul after the complete pullout of US troops from Afghanistan.
The deal presents excellent opportunities to India in terms of long term trade and diplomacy. Future course of actions will determine how these benefits are realized. If deal goes as expected, it will open a new chapter in Indo- Iran cooperation for mutual benefits.
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