Choking Iran

Print edition : May 24, 2019

Iran’s Supreme Leader Ayatollah Ali Khamenei at a ceremony involving workers in Tehran on April 24. He called the end of oil sanction waivers by the U.S. a “hostile measure” that “won’t be left without a response”. Photo: HANDOUT/AFP

Mike Pompeo, U.S. Secretary of State. Photo: Alex Wroblewski/Bloomberg

India toes the U.S. line by agreeing to stop Iranian oil imports, but the move may impact its economy and hurt a long-time ally that has been devastated by floods.

After the Donald Trump administration announced that the “one-time” waiver of United States sanctions granted to India, China, South Korea, Turkey and Japan with regard to importing Iranian oil would end in the first week of May, the Narendra Modi government was quick to indicate that it would fall in line with the American diktat. Among these countries, which will be adversely affected by the unilateral action of the U.S., Turkey said that it could not comply with the diktat while China registered its strong protest against the U.S. move.

When the Modi government succumbed to U.S. pressure in March this year and stopped buying oil from Venezuela, it was assumed that the Trump administration would extend the waiver granted to India to make up for the shortfall.

Iran’s ambassador to India, Ali Chegeni, said that the Trump administration had given the original six-month waiver to ramp up production of U.S. oil and then sell it to India at higher prices. The Trump administration, he said, had no intention of extending the waiver. He added that it would be “insulting” for countries to accept the “illegal” U.S. sanctions on his country. Chegeni pointed out that Iran had fulfilled all the conditions of the nuclear deal signed with the U.S. and five European countries. This has been certified by the International Atomic Energy Agency.

Iran and Venezuela were, until recently, among the top four suppliers of oil to India. The U.S., after unilaterally scrapping the 2015 U.S.-Iran nuclear deal signed by Trump’s predecessor, Barack Obama, imposed draconian sanctions on Iran last year, primarily targeting the country’s oil industry. Most of Iran’s foreign exchange earnings come from the export of oil and gas. The U.S. is aiming to completely restrict Iran’s oil and gas exports and impoverish the country.

The latest U.S. decision comes in the wake of unprecedented flooding that wrought havoc in many parts of Iran in March and April. Iran is in need of international solidarity as millions of Iranians were affected by the devastation caused by the floods in 25 of the country’s 31 provinces. More than 150,000 homes were destroyed and roads and bridges were washed away. It is estimated that Iran urgently needs $2.5 billion to rebuild itself. Instead, the Trump administration has chosen to impose more sanctions on the country.

The U.S. even put roadblocks to prevent the distribution of much-needed humanitarian aid and stopped foreign non-governmental organisations from sending medical professionals and others to help. The Iranian diplomat described this as a more dangerous form of terrorism. “Economic terrorism kills more people, especially needy people,” said Chegeni.

Mike Pompeo, the U.S. Secretary of State, told the media in the last week of April that countries not complying with the U.S. government’s orders would be sanctioned. “We’re going to zero across the board. There are no oil waivers that extend beyond that period [May 2], full stop,” he stressed. He added that there would not be “any grace period” for any of the affected countries.

Economists in India have warned that the Trump administration’s move will have an impact on the economy. Oil prices have already risen globally, crossing $70 a barrel. There are predictions that it could even cross the $100 mark. Saudi Arabia and the United Arab Emirates, which were supposed to pick up the slack in supply, according to the U.S., seem to be reluctant to do so for a variety of reasons.

The credit rating agency ICRA has estimated that Indian oil refineries will have to bear a loss of more Rs.2,500 crore. The value of the Indian rupee is likely to go down further. India was receiving Iranian oil at discounted prices. Because of the U.S. sanctions, Indian public sector companies like ONGC Videsh Limited cannot invest in ventures in Iran that they had committed to.

The External Affairs Ministry issued a statement saying that India was “adequately prepared” for the eventuality of the U.S. waiver being lifted. The government, the statement said, “will continue to work with partner nations, including the U.S., to find all possible ways to protect India’s energy and security interests”.

The opposition parties strongly criticised the Modi government’s decision to toe the U.S. line on this issue and have demanded that Prime Minister Modi speak out on the issue. The Congress said that the U.S. move was “a direct assault on India’s political and economic sovereignty” and “a failure of Modi’s personalised style” of diplomacy. The Communist Party of India (Marxist) said that any move to stop the import of Iranian oil and gas “will harm India’s energy security and national interests”. The party recalled the statement of External Affairs Minister Sushma Swaraj earlier in the year in which she insisted that India would not adhere to any sanctions except those imposed by the United Nations.

The Trump administration has indicated that it expects reciprocity from the Indian government for the diplomatic help it rendered during the face-off with Pakistan after the Pulwama terror incident. The U.S. State Department specifically underlined the diplomatic heft it provided in putting pressure on Pakistan on the issue of terrorism and on the question of designating Masood Azhar as an international terrorist. The U.S. Under Secretary for Terrorism and Financial Intelligence, Sigal Mandelker, visited India in early April to discuss matters relating to the blacklisting of Pakistan in the Financial Action Task Force. In return, the U.S. wanted India to stay in line with U.S. policies on Iran, according to reports.

The Iranian government has said that it was in touch with neighbouring countries and key European countries on the issue. “The waivers have no value, but because of the practical negative effects of sanctions, the Foreign Ministry has been in touch with foreign partners,” Iran’s Foreign Ministry said in a statement. Turkey, a member of the North Atlantic Treaty Organisation, was the first to ask for an extension of the waiver, saying that Iranian oil was critical for the country’s energy security. The Turkish government also emphasised that as a country sharing a border with Iran it could not adhere to U.S. sanctions and stop trading with Iran. “Turkey rejects unilateral sanctions and impositions on how we build our relationships with our neighbours,” Turkish Foreign Minister Mevlut Cavusoglu tweeted.

The Chinese Foreign Ministry spokesperson said that Beijing was opposed to U.S. sanctions on Iran and that China’s bilateral cooperation with Iran was in accordance with international law. “The Chinese government is committed to protecting the legitimate rights and interests of Chinese enterprises,” the spokesperson said.

Among the major recipients of Iranian oil, India, South Korea and Japan have been careful not to offend the U.S. in their response to the lifting of the waivers.

India accounted for 18 per cent of Iran’s global oil sales, second only to China (which accounted for 24 per cent); Japan accounted for just 5 per cent. Besides being a recipient of Iranian oil and gas, India shares long historical, political and strategic linkages with Iran.

“India has a very special place in the hearts of Iranians. It is more than a neighbour for us. Besides, Iran is not under sanctions from the U.N.,” Chegeni said. He pointed out that during the earlier “sanctions regime”, trade between the two countries had improved. India, he said, would continue to be a “strategic economic” partner of Iran. “Oil is only one commodity” that Iran exports to India. According to Chegeni, mechanisms like the rupee payment formula are in place to ensure that bilateral trade is not adversely impacted by the reimposition of U.S. sanctions. He also said too much stress should not be placed on the export of Iranian oil to India. “Our business dealings should not be confined to oil only. We can have joint investments in many other sectors,” he said.

According to Chegeni, European signatories to the nuclear deal, like France and Germany, were also putting in place alternative mechanisms to bypass the U.S. sanctions. Iran, however, is not satisfied with their slow pace.

Chabahar port

Interestingly, the Trump administration seems to have given a permanent waiver to India’s participation in the development of Iran’s Chabahar port. Indian officials have said that the U.S. has given an assurance that it will not jeopardise India’s investment in the project. In December 2018, Iran handed over part of the port’s operations to India. The port is considered crucial for the despatch of Indian goods to Afghanistan and Central Asia. Chabahar is also the starting point of the international north-south transport corridor.

Chabahar is also viewed as a rival to Gwadar port in nearby Pakistan. Gwadar is part of the ambitious belt road project helmed by China, in which Iran is a key player. Chegeni stressed that India was the “preferred” partner for the development of the Chabahar port. But he expressed the hope that India would speed up the connectivity work required to kickstart Chabahar as a major port. The 500-kilometre rail line connecting Chabahar to Zahedan, the regional capital of the Sistan-Baluchestan province, was not progressing at the pace necessary. Once it is completed, India’s trade with Afghanistan and the region will leapfrog. “Iran is the golden gate for India. It will take only two days for goods to reach Europe from Chabahar once all the work is completed,” Chegeni said.

India has been finding it difficult to mobilise the finances needed for the speedy development of Chabahar, to the consternation of the Iranian authorities. With stringent U.S. sanctions kicking in, the banking sector will be wary about lending money to the project. If India falters in Chabahar, China will be more than willing to step in. The Iranian leadership has reacted defiantly to the Trump administration’s “maximum pressure” campaign against its country. The stated goal is to reduce Iran’s oil exports to zero. Oil exports account for 40 per cent of Iran’s national income. Iran’s Supreme Leader Ayatollah Ali Khamenei said in late April: “America’s efforts in sanctioning the sale of Iranian oil won’t get anywhere. We can export as much oil as we need and want to.”

The commander of the Islamic Revolutionary Guards Corps (IRGC) warned that the strategic Strait of Hormuz would be closed if Iran was not allowed to use it for shipping its oil. Shutting down the Strait of Hormuz would cut the global supply of oil by 25 per cent. A serious miscalculation by the U.S. could lead to a regional conflict. In early April, the U.S. designated the IRGC as a terrorist organisation. In February this year, the IRGC, one of the most important wings of the Iranian army, came under attack from a terror group. The attack, which took place just a day before the Pulwama terror attack, killed 27 people and wounded 13. The U.S. did not even bother to send condolences. Instead, it has now branded the IRGC as a “foreign terrorist organisation”. Iran has retaliated by designating the U.S. Central Command based in the region along “with all the forces connected to it” as a “terrorist” grouping.

By equating the IRGC with Al Qaeda, the Islamic State and Boko Haram, the U.S. will theoretically have the legal basis to declare war on Iran. The “terrorist” designation of the IRGC puts Iran within the ambit of the U.S.’ Authorisation for Use of Military Force law passed in 2001. It was under this law that the U.S. President gave the order for the invasion of Afghanistan and Iraq. Before Trump abrogated the nuclear agreement with Iran, he said that the Iranian government supported terrorist organisations like Al Qaeda.

In his remarks to the U.S. Senate Foreign Policy Committee, Pompeo claimed “that there was no doubt” about a connection between Iran and Al Qaeda. He made this assertion despite being aware that groups affiliated with Al Qaeda and the Islamic State have been targeting Iran with deadly terror attacks. Iranian Foreign Minister Mohammad Javad Zarif, during a visit to New York, said that he believed Trump did not want to start a war with Iran but may be lured into one by his “B” team comprising U.S. National Security Adviser John Bolton, Pompeo and Israeli Prime Minister Benjamin Netanyahu.