India braces for explosion as Trump’s Iran sanctions countdown begins

Even as European governments stepped up efforts over the weekend to push Iran into negotiations that could stave off renewed United States sanctions against the country, diplomatic sources have told Business Standard that India has begun to brace itself for slashing imports from its third-largest supplier.

US President Donald Trump has said he will allow the first of a slew of Congressional sanctions to be reinstated on May 12, requiring the United States to punish countries that import Iranian oil.

“There is not much we can do other than watch from the sidelines”, a senior Indian diplomat admitted. “As things stand, it doesn’t seem likely the Europeans will succeed”.

Iran was India’s largest supplier of oil in 2017 after Iraq and Saudi Arabia, selling an estimated 471,000 barrels per day (bpd)—marginally lower than 2018. In February, Tehran’s oil minister, Bijan Zanganeh, announced “stateowned Indian companies are going to increase their level of Iranian oil purchase”.

Experts say reinstating sanctions could see global oil prices rise by as much as $5 per barrel.

Figures published by the authoritative Washington, DC, based Congressional Research Service show India slashed its imports of Iranian oil from 320,000 bpd in 2011, to an average of 190,000 bpd just before the nuclear agreement was signed. The cuts had forced India to make expensive modifications to its oil refineries, in order to enable them to replace Iranian crude with chemically- distinct alternatives.

In the wake of the agreement, however, Indian oil imports from Iran have risen well over pre-2011 figures, as have those by other major oilimporting Asian countries, like China and Japan, as well as European states. Reinstating the sanctions on May 12 would seek to hurt Tehran’s ability to export oil by threatening so-called secondary sanctions on countries that engage in transactions with Iran’s Central Bank. If a country imports Iranian oil, any banks facilitating the transaction risk being cut off from the US financial system.

The law does, however, allow President Trump to exempt countries from sanctions by certifying that they have “significantly reduced” Iranian oil purchases. Both Japan and Korea have been reported to be cutting their oil imports from Iran for several months, in anticipation of the sanctions. The sanctions, imposed in stages by the United States after 2010 in an effort to prevent Iran from acquiring nuclear weapons, were lifted after the so- called P5+1 group—the five permanent members of the United Nations Security Council plus Germany— negotiated an agreement with Iran. In essence, the 2016 agreement mandated that, in return for Iran meeting stipulated nuclear programme rollback targets, certified by the International Atomic Energy Agency, the United States administration would waive sanctions against the country.

Even though Iran has met its targets, President Trump has long threatened to unilaterally walk out of the deal, saying it does not address Tehran’s development of ballistic missiles that threaten Saudi Arabia and Iran, as well as what he claims are its malign regional ambitions.

French President Emmanuel Macron, a statement from his office said, spoke to Iranian President Hassan Rouhani for over an hour on Sunday, proposing that new negotiations begin on the country’s ballistic missile programme, its possible long-term nuclear weapons ambitions, as well as its regional policies.

But Iran has so far rejected calls for renewed negotiations, demanding instead that the United States abide by the 2016 agreement.

European countries have, diplomatic sources said, been considering legislation that would protect their firms against the financial fallout of United States sanctions. Even if Europe complies with United States sanctions, the sources said, Iran believes it will have the support of both China and Russia.

The implosion of the 2016 deal and reimposition of sanctions, most experts say, will do little to achieve Trump’s objectives. “Iran was able to develop its nuclear and missile programs and to assist pro-Iranian regional groups and governments even when strict sanctions were in place”, the Congressional Research Service’s report notes. Faced with the imposition of sanctions in 2010, 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, which Iran mostly used to buy Indian wheat, pharmaceuticals, rice, sugar, soybeans and auto parts.

However, after sanctions were lifted, India has been scrambling to step up its relationship with Iran—in part to counter the growing influence of China in the region.

In May 2016, Prime Minister Narendra Modi signed an agreement to invest $500 million to develop Chabahar port and related infrastructure.