Do not fragment the global order
The United States’s exit from the Iran nuclear deal may have collateral consequences for India
US President Donald Trump’s recent decision to exit from the Joint Comprehensive Plan of Action (JCPOA) dealing with the Iranian nuclear programme will have significant geopolitical consequences. Some will be direct in nature, others more in the nature of collateral effects.
One, the US move is unilateral and not supported by its major western allies, Germany, France and Britain. They intend to maintain their commitments to JCPOA. Thus on a major issue, US and its western partners find themselves on opposite sides of the fence and this will further erode western ascendancy in the global order. The ongoing fragmentation of the global order will be accelerated.
Two, US ties with Russia and China are already tense and deteriorating. The latter have rejected any renegotiation of the Iran deal and are unlikely to limit their expanding economic and commercial relations with Tehran. This will further exacerbate tensions. If the US seeks to extend its sanctions to penalise countries or companies doing business with Iran, this will be resisted by China and Russia and they may be joined by European countries that stand to lose from the US action. The world may, therefore, witness an unravelling of the global trading system and a more deliberate effort to reduce dependence on the US dollar as the international currency of choice for international transactions.
Three, there is likely to be an intensification of the multiple conflicts which are ravaging West Asia. Israel and Saudi Arabia may be tempted to raise the stakes in their proxy war with Iran. Israel has carried out air strikes against what it calls Iranian military infrastructure in Syria. Saudi Arabia may be tempted to increase its attacks against the Houthis in Yemen. Martin Indyk, a former US ambassador to Israel, has observed, “It is not a proxy war. It is a direct war and that is what makes it particularly dangerous. Israel and Iran have been in a Cold War for maybe 20 years now but now it’s out in the open, direct, kinetic engagement between the forces with Iranian casualties mounting. The potential for escalation is much greater than before.” These are ominous words.
In 2015, despite there being differences in interests and perceptions, the US, Western Europe, China and Russia came together to conclude the Iran deal. The fallout from the US exit from the deal makes such common action among the major powers to uphold international peace and security as a shared objective, a casualty. Relations among major powers are likely to become more transactional and the dismantling of the post- World War II order is likely to proceed in a more hastened and disorderly manner. The risks of conflicts through miscalculation and misperception will rise. This uncertainty and unpredictability in a transforming global geopolitical landscape are compelling long-time adversaries such as North Korea and South Korea to seek a détente unmediated by great powers. This may also be the reason for India and China to moderate their adversarial ties and work together to soften the impact of global uncertainty. We are likely to see shifting realignments and new coalitions of States emerging and dissolving as the geopolitical terrain around us continues to transform. This will demand a much more nuanced and nimble diplomacy on India’s part.
There will collateral consequences for India as a result of the US action. For example, if oil prices rise because Iranian oil sales diminish, this will fuel inflation and adversely impact the fiscal situation. Iran is the third largest producer of oil in the world and meets about 15% of India’s oil needs. However, the global oil market is much more diversified with multiple and geographically diverse sources of supply. I do not anticipate either a significant and sustained rise in oil prices or supply disruptions. However, if armed conflict erupts in West Asia as some analysts are warning, then not only will India’s energy security be affected but also the welfare of more the six million Indians who live and work in the Gulf. It would be wise to have contingency plans to meet such an eventuality.
Indian entities that are dependent on US dollar transactions for their commercial operations may find it difficult to continue doing business with Iran. However, the earlier period of US sanctions had led to creative ways in which to insulate Iran trade. These include rupee payment arrangements, use of third currencies and trade channels. The fact that the European Union, China and Russia have chosen to abide by the deal means that the US ability to enforce the sanctions through penalties on non-us entities would be limited.
On balance there is more to fear from political and security-related consequences than economic ones. This may explain the rather carefully worded comment from the ministry of external affairs spokesman on the US action. Watching the situation closely may sound like a cliché but is perhaps the most prudent reaction in such uncertain times.