Dubbed As A “Historic Mistake”, Will Iran’s Nuclear Deal Benefit The Indian Economy?

Posted on July 29, 2015 in GlobeScope, Politics

By Shruti Sonal

Iran has long been an issue of contention in international politics, symbolizing the divide between a “rational and progressive” West and a conservative Middle East guided by religious ideals. To India however, Iran, a country it had shared its border with before independence, remained a key strategic trading partner throughout the tumultuous times.

india iran flags

Diplomatic Ties And Socio-Cultural Relations

While historic and socio-cultural relations between the two countries go long back in history, diplomatic ties were established on 15th March 1950. Pre-revolution era was marked by several visits by leaders on both sides, under Nehru’s goal of greater Asian unity. In the aftermath of the 1979 revolution, which aimed at getting rid of Pahlavi dynasty and installation of sharia rule under Ayatollah Khamenei, Iran was projected by the West as a propagator of state-sponsored terrorism. However as it joined the NAM in the same year, it remained India’s trusted partner in the region for long, the two sharing a relatively healthy and stable relationship.

Being one of the leading oil importers in the world, India’s energy needs received a blow in the aftermath of sanctions imposed by the UN in 2006 aimed at halting Iran’s nuclear development program, as share of oil imported from Iran fell from 16.4% to 6%. Further hiccups were created as India voted against Iran’s nuclear program on several occasions. Thus, along with the rest of the world, India has been observing the developments of the deal signed between Iran and the P5+1 with watchful eyes. Even as a range of responses came from various countries, responding to the lifting of economic sanctions imposed on Iran in return for systematic nuclear disarmament, India didn’t come out with an explicit statement. MEA spokesperson Vikas Swarup “welcomed the successful conclusion of negotiations” while waiting to see the text of the Agreement.

The deal, if successful in crossing the obstacles posed in the US parliament, will have numerous implications on India economically, politically and strategically. Trade and political analysts have welcomed the deal at large, as it will advance our country’s energy interests and also lead to greater regional integration.

What This Means For India Economically

As the sanctions are lifted, Iran is expected to start exporting at its full capacity again. This will lead to an addition in supply and further contribute to the fall in oil prices. Sandeep Jain, Director of India Nivesh Securities, estimated that “in the long-term, crude prices could fall by $5-$15 per barrel.” Companies like ONGC, Aban Offshore and Chennai Petroleum with operations in Iran are set to benefit. Opening up of Iran’s economy will also provide an opportunity for expansion of Indian pharmaceutical and IT industries. However, not all is merry on the economic front. While during the phase of sanctions India paid for the imports in rupees, now it will have to pay in dollars, which will hurt its pockets. Moreover, Iran is now likely to push for the payment of the $6.5 billion owed by India in unpaid bills for oil imports. In the long-term, India, which has for long been exporting automobile components, tools, motors and chemicals to Iran will now face competition from American and Eastern European manufacturers.

Tackling Taliban And Future Political Alliances

Strategically, as India seeks to assume a greater role in the region, Iran remains its best bet as a gateway to South Asia. In the absence of a land route through Pakistan, the development of the long-planned Chabahar port will be key in opening up trade to Central Asia and Afghanistan. Having a trusted partner will help India counter China’s influence in the region.

Politically, the deal will strengthen democratic structures in the Middle East, at a time when it’s plunging into despair. An Iran focusing on disarmament and moving away from a ‘Satanic’ view of the West, will fuel India’s battle against extremism and strengthen its efforts to prevent it from affecting the vast Muslim youth population at home. As Iran and India have both been affected by the rise of Taliban in Afghanistan, greater co-operation will fulfill mutual interests and tone down Pakistan’s dubious influence.

However, it will also test India’s diplomacy as it seeks to maintain cordial relations with two of the most vehement critics of the deal – Israel and Saudi Arabia. The recent government has shown a tilt towards improvement of relations with Israel, taking an anti-Palestine stand in the UN for the first time, even as Prime Minister Modi prepares for his visit there later this year. Saudi Arabia, on the other hand, continues to house many Indian workers and is a top source of remittances. Even as the Israeli Prime Minister Netanyahu termed the deal a “historic mistake” and Saudi Arabia urged strict inspections, and harsh, determined responses in case of violations, it is up to India to rise above sectarian and historical divisions in order to fulfill its national interests.