Back from the cold

US President Joe Biden has always been clear that restoring ties with Iran was high on his priority list. That’s good news for India. India shares deep civilisational and commercial ties with Iran. However, India had to cut back on buying Iranian oil due to sanctions imposed by former US President Donald Trump in mid-2019. But the US’ normalisation moves are bound to cause huge diplomatic ructions in India's neighbourhood, stretching from Saudi Arabia which fears the Iranians, all the way to the Chinese, who’ve been trying to draw Iran into their orbit. Talks to resurrect the Joint Comprehensive Plan of Action (JCPOA), also known as the 2015 Iran Nuclear Deal, now are underway in Vienna.

India has already declared it will resume Iranian oil purchases the moment a new deal is struck, which will help diversify its import basket. Over time, Iran has been a major supplier of oil to India, next only to Iraq and Saudi Arabia. After the imposition of sanctions in mid-2019, India stopped importing oil from Iran, with US interestingly emerging as a major exporter of crude to India since then. China and India are the main buyers of Iranian oil, while India has been exporting rice, tea and medicines through a rupee payment mechanism. Under this, Iran would use the rupee balance in its account with UCO Bank to finance its imports. As India’s oil purchases fell, the balances in the UCO Bank account dwindled, hurting India’s exports. India’s exports to Iran in April-February 2020-21 declined 46.66 per cent to $1.63 billion. Imports from Iran fell 77.98 per cent to $304 million as oil imports were reduced to zero. In 2019-20, India’s imports from Iran dropped 89.7 per cent to $1.39 billion compared to $13.5 billion the previous year. The restoration of trade links will act as an economic stimulus.

In 2016, after President Obama masterminded the JCPOA, India signed the Chabahar deal to invest in the regionally strategic port. For India, Chabahar promises a shorter route to Afghanistan and Central Asia. While we obtained US exemption to invest in Chabahar, Indian companies were reluctant, fearing US sanctions. In the new scenario, India needs to balance its ties with Saudi Arabia, UAE and Iran. The Saudis may try to sabotage a US-Iran deal. At the same time, the Chinese are attempting to draw closer to Iran, planning to invest in its infrastructure. That raises the question, crucial for us, of how the Iranians will balance the US and the Chinese. What appears certain is that an Iran-US deal will kick off a diplomatic minuet that would involve some delicate footwork from New Delhi.