Indo-Iran Ties at Crossroads after US Sanctions: Huge Opportunity for Indian Shipping Lines

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Concerned over the US sanctions, India is already looking at seeking exemptions from Washington to buy Iranian oil, apart from working out alternative payment mechanism to protect India-Iran trade which is $12-13 billion dollars annually. The terms of trade are heavily loaded in favour of Iran. India imports close $9 billion worth of oil from Iran. India exports around $3 billion worth of goods to Iran, which is mostly basmati rice, drugs, chemicals and engineering goods. A report, for Different Truths.

India-Iran ties have become challenging yet again after the recent US sanctions against Tehran following the unilateral pull-out of Washington from Iran Nuclear deal. But this has thrown a new opportunity to get into shipping services in a big way that will facilitate Iranian oil imports but also trade from elsewhere.

The Iran nuclear deal is a Joint Comprehensive Plan of Action (JCPOA) between Iran and five UN permanent members and Germany on alleged nuclear weapons programme of Tehran. The five permanent UN members are US, Russia, Britain, France, and China.

This is not the first time that such a sanction has been imposed. India imports a large quantity of oil from Iran, perhaps nearly 10-per cent of its crude oil requirement. India imports a little over $100 billion worth of crude oil accounting for nearly 80 percent of its oil needs. So any sanction on any of the oil importing countries is disruptive to the Indian economy. Hardly a week old US Sanctions on Iran have started hurting India as freight for Iranian oil has started increasing because many of the foreign shippers are reluctant to carry Iranian oil. This provides an opportunity for India to allow more of its liners to step up oil shipments and expand shipping services.

Indian shipping liners, in which 100 percent FDI is allowed, have somehow not taken off despite its huge potential. At the moment Indian liners carry only15-20 percent of its nearly $ one trillion trade and the percentage is much less when it came to oil. Shipping as a service industry has huge potential in India and could be a major foreign exchange earner, running into several billion dollars. It is one of the focus areas of reforms of Prime Minister Narendra Modi. But this is certainly not a short-term opportunity and the Indian government will have to work hard to develop its shipping liners.

Concerned over the US sanctions, India is already looking at seeking exemptions from Washington to buy Iranian oil, apart from working out alternative payment mechanism to protect India-Iran trade which is $12-13 billion dollars annually. The terms of trade is heavily loaded in favour of Iran. India imports close $9 billion worth of oil from Iran. India exports around $3 billion worth of goods to Iran, which is mostly basmati rice, drugs, chemicals and engineering goods.

During the previous sanctions against Iran, US had allowed India to make part payment to Iran in rupees under a sort of barter deal. But unfortunately, India could not step up its exports to take advantage of this arrangement fully. So Indian refiners used to route all their oil payments through SBI and a Germany-based bank.

Diplomatic efforts have already begun with Iran to minimise the possible impact of the US sanctions on Indo-Iranian trade. Iranian foreign minister Javad Zarif visited New Delhi recently in this connection.

There are already indications that US President Donald Trump may look at the possibility of the US Congress legislating more sanctions on Iran. Oil, expectedly, is going to be one of the most heavily affected commodities for buyers and sellers dealing with Tehran.

India-US ties that have received a fillip in recent months appear to have hit a rough patch as New Delhi looks to procure S-400 air defence system from Moscow. The proposed deal with Russia has not gone well with the US, which has expressed concerns saying it would complicate interoperability between Indian and American forces. While New Delhi-Washington ties have strengthened in recent times, with the US calling on India to play a more important role in the Indo-Pacific and also Afghanistan, the deal with Russia and the US imposing sanctions on Iran seem to have made the relationship a bit thorny.

There are already reports to suggest that India’s decision to go ahead with the deal with Russia could come in the way of India acquiring US-built Predator drones, which could have been used in operations against terrorist launch-pads along the Line of Control with Pakistan. India and Russia are now trying to find a way to evade US sanctions using Countering America’s Adversaries Through Sanctions Act (CAATSA).

India’s deal with Russia for arms purchase and with Iran for oil are bound to sour Indo-US relations. But India traditionally has a very good relationship with both Russia and Iran. While Russia has been a major arms supplier to India, Iran has been generally supportive of India with regard to Pakistan. Also, India is helping Iran in the development of Major Chabahar Port, which will provide access to not only Afghanistan but also Central Asian republics. The way the US handles the issue is extremely crucial for India because New Delhi buys over 60 percent of its defence equipment from Russia. External Affairs Minister Sushma Swaraj has already indicated India will continue trading with Iran and Venezuela despite US sanctions against the two countries, asserting that it only recognises UN restrictions and not country-specific sanctions.

Geopolitically, it is also in the interest of the United States to maintain the improving relations with India, which is also becoming a major arms purchaser from Washington. Besides, there are shared geopolitical concerns between India and the U.S and it would be of mutual interest to ensure nothing untoward happens in the bilateral relations. Also, Swaraj made it clear that India will not make its foreign policy under pressure from other countries.

India has come a long way from a country which used to go with a begging bowl for food in the mid-1960s and hence it cannot be taken for granted and pushed around by major powers like the United States. In fact, India is among the top emerging economies and it is in the interest of US to build bridges with India. So, there is every possibility that the US soft-pedals both on the issue of India’s arms imports from Russia and oil imports from Iran. President Trump being what he is, one does not know, how he is going to respond to this emerging situation. But saner voices in the US are already lobbying for India so that the issue does not go out of hand. With growing India-US bilateral relations one could hope for a positive resolution.

K R Sudhaman

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