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The skepticism of United Nations Security Council (UNSC) over Iran’s use of its nuclear programme led to the Iran nuclear deal signed in 2015. Iran agreed to reduce its stock of nuclear weapons by 90% until 2030 while also halting any future construction of nuclear enriching centrifuge, restricting uranium enrichment to 4% and allowing the International Atomic Energy Agency (IAEA) to conduct checks at frequent intervals (BBC, 2018). In return, Iran had its economic sanctions lifted. However, USA President Donald Trump has threatened to pull out of the deal and impose economic sanctions on Iran despite IAEA confirming that Iran was abiding by the terms of the agreement. The reasons for pulling out of the deal was that Iran was still free to pursue its Ballistic Missile Programme and that the deal had a sunset clause of 10 years (Burton, 2018). This article looks at the potential repercussions of the USA withdrawal.

Iran is demanding that the European Union (EU) compensates it for the losses due to sanctions by the USA, else it plans on restarting the nuclear programme (Wintour & Borger, 2018). Restarting the nuclear weapons programme would be disastrous for the Middle East. This could escalate the tensions between the Shia dominated Iran and the Sunni dominated Saudi Arabia. Iran has already shown support to the Shia militants in Syria and Hezbollah in Lebanon (Slavin, 2018). A breakout of war in the region would cause a negative supply shock to the oil market. Oil prices are supply determined since demand is inelastic in the short run. This would hurt energy security of many nations, India being one of them. Iran is India’s 3rd most significant supplier of oil, supplying 11 Million Tonnes of crude oil in 2014-15 (Economic Times, 2018). A rise in the price of crude oil means India’s Balance of Payments will turn negative and hurt the currency. Moreover, the inflationary situation in India would worsen.

Apart from this, India needs Iran since the Chabahar Port is the only access to landlocked Afghanistan. India needs to access the Chabahar Port in Iran since it is the closest point of access to landlocked Afghanistan. India provides wheat to Afghanistan via the Chabahar Port. The Chabahar Port will be used to build rail lines to Central Asia and Russia thus increasing India’s market access. Chabahar port is essential militarily too since the Gwadar Port in Pakistan is developed by China where Chinese naval ships are docking. This makes the Chabahar Port a geostrategic location for India to not cede its superiority in the Indian Ocean region to China

The potential breakout of war in the region has geopolitical repercussions in the region. The USA has started a phased withdrawal of its troops from Afghanistan. This has given a new vigor to Taliban which has led to an increase in violent attacks since 2015. To counter the rise of ISIS in Afghanistan and Pakistan, Iran supports Taliban. The presence of ISIS in Syria and Iraq has compounded the problem of terrorism in the Middle East. The surge of terrorism will have a consequence on the entire world leading to rising in refugees. This hurts even the EU which has been a breeding ground for protectionist tendencies which has culminated in the Brexit. If Europe stays in the deal after USA withdrawal, its MNCs will likely face sanctions in the American market (Noak & Cunningham, 2018). This could be a blow to the world economy which has started to recover from the 2008 Global Financial crisis slowly.  

The geopolitics of the USA withdrawal needs to be considered. Iran is critical to India to fulfill its energy needs.  However, USA is a strategic partner for India and provides defense equipment worth $15 billion to India. As India’s ties with Russia have dwindled down from the peak of the Soviet era, USA has filled that void. India and USA also share a common interest in the geopolitics of the Indian Ocean due to the growing footprint of China. USA is necessary for India in its bid to get into the UNSC. Although India maintains that its bilateral ties are not hostage to other nations, India has to carefully maneuver its position by balancing its defense and security, and energy needs.

However, if India plays the balancing act well, there could be long-term gains from this. Since the EU policies are aligned with the USA, European multinational companies will be forced to align with the USA. This opens commercial space for Indian companies in the Iranian market. Indian oil companies can take over the oil projects in Iran ensuring the long-term security of India. Iran imports machinery and transport goods from the EU which India will now be able to provide (BBC, 2015).

The USA withdrawal will test the diplomatic powers of the world. The EU needs to salvage the Iran deal in the same way the Trans-Pacific Partnership was revived after the USA withdrawal. This will ensure containment of Iran’s nuclear programme. India, on the other hand, needs to factor in regional stability in any dialogue it engages in with USA or Iran, apart from its energy, defense, and security needs. India needs to tread the diplomatic path carefully.

 

References

Burton, B. (2018, April 25). What is the Iran nuclear deal? NBC News. Retrieved from https://www.nbcnews.com/storyline/smart-facts/what-iran-nuclear-deal-n868346

How Iran's nuclear deal affects India (2015,  July 16).BBC. Retrieved from http://www.bbc.com/news/world-asia-india-33547061

Iran nuclear deal: Key details. (2018, May 8). BBC. Retrieved from http://www.bbc.com/news/world-middle-east-33521655

India's oil import from Iran will not be immediately impacted by US sanctions. (2018, May 9). Economic Times. Retrieved from https://economictimes.indiatimes.com/industry/energy/oil-gas/indias-oil-import-from-iran-will-not-be-immediately-impacted-by-us-sanctions/articleshow/64093040.cms

Noak, R. & Cunningham, E. (2018, April 24). Trump and France’s Macron disagree on the Iran deal. Here’s why Europe wants to keep it. The Washington Post. Retrieved from: https://www.washingtonpost.com/news/worldviews/wp/2018/04/24/trump-and-frances-macron-disagree-on-the-iran-deal-heres-why-europe-wants-to-keep-it/?utm_term=.2aebc3895cbe

Slavin, B. (2018, May 7). The Dangerous Consequences of US Withdrawal from the Iran Nuclear Deal. Atlantic Council. Retrieved from http://www.atlanticcouncil.org/blogs/new-atlanticist/the-dangerous-consequences-of-us-withdrawal-from-the-iran-nuclear-deal

Wintour, P. & Borger, J. (2018, May 9). EU rushes to arrange crisis meeting with Iran over nuclear deal. The Guardian. Retrieved from https://www.theguardian.com/world/2018/may/09/eu-moves-to-protect-european-firms-from-us-sanctions-on-iran

Image Source: BBC

 

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Written By Pranav Mayekar

Masters in Economics from TERI School of Advanced Studies

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