Iran Sanctions and Impact on India

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Background:
  • Iran earlier had several sanctions imposed on it by USA, UN and other western world. These sanctions were earlier removed because of P5+1 negotiations and after Iran’s agreement to reduce its nuclear fuel stockpile in phased manner.
  • After Trump, US has imposed new sanctions on Iran unilaterally.
What is India’s response to these sanction removals?
  • India is  keen on taking ties with this “extended neighbor” to a higher level.
  • The removal of sanctions on Iran following the nuclear deal has ended its isolation, and enabled its return to the economic and diplomatic mainstream.
  • The visit is expected to bridge the trust deficit in bilateral cooperation and boost energy and trade ties while expediting India’s connectivity plans.
How did these sanctions impacted India-Iran relations?
  • Bilateral ties took a beating during the sanctions years.
  • India had voted against Iran at the International Atomic Energy Agency over its clandestine nuclear programme and, under pressure from the U.S., slashed oil imports from the country by up to 40 per cent during the period.
  • New Delhi had also backed off from a pipeline project that aimed to bring natural gas from Iran to India through Pakistan.
Why Iran is so important to India?
  • Till sanctions were imposed on Iran, it was India’s second largest source of crude oil after Saudi Arabia.
  • Once the Chabahar port in Iran is developed, it will offer India alternative access to landlocked Afghanistan, bypassing Pakistan.
  • Both Iran and India share the goal of a stable government in Kabul free of the Taliban’s influence. Globally, New Delhi and Tehran are on the same page in their opposition towards groups like Al-Qaeda and the Islamic State.
  • The Iran visit is an opportunity to restore equilibrium in India’s foreign policy, which, of late, was seen to be skewed towards Israel and Saudi Arabia.
What India is doing?
  • The government appears to be trying to reach out to the three poles of the region.
  • While it will pursue good ties with the Sunni Gulf for energy supplies, Iran would act as a gateway to Central Asia besides enhancing India’s energy security.
  • Israel remains one of India’s top defence and technology suppliers.
  • The success of this policy depends on New Delhi’s capacity to do the balancing act.
Why and what new sanctions are imposed by US?
  • Iran has conducted a ballistic missile test.
  • The United States has imposed new economic sanctions against Iran over its ballistic missile programme and for contributing to regional tensions.
  • The sanctions cover Iran’s banking and energy sectors and reinstate penalties for countries and companies in Europe, Asia and elsewhere that do not halt Iranian oil imports.
  • According to US, Iran’s continued support to terrorism and development of its ballistic missile programme pose a threat to the region, US and its partners worldwide.
  • Under the sanctions, those involved cannot have access to the US financial system or deal with US companies.
  • They are also subject to “secondary sanctions”, which means foreign companies and individuals are prohibited from dealing with them as they also can be blacklisted by US.
What is Iran’s response to these new Sanctions?
  • Iran has denounced the new sanctions as illegal and hailed that they are not compatible with US’s commitments and United Nations Security Council (UNSC) resolution that endorsed the nuclear deal (known as the Joint Comprehensive Plan of Action, or JCPOA) reached between Iran and P5+1 countries in 2015
Exemptions to India by US:
  • The decision comes after US imposed toughest ever sanctions on Iran under Iran Freedom and Counter-Proliferation Act, 2012.
  • The exemptions to India are with respect to development of Chabahar port, construction of associated railway and for shipment of non-sanctionable goods through port for Afghanistan’s use, as well as the country’s continued imports of Iranian petroleum products.
  • This exception relates to reconstruction assistance and economic development for Afghanistan.
  • These activities are vital for ongoing support of Afghanistan’s growth and humanitarian relief.
  • It is also part US President Donald Trump’s South Asia strategy which underscores US’s ongoing support of Afghanistan’s economic growth and development as well as close partnership with India.
  • This strategy states that India has major role in bringing peace and development in Afghanistan.

Iran nuclear deal : Timeline

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Iran nuclear deal

  • It is officially called the Joint Comprehensive Plan of Action (JCPOA).
  • It was signed between Iran and the P5, plus Germany and the EU in 2015. P5 is the 5 permanent members of the UNSC (US, China, France, Russia, and UK).
  • The deal aimed at curbing Iran’s nuclear programme.
  • Under the deal most of Iran’s enriched uranium was shipped out of the country.
  • A heavy water facility was rendered inoperable
  • Operational nuclear facilities were brought under international inspection
  • In return, the deal involved lifting of international sanctions on Iran.

What happened after the deal?

  • October 2015: Iran conducts its first ballistic missile test since the nuclear deal. The US accuses Iran of violating a UN Security Council resolution, but former President Barack Obama acknowledges that ballistic missiles are “entirely separate” from the nuclear deal.
  • Jan 2016: The IAEA acknowledges Iran has met its commitments under the nuclear deal, which sees most sanctions on Iran lifted. It takes time but Iran re-enters the global banking system and begins selling crude oil and natural gas on the international market. Next day, the US imposes sanctions over Iran’s ballistic missile tests.
  • October 2018: Trump announces he will not re-certify the Iran nuclear deal as required, criticizing the accord by saying it “threw Iran’s dictatorship a political and economic lifeline”.

What are US’s present concerns?

  • Trump administration says the deal did not target Iran’s ballistic missile programme.
  • It does not focus on Iran’s nuclear activities beyond 2025.
  • It also leaves Iran’s role in conflicts in Yemen and Syria.

Chabahar Port

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Where is Chabahar port?
It is located on the Makran coast, Chabahar in southeastern Iran. Its location lies in the Gulf of Oman. This coast is a relatively underdeveloped free trade and industrial zone, especially when compared to the sprawling port of Bandar Abbas further west. Also, it is the only Iranian port with direct access to the ocean.
 
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Why this port is of interest to India?
  • India believes the port is critical to its interests and wants to develop it as a counter to Pakistan’s Gwadar port which was built with Chinese assistance
  • The port will allow India to bypass Pakistan to transport goods to Afghanistan and Central Asia using a sea-land route
  • Chabahar Port lies in the Persian Gulf in Iran and will help India in expanding its maritime commerce in the region
  • It also provides opportunities to Indian companies to penetrate and enhance their footprint in the region
  • It is located 76 nautical miles (less than 150km) west of the Pakistani port of Gwadar, being developed by China. This makes it ideal for keeping track of Chinese or Pakistani military activity based out of Gwadar
  • The port will cut transport costs/time for Indian goods by a third
  • From Chabahar, the existing Iranian road network can link up to Zaranj in Afghanistan, about 883 kms from the port. The Zaranj-Delaram road constructed by India in 2009 can give access to Afghanistan’s Garland Highway, setting up road access to four major cities in Afghanistan — Herat, Kandahar, Kabul and Mazar-e-Sharif

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  • INSTC: It will boost India’s access to Iran, the key gateway to the International North-South Transport Corridor (INSTC) that has sea, rail and road routes between India, Russia, Iran, Europe and Central Asia. It can significantly boost import of iron ore, sugar and rice to India from Afghanistan. It can also help to reduce import cost of oil to India.
 
Trilateral Agreement:
  • India, Iran and Afghanistan sign three-way land transit agreement on Iran’s strategic southern port of Chabahar.
  • Under the agreement, India will invest up to 500 million dollars in a deal to develop a strategic port in Iran.
  • It can spur unhindered flow of commerce throughout the region and its economic fruits will expand trade, attract investment, build infrastructure, develop industry and create jobs.
  • India will get sea-land access route to Afghanistan bypassing Pakistan which will open opportunities for Indian companies to explore Afghanistan’s mineral wealth.
US Sanctions:
  • US has imposed unilateral sanctions on Iran after pulling out of P5+1 deal.
  • US is also threatening other nations who imports oil from Iran and have links with Iran.
  • India is looking for an exception on the Chabahar project as it is strategically important to India.
  • US had granted an exception for the development of Chabahar port.
New India-Afghanistan Trade route launched:
  • Afghanistan has launched a new export route to India through the Chabahar Port of Iran.
  • This route allows both India and Afghanistan to engage in trade bypassing Pakistan.
 
Recently India and Iran signed a memorandum of understanding to develop Chabahar Port in Iran. Critically discuss the significance of this MoU for both the countries. (200 Words)
 
India’s perspective:
  1. Geo-strategic -Being located on the convergence of Indian ocean and Oman sea will help India counter efforts made by China to exert influence in the region by tying up with Pakistan to operate the Gwadar port. Chabahar port being in the vicinity will be a vantage point for India.
  2. Bolster trade and economic ties by gaining access to Afghanistan, South Asia, Central Asia and West Asia. The trade route reduces India dependence on Pakistan, a volatile neighbour, for trade with Afghanistan.
  3. This port will be used by India to ship crude oil and urea which will cut transport cost and freight time for India to Central Asia and the gulf by about a third. Proximity to the Strait of Hormuz will boost oil trade.
 
Benefit to Iran
  1. As India is Iran’s largest customer hence the memorandum will help to increase economic growth and investment.
  2. It will provide regional growth and prosperity by employment generation and gdp growth.
 
Due to the significance of the project to both countries, it has to be implemented decisively and quickly