US-Iran Hostilities

And Challenges for India

US-Iran Hostilities
US-Iran Hostilities

US-Iran hostilities since the time it began to the recent ongoing one have seen seasonal patterns, reaching its peak every time there is a new US President in office and then slowly the whole debacle fizzles out to start over again. The current hostile relation between the two countries has witnessed Iran being imposed with crippling sanctions, USA deploying its warship in the Persian Gulf, Iran shooting down one of USA’s unmanned aerial vehicle (UAV), purported attacks on oil tankers by Iran and cyber attack on Iran’s missile and defence systems by USA.

The build up to the recent crisis has been quite an intriguing story finding it origin to the 2011 sanctions during Obama era (witness the pattern here) on Iran which culminated into the famous 2015 Joint Comprehensive Plan of Action (JCPOA). The JCPOA was agreed upon by the P5+1 (5 permanent members of UNSC and Germany) which restricted Iran from enriching nuclear activities and acquiring nuclear weapons in the near future. The JCPOA was an efficiently negotiated and balanced agreement celebrated by both parties, though resented by some hardliners in Iran who have always been suspicious of the western powers.

The 2016 presidential elections in US reverted the fizzled out debacle, which has once again reached its peak since Donald trump assumed office. President Trump had described the JCPOA as “worst deal ever” and called for scrapping it during election campaign. By May, 2018 US had withdrawn from the deal and 12 demands were outlined by the US Secretary of State Mike Pompeo. New sanctions were imposed by August 2018 which prohibited trade with sectors such as aviation, gold, pistachios and carpets. After 90 days in November 2018 another set of sanctions were imposed, this time on key sectors- oil and banking. Eight countries- China, Japan, Turkey, Italy, India, Greece, South Korea, and Taiwan- were granted waiver to trade with Iran for a period of 180 days. However new developments were seen even before these 180 days were over.

In April 2019 the US President designated the Iranian military arm, Islamic Revolutionary Guard Corps (IRGC) as a foreign terrorist organisation. This has been the first time in history that the US has formally labelled a foreign military as a terrorist organisation. In return Iran labelled USA as a state sponsor of terrorism. So, eventually what had been a game of imposing and avoiding sanctions till then, escalated to military aggression from both sides leading to tanker wars akin to the 1980s.

Further, the sanctions since they were announced in 2018 have hit the Iranian economy hard. Rial has lost almost 60% of its value and the economy has contracted almost 9.5%. The waiver which ended in May 2019 for the eight countries was not renewed and restricted further buying of oil from Iran which added to the fiscal gaps which had started emerging in 2018. The economic situation has become so bad that the monthly household subsidies given out to more than 90% of Iranian population has been eliminated. While the European Union (EU) countries wanted to find an alternative route to bypass the sanctions nobody dared tricking their biggest ally. As far as India is concerned, it has stopped importing Iranian crude since May 2019.

Analysis of the current hostilities

While many would suggest that the ongoing hostilities are a continuation of what started in 1979, it is hardly believable that the two states are at each other necks for some historic event. The thumb rule for foreign policy is that it is always built upon domestic interests. So, out in the periphery it would look that USA is taking the tough stance to restrict Iran from acquiring nuclear weapons. But when the International Atomic Energy Agency (IAEA) has reported on numerous occasions that Iran has abided by all the norms of the JCPOA, why blame it for the same?

So, at the core are the two traditional reasons visible- economic and political. Economic because of the recent fondness for unilateralism and putting pressure on those countries which have deficits with the US. And, political in relation to the US allies- Saudi Arabia, United Arab Emirates (UAE) and Israel.

The US President assumed office with the wave of “America First”, used in his election campaign emphasising on American nationalism, isolationism, protectionism and unilateralism. By 2017, US had either started withdrawing from the major multilateral agreements such as Trans-Pacific Partnership (TPP) and Paris Climate Agreement or redefining the existing agreements such as North American Free Trade Agreement (NAFTA). In a similar sense the US attacked those bilateral agreements where it had bloated trade deficits, evidently the worst  was faced by China and India. The US-China trade war started with US imposing huge tariffs on Chinese goods. Similar tariff hikes were imposed on other countries as well starting with steel and aluminium. India saw the withdrawal of its preferential trade treatment.  All the countries which were imposed with high tariffs and US had trade deficit with be it China, India, South Korea, Japan or Turkey among other countries were big oil importers from Iran. Subsequently, except for Turkey (which itself is reeling with US sanctions) all the other nations increased oil imports from the US. Similar kinds of sanctions are imposed for trading with Russia and divert the demand for military goods towards US.

The US has had military presence in the Middle East for almost 2 decades now. The Syrian civil war saw Iran and Russia pitted against US and its allies Saudi Arabia and Israel. While Iran and Russia supported the pro-government forces, US, Saudi Arabia and Israel supported the rebels.  Iran is believed to have deployed billions of dollars and hundreds of men to help government forces. Thousands of Shia militia men from Lebanon’s Hezbollah movement, Iraq, Afghanistan and Yemen are believed to be trained by Iran and fight along with the government forces. Israel has been concerned about the supply of Iranian weapons to Hezbollah and the military entrenchment of Iran in Syria. Meanwhile Saudi Arabia is keen to counter Iranian influence both in Syria and allegedly in Yemen where Iran supports the Houthi rebels. Apart from decimating the ISIS in Syria, the whole civil war has reached a stalemate. The US President had also promised to bring back the troops from the Middle East during his election campaign. Now to help its allies and complete the election promise putting pressure on Iran was much easier than putting pressure on Russia, because of the JCPOA.

Impact on Iran

The first set of sanctions imposed in August 2018 was absorbed without much affect while the second set has severely impacted the Iranian economy. The national currency has tumbled and food subsidies have been cut. Curbs on iron and steel and other manufacturing sector has led to significant drop in economic growth and loss jobs. Inability to provide relief to the Iranian people suffering from economic hardship has caused unrest. However the unrests are more than what meets the eye.

It is clear that US even after the military escalations would not want to send troops for a full front war. Firstly, the US is already weary of almost 2 decades of war in the Middle East and would not want another quicksand. And secondly, Iran is not just any other Arab country ruled by a monarch. Iran has a perfectly stable democratically elected government and a well educated, progressive population (not many countries in this region can boast of a space programme). Though educated on western ideas both moderates and conservative population distrust the western powers be it US or Russia or even Turkey. So if the commercialised corporate media echoes the rhetoric that Iranian population are being oppressed, it’s just a sham to undermine the democratic government of Iran. The corporate media paints the whole of West Asia into a single picture of Arab world which it is not.

Recent protests have erupted near the capital, Tehran over price rises. The Supreme Council of Economic Coordination, body made up of the President, Judiciary Chief and the Speaker restricted fuel use to 60 litres at $0.13 per litre, cheaper than almost anywhere in the world. Fuel purchases in excess of allotted rations would incur additional charge of $0.26 per litre. Though the protests started over the petrol measures, it is also driven by the ailing state of Iranian economy due to the withdrawal of US from JCPOA and sanctions imposed on the country.

Another recent development is the rise in anti-Iran sentiments and attack on Iranian facilities in Iraq. The Iraqi population are sceptical of all foreign intervention, it is Iran which has to bear the brunt of all accusations. Clearly an attempt of regime change is once again in action.

Challenges for India

The ongoing tussle between the two countries has landed India in the soup. Aligning with any side will have deep repercussion in domestic policy. On the one side are US and its allies Saudi Arabia, UAE and Israel where India’s interests lie in millions of NRIs, remittances amounting to millions of dollars and attracting investment to the domestic economy. In 2018 direct investments made by US in India stands at approximately $45.98 billion. Further US has given Strategic Trade Authorization -1 (STA-1) status to India which brings it at par with US allies and partners such as NATO. It allows India to buy highly advanced cutting-edge sensitive technology from US. In addition to these, agreements such as LEMOA and COMCASA have been signed with US and annual military exercises are carried out by both countries.

Among US allies Saudi Arabia is supposed to invest over $100 billion in the next two years. Further, India’s ONGC Videsh has acquired a 10% stake in an offshore oil concession in Abu Dhabi, UAE for $600 million. The last two decades has seen a steady strengthening of India-Israel relationship which has ranged from science and technology, agriculture, defence and security, and tourism. The India-Israel relationship is expected to grow further in the coming future evident from the multiple MOUs signed recently between the two countries.

Keeping the above details in perspective, aligning with Iran completely could mean giving up on years of diplomatic achievements. However, cutting ties with Iran as desired by these countries would mean India surrendering its strategic autonomy.

India’s engagement with Iran is nothing less than enormous. Iran has been a long standing friend for India and a trusted supplier of crude oil. Since 1992 the look west policy has strengthened this bonhomie. This relationship became especially significant in the backdrop of India realizing that they have to diversify sources of crude oil, a realization which dawned on the Indian policy makers post 1990/91 Gulf War. Oil refineries especially for the ‘heavy grade’ crude from Iran were setup in Mangalore.

Relations with Iran have evolved with significant investments by India. India invested $500 million in the development of Port Shahid Beheshti in Chabahar and the Indian conglomerate, ‘India Port Globals Ltd’ has started operating the port as well. To connect the Chabahar port with the border town of Zahedan and then connect with Afghanistan, India has given a line of credit of $2 billion to develop the railway line. India has also invested $500 million to develop a cross-border SEZ in Iran. Further ONGC Videsh has invested a considerable amount in developing Farzad B gas block. After the failure of talks over Iran-Pakistan-India (IPI) gas pipeline, India and Iran started working on a deep-sea pipeline across the bed of Arabian Sea, called South Asia Gas Enterprise (SAGE), subsequently Oman & UAE also joined the project, but the project is stuck over a number of complexities.

India and Iranian Governments have been investing hugely in Chabahar and associated projects also for a different reason. Chabahar project is in the Iranian province of Siestan-Balochistan, which is the not only the eastern most province of Iran but also the largest and poorest province of Iran. And taking advantage of this rampant poverty Pakistan, especially ISI, converted this region into hub of drugs smuggling and in a part of Golden Crescent. There is an urgent need to step in to undo this menace.

Iran is also India’s only gateway to Afghanistan as Pakistan under no circumstances is going to allow India this access. And they made their intentions clear in 2014, in the platforms of SAARC during the debate over Motor Vehicles Agreement (MVA). Afghanistan is a friend, India would never like to lose. Additionally, for Afghanistan’s growth, India has to secure Afghanistan’s access to Chabahar and sea.

Iran is also the gateway of India to number of other places- Central Asia and Russia. It is for this reason, that India joined Ashgabat Agreement, to get easy access to Central Asia. The economies of Central Asia are rising and new markets are being created there. These countries are also rich in natural resources, which India needs to sustain it’s economic growth. Russia, is nearly 15,600 km away from India (traditional route between Mumbai to St. Petersburg). The distance can be brought down to mere 7,000kms through Iran, via Caspian Sea. It is for this purpose India, Russia and Iran signed the International North South Transit Corridor (INSTC) agreement.

Given the above details of India-Iran relationship, any misstep by India in the ongoing tussle between US-Iran would hurt India badly. Also, China-Iran relationship should not be ignored. If India succumbs to the pressure by US then India would end up losing all the developments in Iran to China. And, it would the biggest diplomatic disaster ever.

As of May 2019, India has reduced oil imports from Iran to zero. However India has allowed setting up of Iranian bank, Pasargad in Mumbai and start commercial banking operations. So all is not lost yet!

Not an End Yet

The pressure exerted by the US on Iran and countries that engage with Iran is a classic example of how US has been arm twisting others to get to its vested interests. Nothing else could explain why it tried for a deal with North Korea which had been conducting nuclear tests and building intercontinental ballistic missiles in broad daylight, while putting sanctions on Iran, which had stopped any kind of proliferation activities. The US has to understand that Iran does not have a unstable domestic environment and a gullible population smitten by the west.

Iran has survived previous sanctions and would pull through this one as well if its bilateral partners hold onto their side of the deal and not succumb to external pressure.  This goes for India as well which has a lot to lose, including its strategic autonomy. Iran has been a time tested friend and in the days of unilateralism and protectionism, those are hard to come by. It can play a very significant role in the dream of achieving a $5 trillion economy.

As of now one can only hope that the peak of the hostilities passes at the earliest and the whole debacle fizzles out to never return again.



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