President Trump's sanctions on Iran could be a sharp blow to India

US President Donald Trump’s reimposition of sanctions designed to punish Iran’s nuclear programme will give India six months to slash its hydrocarbon imports from the West Asian nation, senior American diplomats have said. In addition to forcing India to retool oil refineries to process alternative crude, the sanctions could cripple strategic investments New Delhi sees as key to its regional interests.

Experts are also warning of a nuclear weapons race in West Asia — a development of extreme concern to India, as it would give nuclear-capable adversary Pakistan renewed leverage across the region as a provider of technology and experts.

In a background briefing for journalists in Washington, DC, a senior state department official said, “All of those sanctions that are related to both the energy sector, and then the banking and the shipping or transportation of that energy, will all have a six-month wind-down.” 

For all other sectors, the official said, “there’s a whole kind of swathe of other sanctions that are all going to have a 90-day wind-down”.

Key Indian investments that could be hit include ONGC Videsh’s Farzad B field in the Persian Gulf, over which India and Iran moved last month to resolve a long-running dispute. 

The new deal makes Iran responsible for purchasing and marketing all gas produced at Farzad B, while ONGC Videsh would be responsible for developing the field — an estimated $4 billion to $6 billion investment.

Plans to develop the $500 million Chabahar port, and link it to rail networks reaching into Afghanistan and Central Asia, are also likely to be hit. Estimates for Indian investments in these new trade corridors ranged up to $20 billion.

India had cut Iranian crude oil imports by about a quarter to 20.6 million tonnes (mt) in the financial year 2017-18 to put pressure on Tehran to quickly wrap up negotiations on Farzad B. Purchases, government officials said, were likely to exceed 25 mt for 2018-2019 now after a deal was agreed on.

 
India is the second-largest buyer of Iranian crude oil after China, while Iran is the third-largest supplier to India. India-Iran bilateral trade, the Ministry of External Affairs says, stood at $9.05 billion in 2015-2016, with $6.2 billion of that made up of Iranian exports, mainly crude oil.

In response to questions on Chabahar, Secretary of State Rex Tillerson said in October 2017 that Washington would not interfere with agreements that “are in place that promote economic development and activity to the benefit of our friends and allies as well.” 

Officials are warning that these promises may now mean little. “It would be a mistake to assume precedents will shape President Trump’s behaviour,” a senior US diplomat told Business Standard.

The sanctions now reimposed on Iran include a broad swathe of punitive laws imposed at different times by the United States Congress, the keystone of the regime is the Iran Sanctions Act of 1996, or ISA, designed to thwart the country’s opening up of its energy sector to foreign investment. Firms that violate the ISA could face a host of US sanctions, including denying them access to its financial system.

In 2012, the US Congress passed additional legislation requiring the President to prevent foreign banks from opening an account in the US — or restricting existing accounts — if it processes transactions involving Iran’s central bank.

The ISA can be invoked by the US if five trip lines are pressed: investments in Iran’s oil and gas fields, transport of its crude, provision of equipment to its hydrocarbon industry, sale of refined gasoline to the country, or provision of technology linked to weapons of mass destruction.

Following the imposition of ISA sanctions, the Reserve Bank of India ceased using a Tehran-based regional body, the Asian Clearing Union, to handle transactions with Iran. Later, Iran agreed to accept India’s local currency, the rupee, to settle 45 per cent of its oil sales to India. The sanctions also forced Reliance Industries to cease sales of gasoline to Iran in 2008.

India reduced its imports of Iranian oil substantially from 2012, reducing its purchases to 6 per cent of its oil imports by 2013, down from over 16 per cent in 2008. India incurred significant costs to retrofit refineries that were handling Iranian crude.

In spite of the potential costs, New Delhi offered a non-committal response to President Trump’s decision to reimpose sanctions on Iran, with the Ministry of External Affairs saying on Tuesday that “all parties should engage constructively to address and resolve issues that have arisen”.

The five major powers that worked with the US to craft the Joint Comprehensive Plan of Action, or JCPOA — a 2016 agreement that saw Iran constrain its nuclear programme in return for the lifting of sanctions — were less guarded.

“France, Germany and the UK regret the US decision to leave the JCPOA,” French President Emmanuel Macron tweeted. “The nuclear non-proliferation regime is at stake.”

Iran’s President, Hasan Rouhani, said he had ordered the country’s Atomic Energy Organisation to “to be ready to start the enrichment of uranium at industrial levels”—a move that would enable it to move rapidly towards having the fissile material needed to produce a nuclear weapon. However, he added, “we will wait a few weeks and speak with our allies and those committed to JCPOA. All depends on our national interests”.

Erza Friedman, a scholar at the Institute for National Security Studies in Tel Aviv, was among several experts warning that Trump’s decision could spark a nuclear arms race in the region. 

Faced with renewed Iranian production of fissile material, Friedman wrote in The Bulletin of the Atomic Sciences, other countries “would likely begin to develop their own nuclear programmes at an accelerated rate in response. The result could be a region with several nuclear-armed or nuclear threshold states”.


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