Setback to India-Iran Trade Relations after Failed Iran Nuclear Deal

India-Iran Relations have been strengthening with leaders of both nations making the efforts to cement trade and business deals. Now that the US has pulled away from the Iran Nuclear Deal (JCPOA), how will this affect the India-Iran trade relations? 

The Iran Nuclear Deal (JCPOA) was aimed at limiting Iran’s nuclear plans and in return for removing the US-Europe joint sanctions. In place of the Iran Nuclear Deal, the US now plans to bring in newer unilateral sanctions, which is bound to impact India-Iran relations and relations with other nations. 

JCPOA Deal with Iran: US withdrawal means gain for Russia and China

After the US has announced its plan to pull out from the Iran Nuclear Deal, Indian refiners are hoping to be able to continue importing oil from Iran. The previous sanctions benefitted India as the refiners enjoyed waivers that allowed them to import oil from Iran in exchange of Indian rupees and not in US dollars. The Asian market that relied on the import of oil from Iran is now looking for alternate suppliers to prepare for the newer US unilateral sanctions against other exporters of oil.

Iran Nuclear Deal and the Impact on the Asian Market

Iran is the 3rd largest producer of oil in the OPEC, that had called for cuts in production even though the demand was very high. The Iran Nuclear Deal included many sanctions on the export and import of oil from Iran but with the US turning down the deal and agreements, newer sanctions are likely to replace these. The new sanctions are likely to set measures against the shipping and oil sectors of Iran.

As reported in the Hindustan Times, the Research Head for North Africa and the Middle East stated: “By declaring… the US will be instituting the highest level of sanctions against Iran – adding that any country that aids Iran will also be sanctioned – President Trump is clearly articulating that he has a minimal desire in an alternative agreement with Iran,”

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The previous sanctions had resulted in a major hit for Iran with the supplies of oil dropping by approximately a million barrels a day, but the nation resurfaced in 2016 after the said sanctions were lifted. Iran then rose to be one of the largest oil suppliers in the world. However, observers expect that the new sanctions, post the US pulling away from the Iran Nuclear Deal, could lead to a much greater hit for the oil supplies. The amount of hit to the supplies will depend on how many countries decide to follow the US.

Did the US Allies agree with abandoning the Iran Nuclear Deal?

Surprisingly, most of the allies of the US are not in agreement with the US abandoning the Iran Nuclear Deal. France, UK, Asia and Germany are sure that they want to continue with the Iran Nuclear Deal. An observer says that the India, Turkey, Russia and China are likely to stick to the deal and continue with the current buying level of oil from Iran. However, South Korea and Japan are expected to side with the US. In fact, statistics show that the oil supplies from Iran to Japan and S. Korea have already reduced.

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The Lead Analyst for Energy at the EIU stated, “President Trump’s decision to withdraw the US from the Iran nuclear deal… formally sets US Iran policy on a markedly different course to its European allies, who see the JCPOA as the best way to prevent Iran from developing a nuclear weapons programme,”

How will the move against the Iran Nuclear Deal Impact China and India?

China is the largest buyer of oil from Iran. These new sanctions are definitely going to impact the Chinese market and the petroleum industry because of the heavy reliance on Iran. However, the Chinese refiners do recognize the other alternate sources in Russia, W. Africa and Saudi Arabia. The real concern for China is not just the oil supply but also the impact on the oil prices.

For India, the sanctions during the Iran Nuclear Deal brought in beneficial waivers. The newer sanctions will definitely impact India but not as high as the impact for China. The greatest challenge here is with other suppliers raising up the prices to restrict the supplies.

More on India-Iran Relations at EurAsian Times: Why is India Nervous with Chinese Investments in Iran’s Chabahar Port?