Iran in leap mode

Print edition : February 19, 2016

President Hassan Rouhani, after delivering a speech at a conference titled "Implementation of Joint Comprehensive Plan of Action, a new chapter in Iran's economy", on January 19 in Tehran. Photo: AFP

Ali Akbar Salehi, head of Iran's Atomic Energy Organisation, with Valiollah Seif, head of the Iran's Central Bank, in Tehran after the sanctions were lifted. Photo: ATTA KENARE/AFP

With the lifting of international sanctions Iran will have immediate access to its huge assets locked up in foreign banks and will look around for business partners. Will India be able to grab the opportunity?

The international sanctions on Iran were officially lifted on January 17 after the International Atomic Energy Agency (IAEA) announced that Tehran had complied with all the terms of its historic nuclear deal of June 2015 with the United Nations’ permanent five (P5) plus one countries (United States, United Kingdom, France, Russia, China plus Germany). The IAEA said that Iran had put in place all the six measures required under the deal. The European Union’s foreign policy chief, Federica Mogherini, announced that “multilateral and national economic and financial sanctions relating to Iran’s nuclear programme” had been lifted. The Iranian President, Hassan Rouhani, described the formal lifting of the sanctions on his country as a “glorious victory” for “the patient nation” of Iran. In an address to the Iranian parliament, Rouhani said that only “extremists” were unhappy with the successful implementation of the nuclear deal. “In [implementing] the deal, all are happy except the Zionists, warmongers, sowers of discord among Islamic nations and the extremists in the U.S.,” he said. Israel and Saudi Arabia are the two countries that remain unreconciled to the nuclear deal and the lifting of the sanctions.

Following the announcement on the lifting of the sanctions, Iran and the U.S. exchanged prisoners. Seven Iranian detainees were released by the U.S. authorities in exchange for four U.S. nationals. As a measure of goodwill, Iran also released 10 U.S. navy personnel whose boats had entered the country’s territorial waters in the second week of January and were intercepted near a sensitive military installation in the Farsi island in the Persian Gulf. Initially, the Barack Obama administration accused Iran of acting aggressively. The U.S. had claimed that mechanical failure had made the two boats “inadvertently” drift into Iranian territorial waters. After the sailors were released, U.S. administration officials conceded that there had been no engine failure. U.S. Defence Secretary Ashton Carter said “a navigational error” had taken them into the territorial waters of Iran.

Iran’s Supreme Leader, Ayatollah Ali Khamenei, while welcoming the lifting of the sanctions cautioned his countrymen to be wary of the U.S. “I reiterate the need to be vigilant about the deceit and treachery of the arrogant countries, especially the United States, in this [nuclear] and other issues,” Khamenei said. “Be careful that the other side meets its commitments.” Republican contenders for the U.S. presidency have criticised the lifting of the sanctions. Hillary Clinton, the leading Democratic presidential hopeful, is a well-known Iran baiter. While running for President in 2008, she threatened “war” against Iran if elected to the highest office. In one of her recent presidential primary debates, she listed Iran as one of the enemies she was most proud of having made. The U.S. Congress passed a law in 2015 that bars visa-free entry into the U.S. for Europeans who have either visited Iran or were born in that country. European businessmen or tourists will have to think twice before visiting Iran. Iran has said that the U.S. law is in violation of the World Trade Organisation (WTO) rules against “politicising trade” and is contrary to the Joint Comprehensive Plan of Action (JCPOA), which resolved the issue of the Iranian nuclear programme.

Iran fears that the next occupant of the White House could renege on the nuclear deal and reimpose sanctions. Immediately after Iran released the U.S. sailors, the Obama administration announced new sanctions on companies involved in Iran’s ballistic missile programme. Iranian Foreign Minister Javad Zarif criticised the new sanctions as “illegal” and as an instance of the U.S.’ “addiction to coercion”. Iran conducted a missile test last October; the U.S. described it as a violation of U.N. Security Council resolutions. The U.S. has provided sophisticated ballistic missiles to Iran’s neighbours in West Asia, such as Saudi Arabia. Besides, the U.S. has thousands of them located in its bases in West Asia. The U.S.’ close ally, Israel, is a heavily armed undeclared nuclear power. The U.S. has not lifted its trade sanctions on Iran although it has issued waivers on the import and export of food and carpets. The Obama administration has put restrictions on the free travel of Iranians to the U.S.

The International Monetary Fund (IMF) has predicted that Iran’s economy will receive a shot in the arm as a result of the lifting of the sanctions. Iran will have immediate access to billions of dollars from its unfrozen assets. Because of the sanctions, Iran was excluded from the international banking system and was not able to access the tens of billions of dollars locked up in foreign banks. Iran’s Central Bank chief, Valiollah Saief, said Iran would be able to immediately access $32 billion of its money that had remained locked up for years in foreign banks. Iran will hopefully be reintegrated into the international banking system and regain access to international creditors. But it will be Iran’s ability to export oil that will be crucial to the revival of its economy.

“Higher oil production, lower costs of trade and financial transactions, and restored access to foreign assets are expected to lift real gross domestic product [GDP] to 4 to 5.5 per cent next year,” the IMF has forecast. Iran’s Oil Minister has announced that oil exports will be doubled within a short span of time. He said he was not concerned about the falling price of oil. “Under no circumstances will Iran concede its market share to others,” he stressed. Because of the sanctions, countries such as Saudi Arabia had gained at Iran’s expense. Iran has the world’s fourth largest oil reserves. It hopes to get back to its pre-sanctions level of exporting 2.2 million barrels of oil a day. The exports were halved after the imposition of sanctions. Iran also expects an infusion of foreign capital to the tune of $70 billion in the short term.

“The legs of the Iranian economy are now free of the chains of sanctions, and it is time to build and grow,” Rouhani tweeted after the lifting of the sanctions. Iran has already placed orders for over 300 Airbus planes from Europe and is also negotiating with Boeing for more civilian planes. German companies are flocking back into Iran. At one time, Germany was Iran’s main trading partner.

China’s support

Chinese President Xi Jinping became the first foreign head of state to visit Iran after the lifting of the sanctions when he arrived in Tehran in the third week of January. Xi was the first Chinese leader to visit Iran in more than 14 years.

Khamenei praised China for standing by Iran when the country was under stringent Western sanctions. “The Islamic Republic will never forget China’s cooperation during the sanctions era,” Khamenei told Xi. “Westerners have never obtained the trust of the Iranian nation. The government and the Iranian nation have always sought expanding relations with independent and trustful countries like China,” he said. China has been Iran’s biggest trade partner and has been buying Iranian oil despite the tightening of sanctions since 2012. China depends on Iranian oil for 10-15 per cent of its energy needs. India, on the other hand, has been adopting a wait-and-watch policy towards Iran. It had greatly reduced the purchase of Iranian oil since 2012 and stopped the export of refined petroleum products. The Iranian side has been sending signals to India to capitalise on the opening provided by the lifting of the sanctions. India wants to be involved in the development of the Chabahar port upgradation but is yet to come forward with a concrete investment blueprint. China is more than willing to step in. During Xi’s visit, the Chinese side once again offered to develop the port. China is interested in the port as it will enhance its ambitious “one road, one belt” Silk Road initiative.

The Iranian Ambassador to India, Gholamreza Ansari, speaking at a seminar, said Indian private companies were keen on investing in the development of the port “but the Indian government has not shown the same level of enthusiasm in the past”. India announced last year that it would invest $85.21 million for the upgradation of the Chabahar port. The port is located 72 kilometres from Pakistan’s Gwadar port, which was developed on a turnkey basis by China. India wants to use the Chabahar port as an export hub to Afghanistan and Central Asia. Chabahar is connected by road to the Afghan city of Zaranj. If India drags its feet, China will be allowed to step in. Although India has so far not joined the “one road, one belt” initiative, it could benefit from the infrastructural projects China is putting in place in Iran.

Given the close cultural and historical links between Iran and India, Tehran wants New Delhi to be more proactive. But the Bharatiya Janata Party (BJP) government seems to be treading cautiously despite the lifting of the sanctions. External Affairs Minister Sushma Swaraj undertook a tour of the region after the sanctions were lifted, but her itinerary did not include Iran. Instead, she went to Israel and had a meeting with the leaders of the Gulf Cooperation Council (GCC) countries in Manama, Bahrain. Israel and the GCC (comprising the Gulf monarchies) are still unreconciled to the U.S.-Iran nuclear deal. There is also a tacit alliance between the GCC and Israel on Syria and other regional issues. Iran may be willing to overlook India’s tilt toward the Sunni monarchies and the West and carry on doing business as usual. President Xi, during his visit to Riyadh, supported Saudi Arabia’s position on Yemen. Saudi Arabia and Iran are at loggerheads over the war in Yemen. When Xi was in Tehran a few days later, China’s position on Yemen was not a big issue with the Iranian leadership.

The main issue for the Iranian leadership is the revival of the country’s economy. Following Xi’s visit, China and Iran pledged to increase trade to $600 billion in the next 10 years. India and China recently signed a memorandum of understanding to raise annual bilateral trade from $15 billion to $30 billion. New Delhi should start thinking about reviving the Iran-Pakistan-India (IPI) gas pipeline project. Iran has the second largest gas reserves in the world.