5 ways India could be affected by U.S. decision to pull out of Iran nuclear deal

Any increase in oil prices will hit both inflation levels as well as the Indian Rupee.

May 09, 2018 08:53 am | Updated December 01, 2021 06:18 am IST - New Delhi

An oil refinery and petrochemical complex in the port of Mahshahr, Iran. File.

An oil refinery and petrochemical complex in the port of Mahshahr, Iran. File.

Despite United States President Donald Trump’s decision to pull out of the Joint Comprehensive Plan of Action (JCPOA), the nuclear deal itself won’t be scrapped as long as Iran and the other signatories: the U.K., France, Russia, China, Germany and the European Union remain committed to it.

Even so, India could face the impact of the U.S. decision on the deal as well as instituting the “highest level of economic sanctions” in several ways:

1. Oil prices: The impact on world oil prices will be the immediately visible impact of the U.S. decision. Iran is presently India’s third biggest supplier (after Iraq and Saudi Arabia), and any increase in prices will hit both inflation levels as well as the Indian rupee, which breached ₹67 to the U.S. dollar this week. In the past week alone, crude prices have crossed $70/bbl (barrel) level, touching a four-year high. After Iranian President Hassan Rouhani’s visit to New Delhi in February, India committed to increasing its oil imports from Iran, which were expected to double to about 396,000 bpd (barrels per day) in 2018-19 from about 205,000 bpd in 2017-18. Non-oil trade with Iran, which stood at about $2.69 billion of the total trade figures of $12.89 billion in 2016-17 may not be impacted as much, as New Delhi and Tehran have instituted several measures in the past few months, including allowing Indian investment in rupees, and initiating new banking channels, between them.


2. Chabahar: India’s moves over the last few years to develop berths at the Shahid Beheshti port in Chabahar was a key part of its plans to circumvent Pakistan’s blocks on trade with Afghanistan, and the new U.S. sanctions could slow or even bring those plans to a halt depending on how strictly they are implemented. India has already committed about $85 million to Chabahar development with plans for a total of $500 million on the port, while a railway line to Afghanistan could cost as much as $1.6 billion. Last year, the U.S. took a lenient line on India’s wheat consignment of 1.1 million tonnes sent via Chabahar, with the former U.S. Secretary of State, Rex Tillerson, saying the U.S. wanted to target the regime, not the Iranian people. His replacement, Mike Pompeo, and the new U.S. National Security Adviser, John Bolton, have a much tougher line on Iran and any further restrictions they place will make India’s Chabahar plans more expensive and even unviable.

3. INSTC: Beyond Chabahar, India has been a founder of the International North South Transport Corridor (INSTC) since it was ratified in 2002. It starts from Iran and aims to cut right across Central Asia to Russia over a 7,200-km multi-mode network, cutting down transportation and time taken by trade by about 30%. Plans for INSTC sped up after the JCPOA was signed in 2015 and sanctions on Iran were lifted. New U.S. sanctions will affect these plans immediately, especially if any of the countries along the route or banking and insurance companies dealing with the INSTC plan also decide to adhere to U.S. restrictions on trade with Iran.


4. Shanghai Cooperation Organisation: India joined the SCO along with Pakistan last year, and both will be formally admitted in June 2018, when Prime Minister Narendra Modi travels to the Chinese city of Qingdao for the SCO summit. This year, Chinese officials say they will consider inducting Iran into the 8-member Eurasian security organisation. If the proposal is accepted by the SCO, which is led by China and Russia, India will become a member of a bloc that will be seen as anti-American, and will run counter to some of the government’s other initiatives, for eg. the Indo-Pacific quadrilateral with the U.S., Australia and Japan. The move may also rile other adversaries of Iran, like Saudi Arabia, UAE and Israel, with whom the Modi government has strengthened ties in an effort to balance its West Asia policy.

5. Rules-based order: India has long been a proponent of a “rules-based order” that depends on multilateral consensus and an adherence to commitments made by countries on the international stage. By walking out of the JCPOA that was signed by the Obama administration, the U.S. government has overturned the precept that such international agreements are made by “States” not just with prevailing governments or regimes. This could also impact all agreements India is negotiating both bilaterally and multilaterally with the U.S., and the government will have to choose its future course factoring in the new U.S. behaviour, especially after Mr. Trump withdrew from the U.N. Climate Change treaty (Paris Accord), and the Trans-Pacific Partnership with East Asian trading partners. In the case of the Paris Accord for example, India chose to stick to its commitments on reducing its carbon footprint, despite the fact that the Trump administration had dispensed with the funding commitments that were made by the previous Obama administration in order to convince India to sign on to the climate change agreements ahead of time. New Delhi will have to consider a new understanding of its ties with Washington in this context, and some of this understanding may be built during the first “2+2” dialogue between Foreign and Defence Ministers of both countries to be scheduled in the next few weeks in Washington.

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