India is developing the Chabahar port in Iran to improve connectivity with Afghanistan and Central Asia. The US state department subsequently designated Iran as a state sponsor of terror since 1984.4 billion barrels of oil annually — and saved over 70 billion on its annual oil import bill in 2015-17. New Delhi can revive this arrangement. It will also damage the country’s trade balance and may force the government to bring back subsidies on petroleum products like diesel and petrol, which could throw India’s fiscal and trade deficit out of control. In October 2017, the US Congress voted 423-2 authorising the US president to impose new sanctions on Iran for testing ballistic missiles. Diesel is also the primary fuel for transport in India, so an increase in diesel prices will also impact other commodities where transport costs are significant. | AMIT BHANDARI AND KUNAL KULKARNI power strips Published: May 13, 2018, 6:14 am IST Updated: May 13, 2018, 6:14 am IST India is developing the Chabahar port in Iran to improve connectivity with Afghanistan and Central Asia. It will damage the country’s trade balance, and may force the government to bring back subsidies on petroleum products such as diesel and petrol, as happened from 2004-14. In November 2016, the US Congress voted 419-1 to reauthorise the 1996 Iran Sanctions Act for 10 years.
This can throw India’s fiscal and trade deficit out of control. In the JCPOA, which was concluded in July 2015 between Iran and six global powers — US, China, Russia, France, UK and Germany — Iran agreed to restrict its nuclear programme in return for relief from crippling economic sanctions.On Tuesday, May 8, US President Donald Trump fulfilled an election promise that will end up costing India billions of dollars in costlier oil imports.What has the JCPOA done?Iran has massive reserves of oil and natural gas, but produces much below its potential because sanctions have kept away investors and customers.8 million barrels per day in early 2018. The direct impact will be felt in costlier oil imports for India. Simultaneously, India also needs to work on long-term programmes to curb its dependence on imported oil.1 million barrels/day from the 2014 level, to 3. This was one of the factors responsible for bringing down the price of oil from over 100/barrel in 2014 to below 50/barrel in the subsequent years.How will India be affected?The increase in oil prices will hurt India considerably. This once again makes it tougher for buyers such as India to pay for Iranian crude oil — as happened in the past. Chabahar port is also the hub for the International North South Corridor that India wants to develop for better connectivity with Central Asia and Russia, and as a counter to China’s Belt & Road Initiative. With renewed sanctions on financial transactions with Iran, the Chabahar port effort will slow down and impact Afghanistan’s stability.Amit Bhandari is Fellow
Iranian president Hassan Rouhani holds hands with President Ram Nath Kovind and Prime Minister Narendra Modi at Rashtrapati Bhavan, New Delhi, on February 17. Higher price of oil will also trickle down to the end consumers — making diesel, petrol and air-travel more expensive.The reimposition of sanctions on Iran is one of the factors pushing up prices and contributing to this unhappy situation.India must also show its resolve by moving ahead with proposed investments in Iran. This trade was handled by the government-owned UCO Bank, which has no overseas exposure, and was less vulnerable to US sanctions. Even while the JCPOA was in force, Iran continued to remain under US sanctions which imposed significant constraints on its economy, some of which date back to the 1979 Islamic Revolution, when the US embassy staff were taken hostage. Iran has the world’s largest reserves of natural gas, which cannot reach energy hungry markets such as India because of sanctions and adverse geography.6/barrel. This is a re-run of US sanctions on Russia; and a blow to India, which relies on Russia for high-tech defence hardware and technology.What can India do?India cannot walk away from its commitments to an important regional partner on account of US sanctions. This was an enormous relief for India, which imports 1.
Considering those lopsided Congressional votes, a US rethink on restoring Iran sanctions appears unlikely in the near future. For India, this is the perfect storm. One way to use this natural gas is to convert it into fertiliser, which can be transported easily. This burden will eventually fall on consumers, in the form of higher prices and on taxpayers, in form of higher subsidies on critical products. With Iran under sanctions, INSTC too will be affected.What the US withdrawal means?Trump’s decision will bring petroleum-related transactions with National Iranian Oil Company (NIOC) and financial transactions with the Central Bank of Iran under US sanctions in 180 days (by November). In an oil market with increasingly tight supply, this is sure to push up prices.Trump ‘tore up’ the Iran nuclear deal, also known as the JCPOA (Joint Comprehensive Plan of Action). During 2016-17, India imported oil at 47. Money owed to Iran was held in a Rupee account with UCO Bank and used by Iran to purchase goods from India. Adding Iran sanctions to this mix compounds the problem. Iran may be forced to cut down its oil production — as it had to do pre-2015, hurting global oil supply. However, these amounts are too large to be solely absorbed by the government or its oil companies. So India will have to live with this reality for the foreseeable future. With JCPOA in force, Iran could freely export its petroleum and increase its oil production by 1. This project can help Iran find markets for its gas and India to address its need for food security. Simultaneously, poor economic policies have pushed major oil exporter Venezuela to the brink as oil production is down by 40 per cent. India’s state-owned Rashtriya Chemicals and Fertilizers had proposed earlier to set up a fertilizer plant in Iran.How can India safeguard its own interests?In the past, India bypassed the sanctions on Iran partly by moving the oil trade to Indian Rupees