India Will Have to Rework Ties With Iran Post Nuclear Deal Fallout

It will not be easy for India to preserve its gains with Iran.

Image of President of Iran, Hassan Rouhani, and an artist’s impression of US President Trump used for representative purposes.

(Photo: Erum Gour/The Quint)

While walking out of the Iran nuclear deal, President Trump has indicated a willingness to enter into a “new and lasting deal, one that benefits all of Iran and the Iranian people.”

This is not going to happen during his presidency, for no Iranian authority would be ready to accept an agreement solely on his terms.

He indicated his aim thus, “As we exit the Iran deal, we will be willing to work with our allies to find a real, comprehensive and lasting solution to the Iran nuclear threat.”

In the meantime, India’s MEA has issued a statement:

India has always maintained that Iranian nuclear issue should be resolved peacefully through dialogue and diplomacy by respecting Iran’s right to peaceful uses of nuclear energy international community’s strong interest in exclusively peaceful nature of Iran’s nuclear programme.

Ghost of 1979 Continues to Haunt US

What will be ‘real’ for Trump will be simply unacceptable — in fact, insulting to Iran. Trump belongs to that group of Americans who consider the current Iranian system as inherently evil. They have not been able to transcend the memories of 1979 when Iran’s Islamic Revolution inspired by Ayatollah Khomeni overthrew America’s faithful ally Shah Reza Pehlavi to put in place a clerical order.

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In the same year, Iranian students attacked the US embassy and held its diplomats and others hostage for 400 days. Thus, for Trump, as long as the clerical system continues, Iran has to be completely contained. It cannot be allowed to develop any capacity to project power. So, ballistic missiles, even in the absence of nuclear warheads, are unacceptable.

A deal that allowed Iran to even partly come out of the sanctions’ shackles was terrible for Trump. That would allow Iran to purposefully become a player in the region, challenge the Sunni states of the Arab peninsula, especially Saudi Arabia and the UAE, and reset power equations in a sensitive part of the world. Trump was determined to undo the deal to box Iran once again. At its core, the deal was ‘rotten’ not only because it did not rule out Iranian nuclear enrichment in perpetuity, but because it allowed Iran to become assertive in the region once again.

Iran’s Distressed Economy Could’ve Done Without US Sanctions

Trump’s decision will have an impact on Iran’s domestic politics and economy. The Iranian system is intricate and seeks to balance contending forces within the framework of the clerical system. At its head is the Supreme Leader, Ayatollah Khomeini, who is above the political fray. He has the final say on national policies. The nuclear deal was bitterly opposed by conservative sections who are dedicated to the sharp legacy of the Revolution and assertive Shia Islamism.

It was supported by pragmatic men who thought that with the economy constrained by sanctions, the deal maybe a bitter pill to Iranian honour but necessary for the attainment of national potential. Khomeini sided with the practical group led by President Rouhani.

There is little doubt the hard men will now sharpen their knives against Rouhani’s group who will be also blamed for misleading the Supreme Leader.

Iran’s economy continues to be in poor shape. Non-oil sector recorded growth levels of around 4 percent following easing of sanctions after the deal. However, the hope that there will be a surge of economic activity, with foreign companies flooding in, did not take place with the sanctions regime not being completely lifted and difficulties in navigating the local business environment.

High inflation and unemployment coupled with rural distress led to widespread agitations in late 2017. Now new economic uncertainties and social tensions will come as the process of re-imposing US oil and gas and banking sector sanctions begin again.

Regional Turmoil

Rouhani has ordered his scientists to become ready to begin nuclear enrichment but has indicated that the process will not begin just yet. He is hopeful that the west Europeans— UK, France and Germany — and Russia will find a way to go ahead with the deal minus the US.

In any event it gives Iran the unparalleled opportunity to show itself as a responsible international player in contrast to the US, especially as the International Atomic Energy Agency has certified that Iran is adhering to the terms of the agreement.

The real issue is not that the European governments will follow Trump and renege from the deal, but if with US’ withdrawal the deal will practically continue. In this, more than the governments, major European companies will play a decisive role. Will their boards take the risk of the imposition of secondary sanctions by doing business with Iran?

There is hardly any large European company, especially in the oil and gas sector, that does not have an interest in the US. It is hard to see these companies not abiding by the thrust of US sanctions.

In the immediate future, Iran will try to maintain its leverage in the region through the Shia groups it has sponsored. However, the significant difference will lie in the perception that Trump is willing to go to any extent to support the Sunni states and Israel, and oppose Iran. That will make regional entities feel that the neutral policy adopted by Obama that had led to greater Iranian assertiveness in Yemen and Syria has been put to rest. With this, there will be a wariness in dealing with Iran.

India Should Tread Carefully

There is little doubt that the Saudis and the other Gulf oil producing states will try to ensure that the oil market remains calm and stable. It will come under pressure and prices may rise a little. It is still early days and a clearer picture will only emerge after a few days when the market has absorbed the full consequences of Trump’s action.

For India, Trump’s decision will bring back the dilemmas of dealing with Iran. Prime Minister Modi’s visit to Iran in 2016 and President Rouhani’s return visit in February this year set the stage for a major upturn in relations.

Wisely, India steered clear of the contentions of West Asia and the clash of Saudi Arabia and Iran. It focussed on developing bilateral ties with all major powers of the region to promote its vast economic and strategic interests in the region.

Indian purchases of Iranian oil went up substantially as did the prospects of greater participation of Indian companies in up-stream and down-stream oil and gas projects. India-Iran-Afghanistan agreements for the development of the Chabahar port looked up.

Post the nuclear deal, economic ties including in the oil and gas sector, had improved. The Chabahar project, which is important for India in its quest for connectivity to Afghanistan and Central Asia, had moved forward. It will not be easy to preserve these gains and work around renewed US sanctions.

(The writer is a former Secretary, Ministry of External Affairs. He can be reached at @VivekKatju. The views expressed above are the author’s own. The Quint neither endorses nor is responsible for the same)

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