US-Iran Tension: Impact on India

US-Iran Tension: Impact on India

This is a guest blog by Mohit.

The destruction caused by World War II taught the Western world an important lesson – never bring a fight into your own house/backyard. Since then, they have fought their dirty conflicts in rest of the world.  One such conflict ridden area is the Middle East Asia.

Countries in the Middle East, barring Israel, are Islamic nations and hence traditionally follow the Quranic principles of Muslim brotherhood. However, deep sectarian and tribal divisions among the population have always kept tensions high in the region. Huge reservoirs of oil and natural gas have attracted the attention of the Western powers since long. These powers have tried and are actively trying to exploit and create new divisions in the Middle East for their own commercial and geopolitical interests. As a result, deep animosities exist between some Middle Eastern countries and the Western powers. The most prominent of these, in recent times, is the one between USA and Iran.

Hostilities between the two have reached a new level in the last few months. On 8th May 2018, Trump decided to withdraw from the Iran nuclear deal of 2015. The US then re-imposed economic sanctions on Iran. Few countries including India were able to seek waivers from the sanctions.  On 2nd May 2019, these waivers have ended. These sanctions and few other decisions by both the US and Iran have created a war-like situation in the region.

In this post we shall take a look at the history of US-Iran relations, the signing and fallout of the nuclear deal, causes for the recent chain of events, and the possible implications and options for India.

Historical Background

Post World-War II, Iranian governance became one of the first casualties of cold war politics. In 1953, a highly popular and democratically elected PM of Iran, Mohammad Mosaddegh, was deposed in a coup as a part of an Anglo-American covert operation called Operation Ajax.  Mohammad Reza Pahlavi, the last Shah of Iran, was chosen to rule as a monarch. The rule of Shah was autocratic and suppressive. While Shah claimed to have modernised Iran and declared it as a secular state, he used government machinery to suppress any political opposition. In doing so, he had the full support of Western powers, especially the US. Things changed in 1979.

Late 1970s saw widespread demonstrations across Iran against economic slowdown and high unemployment. Along with this, shoving secularism down the throat of a predominately religious population acted as fuel in the fire. As a result, in 1979, the US-backed Shah was overthrown and the government was replaced with an Islamic republic under the leadership of Ayatollah Khomeini, one of the leaders of the revolting factions. These series of events were named the Islamic revolution of 1979.

The revolution of 1979 was a setback for the West.

Post 1979, relations between US and Iran took a bitter turn. In the 1980s, when Iraq under the leadership of Saddam Hussain attacked Iran, US chose to support Iraq. Throughout the 1980s and 1990s, US had imposed sanctions to prevent Iran’s involvement in regional activities and to force Iran to stop supporting terrorism. Meanwhile, Iran was secretly trying to develop nuclear weapons. The West was now focused on Iran’s clandestine nuclear program. Despite the world’s attention and subsequent sanctions by the UNSC, Iran continued to expand its nuclear program.

In 2002, US president Bush used the phrase ” Axis of Evil” for the governments of Iran, Iraq and North Korea for allegedly supporting terrorism and pursuing weapons of mass destruction. This antagonism did not lead to any fruitful negotiations on Iran’s nuclear program; not until the arrival of Barack Obama in 2008.

 2015 Nuclear Deal

In pursuance of ‘Pivot to Asia’ policy, Obama tried to re-calibrate US strategy for the Middle East including Iran. It took a series of UN resolutions, international economic sanctions and several rounds of negotiations to formulate a deal between P5+1 (representing five members of the UNSC plus Germany) and Iran. Secret meetings between Iran and US, facilitated by Oman, also helped in reaching a compromise on the nuclear program and easing of economic sanctions.

On 14th July, 2015 Iran and P5+1 signed the Joint Comprehensive Plan of Action (JCPOA) – also known as the Iranian Nuclear Deal – with the objective of restricting Iran’s nuclear enrichment activities and preventing acquisition of nuclear weapon capabilities in the immediate future. Following the agreement, UNSC resolution 2231 was adopted which endorsed the JCPOA and affirmed that full implementation of the deal will lead to easing of economic sanctions. Except Iran’s arch rivals, Saudi Arabia and Israel, entire world welcomed the deal as a gesture of world peace.

Despite few tensions caused by concerns over Iran’s missile testing operations in 2015 and 2016, terms of the deal were being honoured by all the parties. However, since his election as the US President in 2016, Trump has repeatedly criticised JCPOA for one or the other reason and had been contemplating US withdrawal from the deal. He had been consistently advocating for a new and harsher deal with Iran.

US’ Withdrawal

On 8th May 2018, in consonance with his line of thoughts, Trump , without any proof of violation of terms of deal by Iran, announced USA’s unilateral withdrawal from JCPOA accusing Iran of threatening US interests in the Middle East. He called JCPOA “defective at its core” since it would have allowed Iran to acquire nuclear weapon capabilities even if Tehran fully complied with provisions of the deal.

Three important issues are believed to be the motivation for US’ withdrawal:

  • First and foremost, is the nuclear issue. US, and its main allies in the Middle East – Saudi Arabia and Israel- maintain that Iran has been operating secret nuclear facilities in violation of provisions of JCPOA and UNSC Resolution 2231; even though, IAEA in February 2019 had stated that there is no reason or evidence to believe that Iran has violated terms of its commitment to non-proliferation under JCPOA.
  • Second issue relates to Iran’s missile program. Iran has been consistently developing and testing its missile technology. In 2015, the testing of medium range Emad ballistic missile violated UNSC resolution 1929(2010). Subsequently, launch of Qadr missile in March 2016 and Khoramshahr missile in January 2017 raised concerns in the world. However, Iran has vociferously defended its missile programme on the grounds of national security and claims to have not violated any term of JCPOA since the missiles cannot carry nuclear warheads.
  • Iran’s active involvement in Middle Eastern politics is the third issue. Iran’s regional military expansion and support for non-state actors like Hezbollah, Hamas, Shia militias in Syria, etc are threatening the security interests of US, Saudi Arabia and Israel. These concerns were not given much importance in the Obama administration, but the Trump government is bending over backwards to please its Middle Eastern allies. Thus, US administration has taken a hawkish approach in dealing with Iran.

US Sanctions

After withdrawing from the JCPOA, Trump administration decided, unilaterally, to re-impose economic sanctions on Iran from 5th November 2018 onward. Most important of these sanctions were the sanctions on export of Iran’s crude oil. However, eight countries- China, India, Japan, Turkey, Italy, Greece, South Korea and Taiwan- were granted a waiver for 180 days or the Significant Reduction Exceptions (SREs) under Section 1245 of National Defence Authorisation Act, 2012 (NDAA 2012). In April 2019, US government decided not to extend the waivers and thus, SREs came to an end on 2nd May 2019. This was aimed at reducing Iran’s oil export down to ‘zero’ and denying the regime its principle source of revenue. To further cripple Iranian economy, Trump signed an executive order on 8th May 2019 to “impose sanctions with respect to Iran’s iron, steel, aluminum, and copper sectors,” considered to be its “largest non-petroleum-related sources of export revenue”.

US has also imposed secondary sanctions under the Countering America’s Adversaries through Sanctions Act (CAATSA, 2017) to prevent other countries and entities from trading with Iran.

Through these comprehensive sanctions the Trump administration wants to apply maximum pressure on Iran so that Iran limits its nuclear, missile and regional interventional activities. Renegotiation of the nuclear deal is also being wished for.

Escalation of Tension

Apart from the sanctions, tensions in the Middle East have also risen because of US’ decision of sending USS Abraham Lincoln (an aircraft carrier), a Patriot missile defense battery, and a squadron of B-52 bombers to the Persian Gulf. This is said to have been done based on ‘credible intelligence’ received about Iran’s plans to attack US forces in the Middle East. Earlier in April 2019, US designated Iran’s Islamic Revolutionary Guard Corps (IRGC) as a Foreign Terrorist Organisation(FTO). This is for the first time that a country’s military is designated as a terrorist organisation by the US. In all these actions, US has the backing of the Arab Gulf states and Israel.

These developments have obviously brought Iran under huge political and economic pressure.

Iran’s Response

Iran had stated its willingness to continue its commitment to the nuclear deal as long as EU upheld the promised sanction reliefs. On 8th May 2019 Iranian President Hassan Rouhani has given a window of 60 days to the other signatories of JCPOA to fulfill their promises, else Iran may undertake uranium enrichment above 3.67% (a commitment under JCPOA) and resume construction of Arak heavy water reactor (this reactor was mothballed under JCPOA). If Tehran does what it is saying , it would mean the end of JCPOA.

On the military front, Iran is trying to match US’ rhetorics. USS Abraham Lincoln- which was to be sent to the Persian Gulf – has been explicitly called a “target” by Iran (earlier it was considered a threat). Iran is also threatening to close the Strait of Hormuz if Iranian oil carrying ships are targeted by the US and its allies’ naval forces. This threat comes in response to allegations made by US that Iran was behind the attack on four oil carrying ships in the Persian Gulf. Two of those ships belonged to Saudi Arabia, while one each was from Netherlands and UAE; all of them are US’ allies.

Threats and rhetorics from both sides have been keeping the rest of the world on its edge. India, being the second largest importer of Iranian oil, finds itself in a tight spot, yet again.

World’s Reaction

The EU has expressed its disappointment over the withdrawal of US from JCPOA. In February 2019, France, Germany and UK (all three are party to the JCPOA) have established a special purpose vehicle called INSTEX (Instrument for supporting Trade Exchanges) to bypass US sanctions on trade with Iran. INSTEX would enable non-dollar trade between Europe and Iran in food and medicine (humanitarian non-sanctioned categories by the US). However, oil and gas have been excluded from this mechanism. EU companies -which had ventured into the Iranian market after 2015- have also started withdrawing.

China, the largest importer of oil from Iran, has strongly opposed these unilateral sanctions by the US; but it has also cut down its demand for oil from Iran.

Cheerleaders of the US in the Middle East, especially Israel and Saudi Arabia, are obviously delighted.

Countries like India, Japan and Turkey which have close ties with both ,US and Iran, are trying to negotiate better options for themselves. Although India had said that it will follow on UN-backed sanctions and not US-backed, Indian companies have stopped placing future orders for Iranian oil.

India-Iran Relations

Despite having 2000 years of civilizational and cultural connection, relations between India and Iran have been transactional. India’s tilt towards USSR did not go well with pro-US Iran before 1979. Post-1979 Iran was more inclined toward Pakistan. It was only in late 1990s and early 2000s that both the countries reached a strategic convergence. India and Iran along with Russia supported the Northern Alliance in Afghanistan against the expanding role of Pakistan-backed Taliban.

In 2003, Delhi Declaration on development of Chabahar port – for connectivity to Afghanistan and Central Asia- was signed between India and Iran. However, things started changing soon after that. US declared Iran to be a part of ‘Axis of Evil’. Iran under the then President Ahmadinejad accelerated its nuclear enrichment program. This led to imposition of more sanctions on Iran and consequentially, India’s economic engagement with Iran was impacted. Meanwhile, India was negotiating its nuclear deal with the US and hence could not afford to go against the US sanctions. It was only after 2015 nuclear deal that normalcy was restored in India-Iran relations. But why do we need this normalcy?

India’s Interests in Iran

Iran is important to India for multiple reasons; most important is energy security. Iran has emerged as the 3rd largest supplier of crude oil to India, after Saudi Arabia and Iraq. Iran is also a potential supplier of natural gas. Talks on development of Farzad B gas field in the Persian Gulf have been going on between the two nations; though, not as smoothly as India would have wanted. Then, there is the Chabahar port in Iran. It allows India to bypass Pakistan for trading and connecting with Afghanistan, Central Asia and beyond with Europe. Presence of Indian diaspora, opportunities to invest and a huge market for Indian goods also make Iran important for India.

In this tussle between Iran and US, India is finding it difficult to balance the two.

India’s Challenges

Economic sanctions are a big cause for worry in India. Iranian oil accounts for around 10 per cent of India’s total oil imports. Though other sources of oil are plenty, importing Iranian oil is economical for India due to special concessions given by Iran like 60-day credit period, free insurance and cheaper freight. Even though, primary sanctions do not cover the development of Chabahar port, secondary sanctions on Iran’s iron and steel industry might affect the progress of the project. However, India’s biggest challenge is political, not economic. India cannot afford to upset both US and Iran.

Towing the line of US on this unilateral decision would cast a shadow on the independence and autonomy of our foreign policy. China has already entered into the Iranian markets. India’s pro-US tilt is likely to allow China to get closer to Iran. India would not want an aggressive Chinese presence in yet another of its neighbouring country. Also, a Shia dominated Iran is a good friend to keep to counter Sunni dominated Pakistan’s actions in the neighbourhood.

On the other hand, India sidestepping US on these sanctions might affect its strategic relationship with the US.

India’s Options

In the immediate future, India is left with very few choices.

  • First is to continue buying Iranian oil through informal arrangements. This might include re-introduction of rupee-rial payment mechanism which was used earlier in 2011 to bypass pre-2015 sanctions. India can also join Russia, China and EU through INSTEX mechanism. Regional groupings like Shanghai Cooperation Organisation (SCO) can also be utilised to defy US sanctions. This option is sure to make US unhappy.
  • Second and much more plausible choice would be to continue negotiating with US for another round of exemptions or for some informal arrangement for buying Iranian oil. Meanwhile, investments in Chabahar port and other connectivity projects in Iran could be increased to placate Iran. This would not seem to defy US sanctions. However, given US’ posturing, waivers are unlikely to be granted further. In such a situation, India needs to look for other sources of oil.

Quantity of oil imported from Iran is not something which cannot be substituted. Indian companies have already stopped placing orders for Iranian oil after the waivers were lifted. Countries like Iraq, Nigeria, Mexico, etc which are among the top ten sources of oil for India have the capacity to cater to our increased demand.

These quick-fixes might not be sustainable in the long run. Long term measures need to be taken to avoid such situations in future. 

Way Forward

India -being in the good books of USA, Iran, Israel and Saudi Arabia- can play the role of a mediator in evolving a long term solution to diffuse such hostilities in future. Teaming up with like-minded countries and organisations like EU, China, Russia, Japan, etc to develop an alternative to the dollar dominated payment mechanism to circumvent future such unilateral sanctions by the US. 

On the domestic front, India needs to accelerate oil and natural gas explorations along with renewable energy programs to become an energy secure nation. This, of course, will take a long time.

As the state of affairs stand today, no country in the world is powerful enough to totally ignore US’ sanctions. The world is unwillingly going to follow US diktat. Thus, it is very likely that sabre-rattling between Iran and US is going to continue in the near future. India and the world need to be prepared to suffer this.

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