The US President Donald Trump's announcement of reintroduction of sanctions on Iran, set the alarm bell ringing in New Delhi as well. The sanctions will have a direct impact on India's energy security plans as well as on the strategic investments committed into creating the infrastructure in Iran. This doesn't include the private sector commitments in exploring the markets for pharmaceuticals, textile, food processing, automobile and engineering products.
Above all, in creating the regional balance Iran is helping India to reach out to the newer markets in Central Asia, and strategically important Afghanistan; and that too by circumventing Pakistan. Separately, New Delhi is worried that the sanctions may help China to increase their influence over Tehran and other parts of the region. In March, Trump administration launched an offensive against imports from China.
In the last two months, India has already started reworking trade policy to fit it into the new trade order. But the current set of sanctions have only increased the headache of the diplomats in New Delhi. The opportunities don't end here; unlike 2006 sanctions, which were backed by the series of embargoes and sanctions by the European Union and United Nations -Trump administration doesn't have support of the other lobbies this time. In fact, their closest allies, the UK, France and Germany, issued a statement expressing "regret and concern" about the decision, emphasizing Iran's compliance with the deal and their "continuing commitment" to the Joint Commission Plan of Action, as the deal was formally known.
The US diplomats are exerting pressure on their allies, and India hopes that if they don't budge, the way out could be achieved.
India, in the last three years, with the help of Iran counterweighted oil imports from Saudi Arabia. Interestingly, Iran along with Iraq did not budge under the pressure from the OPEC to cut down the oil production, to artificially jack up the price. Along with this, the Trump order has also spiked the oil prices. The diktat that countries should cut down their oil imports from Iran by November 6 this year, if implemented, will further add to the price at Brent scale and to the import bills of countries like India. As the US companies dominate the re-insurance and payment gateways - the imports and executing projects will be difficult to execute. This also dims the prospects of Farzad-B gas field and option of getting equities in the South Azadegan oil fields.
Although the sanctions doesn't directly impact the ongoing works at Chabahar port or railway line connecting the port with the Zahedan town at the Afghanistan border, yet the sanctions of payments in dollars et al will create challenge. In fact, in February this year, Iranian president Hassan Rouhani came to New Delhi with his oil minister Bijan Zanganeh to deepen strategic relations. One of the commitments made by India is to double the oil imports in 2018/19. In 2017/18 fiscal, India imported 19.8 MT, on an average 396,000 barrels a day, from Iran. To sweeten the deal, Iran reduced the freight charges by nearly $1 a barrel, which was backed by a commitment from India to increase imports to nearly 500,000 barrels a day.
Last year, Iraq with 45.1 MT oil supplies in the last fiscal replaced Saudi (38.9 MT) as biggest supplier of crude oil. If India doesn't abide by the US sanctions, Iran will be close second this year. But the circumvention of the US sanctions will not be easy for India. Trump administration targeted national Iranian oil company, Naftiran Intertrade Company, and National Iranian Tanker Company.