Iran Nuclear deal: Impact on India(IR)

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Iran Nuclear deal: Impact on India

Iran and US have deep mutual suspicions. The 14 Jul 2015 deal has not changed this. Prudence suggests that Iran is likely to abide by her side of the deal and give up nuclear weapon ambitions and benefit from lifting of the sanctions and experience rapid economic growth. US showed great urgency in reaching this agreement not because of any concern for Iran’s suffering population (because of the sanctions), but the threat of ISIS.

Noteworthy facts about Iran

Iran with a population of 77million and is one of the most populous countries in the Middle East.  It is a Shia dominated country with strong links with Shias in Iraq. Her role is essential in eliminating the threat of ISIS (Sunni Terrorist organisation) from the world.64% of the population is below 35 years. Iran has a literacy rate of 98%. Urbanisation rate is one of the fastest globally, rising from 27% to 71% in the last 50 years. English is widely taught in schools, and there is a high Ph.D. rate. Sixty percent of university students are women. Thus the country is set to progress fast and offers great investment opportunities.
The deal has a great positive impact on India. Let us examine the strategic and economic benefits.
Iran Nuclear deal: Impact on India: Strategic
The withdrawal of US led NATO forces from Afghanistan is an imminent reality. The future of Afghanistan appears to be under control of Pakistan supported Taliban. This is not a desirable future for the US, EU, India and Iran. Thus our security and strategic concerns converge. India is developing the Iranian port of Chabahar, on the Gulf of Oman, that would open up a new trade route to Afghanistan and Central Asia. India has built a 200 km road linking the Iranian town of Zaranj to Delaram in Afghanistan. This will be of strategic benefit to US, EU and India. It will reduce US’ & EU’s dependence upon Pakistan for operations in Afghanistan. This will also lower Pakistan’s blackmailing power with the West. This future scenario is beneficial for India.
India would also like to see the elimination of the threat of ISIS, in which Iran is likely to play a major role.

Iran Nuclear deal: Impact on India: Economic

Petroleum & Gas
The lifting of sanctions will bring Iranian crude oil into the world market causing further lowering of prices. Since India imports 80% of crude oil, it will reduce our import bill, improve balance of trade position and reduce fiscal deficit.
Our bilateral trade with Iran last year was about $ 8.96bn imports, (primarily crude oil) and $4.2bn exports. We benefited in that we paid in Rs till now, but will have to pay in $ in future. This disadvantage will be more than offset by the gain due to lowered prices of crude oil.
ONGC-‘Videsh’ had discovered 12.8 trillion cubic feet Farzad-B gas field in the Persian Gulf in 2008. It is keen to develop the site. It is however learnt that our proposal has been rejected and Iran is seeking international bids. It will be difficult for Indian companies to compete with French, US and Chinese oil firms having abundant resources and the latest technology.  Irrespective of the status of the ONGC deal, we would be able to import gas from Iran and Central Asia. It would be sensible to plan on an underwater gas pipeline from Iran and give up the idea of the much discussed ‘Iran-Pakistan-India Gas Pipeline’.
General Trade
  • India had signed a $233m contract to supply more than 150,000 tonnes of rail tracks to develop Iran’s railways. Iran now wants to renegotiate the deal to bring down the price because the euro has declined against the dollar.
  • Iran paid a premium of up to 20 percent over global prices to buy basmati rice, soya meal, sugar, barley and meat from India.Iran may shift to other suppliers like South American countries who supply at much lower prices compared to India.
  • There are expected to be good opportunities for pharmaceutical, IT and commodity firms.
  • India may lose some engineering exports, but new opportunities could come up for products currently covered under sanctions.
  • Importing goods or sending shipments to Iran is currently expensive because of high shipping charges. This is expected to reduce, thus favouring increased trade.

Conclusion

India has had good relations with Iran in the past. We need to further strengthen our strategic and economic ties for mutual benefit. We may suffer some short term business losses due to competition from other countries, but in the long run we stand to gain from mutual cooperation.
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