The recent stand-off between Iran and the United States (US) is rooted in US President Donald Trump’s announcement to withdraw from Joint Comprehensive Plan of Action (JCPOA) on 8 May 2018, arguing that Iran was violating the spirit of the deal by working against the US interests in the region and supporting terrorism and exporting violence. The US assessment is that maximum pressure and re-imposition of sanctions would force Iran to agree with the US demands. Iran, on the other hand, intends to demonstrate its capability that it would not cow down to the US pressure.

The JCPOA was signed among Iran, the US, United Kingdom, France, China, Russia, Germany and the High Representative of the European Union for Foreign Affairs and Security Policy on 14 July 2015 to ensure that the Iranian nuclear programme remains peaceful with mutually determined parameters including enrichment activities and R&D. It led to the comprehensive lifting of all UN Security Council sanctions, multilateral and national sanctions pertaining to the nuclear programme and access to trade, technology, finance and energy. Under the JCPOA, Iran allowed regular monitoring of its mines and centrifuge production by International Atomic Energy Agency (IAEA) and the enrichment capacity, enrichment level and stockpile were limited for a specific period. It also reduced the number of centrifuges from 20,000 to 6,104. According to the agreement, the restrictions on the number of centrifuges would expire after 8 years and restrictions on uranium enrichment and stockpile would be lifted after 15 years.¹ The United Nations (UN) also relaxed its sanctions and the European Union (EU) halted its oil embargo on Iran. The US relaxed the sanctions and unfroze Iranian funds held in international banks. The US sanctions over Iran’s alleged support for terrorism, development of ballistic missiles and human rights violations have continued.

After the deal was signed, international inspectors including top US intelligence and defence officials such as Chairman of the Joint Chiefs of Staff, General Joseph Dunford, Commander of US Strategic Command, General John Hayten and Vice Chairman of the Joint Chiefs of Staff, General Paul Silva have maintained that Iran had fully complied with the deal between 2015 and April 2019.²

President Donald Trump, on 8 May 2018, however, announced that the US would withdraw from JCPOA expressing its opposition to the expiry dates on the number of centrifuges, enrichment and stockpiles. It re-imposed sanctions on purchase of US dollars by Iranian government and purchase of Iranian rial, on purchase or facilitation of the issuance of Iranian sovereign debt, and sanctions on trade in gold and other precious materials, automobiles, metals, coal and software to integrate the industrial process. The US, after a 90 days wind-down period, revoked the JCPOA related authorizations under US primary sanctions and halted imports of carpets, food items, the export of commercial passenger aircraft and its parts and services.³ It was followed by a wind-down period of 180 days on 4 November 2018 in which sanctions were re-imposed in shipping and ship-building sectors, petroleum-related transactions, energy sector, provision of underwriting services, insurance and reinsurance, transactions by foreign financial transactions with Central Bank of Iran and designated financial institutions.⁴

The re-imposition of sanctions has opened diplomatic contention and protest among world powers including India that see the US measures as over-reaction and largely misguided. Due to the size of the US economy and the dominance of the dollar in the international financial system, most states are complying with the US-led sanctions. Russia and China are looking for ways to circumvent the sanctions and preserve supply lines with Iran. Iran, along with the other signatories, agreed to remain in the JCPOA deal, but they failed to deliver economic relief expected by Iran for complying with the deal.

European states have been slow to act towards creating alternative mechanisms to conduct trade with Iran. On 31 January 2019, Germany, France and the UK unveiled the Instrument in support of Trade Exchanges (INSTEX) which was aimed at creating a financial channel and special mechanism to transfer money between Iran and the European companies. Implementation has however been delayed, further strangling the Iranian economy.⁵ The USA at the same time, has warned European firms and government officials who trade with Iran that they will lose access to the US financial market and face severe US Treasury fines in case it operates in the US market.⁶

The US in the recent months has widened the scale of escalation with Iran after it declared Iranian Revolutionary Guards Corps (IRGC) as a terrorist organisation on 8 April 2019, charging the Corps with financing and promoting terrorism as a tool of statecraft. The Islamic Republic in response claimed the US as a state sponsor of terrorism and declared the CENTCOM deployed in the region as a terrorist organisation.⁷ Iran, in response to the crippling sanctions, followed up on the antagonism against the US and the passivity of the remaining signatory members by announcing partial withdrawal from the deal on 8 May 2019. Iran’s President Hasan Rouhani stated that the Iranian government would stop exporting enriched uranium and resume to higher uranium enrichment within 60 days.⁸ The Islamic Republic sought relief from Section 26 of the JCPOA which states that in case of re-introduction of sanctions, it would provide grounds for Iran to cease compliance on its commitments in whole or in part. At the same time, Section 36 of the Agreement suggests that in case of non-performance of dispute resolution mechanism at the joint commission level, ministerial level and advisory board level, the unresolved issue could serve as grounds to withdraw commitments in whole or in part.⁹ nt After the partial withdrawal the Iranian Preside indicated its intention to re-negotiate with the signatories of the 2015 deal.

Domestically within Iran, there are competing voices on how to tackle the current crisis. The hardliners were unhappy with the restrictions on enrichment espoused by the deal and supported full-scale enrichment. Iranians presently perceive the sanctions as economic warfare and it is feared that it would set aside its strategic patience policy and pursue retaliation, such as blocking the Strait of Hormuz, as a counter-offensive against the US actions.¹⁰ On 12 May 2019, two Saudi oil tanker vessels, one Emirati storage tanker vessel and one Norwegian ship, were attacked off the coast of Fujairah in the Strait of Hormuz in UAE’s territorial waters. The US jumped to lay the blame on Iran which the regime has denied. Iran called for launching an impartial investigation and suggested it as an act of adventurism by foreign actors to sabotage maritime security.¹¹

The US, earlier on 6 May 2019, announced the deployment of USS Abraham Lincoln Carrier Strike group and B-52 bomber force in the region to warn the Islamic Republic that it was fully prepared to respond to any attack.¹² Continuing with the escalation, the US ordered all non-essential staff to leave Baghdad on 15 May 2019 suggesting that there is a credible threat from on US citizens in Iraq from the Iranian-backed forces.¹³ The US assessment is based on imposing maximum pressure through sanctions which would force Iran to agree to the US demands. US under President Barack Obama administration initially took recourse to sanctions but the nuclear programme developed unabated. Therefore diplomatic bargain was sought to prevent Iran from gaining access to nuclear weapons.

Under the JCPOA Iran agreed to certain concessions by limiting its nuclear programme in exchange for securing sanctions relief, gaining foreign investment and access to the international oil market - and that witnessed growth in the economy. However, the US under Trump administration has placed unrealistic expectations by asking Iran not only to give up its nuclear programme but also halt its ballistic missile programme, reduce its strategic presence in the region and address its human rights policy. The current US administration believes that Iran would respond only to maximum pressure. Iran would be forced to surrender and come back to the negotiating table or speculate a regime collapse. Several members in the current administration believe that the leadership is ageing and the Iranian population is frustrated with political and economic stagnation, and therefore are looking to exploit its weakness.¹⁴

On 2 June 2019, softening its policy on what appears to be efforts at de-escalation, US Secretary of State Mike Pompeo stated that the US does not seek regime change and it is ready to talk without pre-conditions. The sanctions would, however, remain in place until Iran complies with Trump’s list of demands. President Rouhani responded by suggesting the US should return to the negotiating table and comply with the 2015 JCPOA agreement.¹⁵ On 27 May 2019, President Trump during his visit to Japan suggested that Iran has enormous economic potential and the US does not intend to hurt ordinary Iranians. He clarified that the US was not seeking regime change and expressed optimism that the US could re-negotiate the deal with the current leadership.¹⁶ Iran’s Supreme Leader, Ayatollah Ali Khamenei however reiterated Iran’s position that while “resistance has a cost but the cost of surrendering to the enemy is higher”.¹⁷ Again during his visit to the UK on 5 June 2019 President Trump assured that the US was not seeking military confrontation and willing to re-negotiate the terms of the nuclear deal, which was not agreeable to the Islamic Republic. ¹⁸ The present situation is highly volatile and the hope for stability is far-fetched.

Implications for India

On 2 November 2019, the US temporarily allowed eight states, i.e. India, China, Japan, South Korea, Taiwan, Turkey, Greece and Italy, to continue the purchase of Iranian oil as these states had shown positive signs by reducing oil purchases from the Islamic Republic. In November 2018 India agreed to restrict its monthly purchase to 1.25 million tons per month until May 2019.¹⁹ Ali Vaez, Iran Project Director, International Crisis Group suggested that how India, China and Turkey could manoeuvre to determine if it would make or break the US maximum pressure strategy on Iran.²⁰ Eventually, following up on its expiry deadline which fell on 2 May 2019, the US notified the eight states including India to comply with the US imposed secondary sanctions on Iran. In case of failure to adhere to the US’ request, the eight states were threatened with sanctions.

The US’ Principal Deputy Assistant Secretary of South and Central Asian Affairs, Alice G. Wells, met with officials from Ministry of External Affairs and Niti Ayog members including Vice-Chairman Rajiv Kumar on 23 and 24 April 2019 to request compliance in cutting down the Iranian oil purchase to zero. During the meeting India was hoping to secure another waiver in which it can reduce supply in parts; however, exemption for the sanctions was denied. From India’s perspective, the circumstances have forced India to curtail production. The banks and financial institutions that are utilized for transactions between India and other states are likely to withdraw to avoid being blacklisted by the US. The UCO Bank that operates the rupee-rial arrangement for oil transaction with Iran is also feared to face consequences.²¹ In late April, India’s oil flow from Iran was reduced from 2.5 billion tons per month to 1 million per month.²²

India’s position was clarified by the Indian Ambassador to the US, Harsh Vardhan Shringla on 30 April 2019. He expressed his apprehension that exemption waiver would lead to inflation and higher oil prices and mentioned that several Indian refineries are calibrated to process Iranian crude oil and sudden change in the refinery infrastructure to cater to another form of crude oil is unfeasible. He also warned about the danger of excessive sanctions which could be counter-productive.²³ Indian Ministry of External Affairs spokesperson Raveesh Kumar speaking to the media on 2 May 2019 said that India would view the issue from the lens of energy security, economic and commercial interests. It also assured that a robust plan has been prepared by the Ministry of Petroleum to secure additional supplies from other oil-producing states.²⁴

Subsequently, on 13 May 2019, Iranian Foreign Minister Javad Zarif met with the then External Affairs Minister Sushma Swaraj to garner India’s support against the US sanctions. India expressed that it would adhere to strategic autonomy and attempt to balance its ties with both the US and the Islamic Republic. ²⁵ Iranian Ambassador to India, Ali Chegeni also appealed to the Indian leadership that enjoys cordial ties with the US and is supportive of the JCPOA, to push the US to revoke its withdrawal from the nuclear agreement. He also expressed hope that India would continue with the energy partnership with India.²⁶ However, contrary to expectations, Indian Ambassador to the US, Harsh Vardhan Shringla announced on 23 May 2019 that after the purchase of one million ton of crude oil in April, it has completely halted its supply from Iran.²⁷

The US hegemony over the world economy has forced India to comply with its unilateral sanctions despite reservations within the Indian leadership. India at this stage expects the US to help in securing steady sources of supply especially from Saudi Arabia and UAE and maintain price stability. India at the same time was permitted to cooperate under the 2012 Iran Freedom and Counter-Proliferation Act to continue its development efforts in Chabahar port, including passage of non-sanctioned goods through Chahbahar port and construction of railway line required for Afghanistan’s economic development and humanitarian relief.²⁸ The US decision to allow an exemption for India is rooted in President Trump’s South Asia strategy which sees India as a crucial driver in promoting peace and development in the region. The US also shared India’s position on developing alternative infrastructure links to Afghanistan bypassing Pakistan. Chahbahar is strategically seen as a crucial pillar for Indo-Iranian Cooperation and the only territorial facility Iran has allowed a foreign government, i.e. India, to operate.

However, recent trends have indicated the Islamic Republic’s attempts at improving relations with Pakistan to secure its eastern flank which has faced repeated attacks especially in Sistan and Baluchestan Province arising from Pakistan’s Balochistan Province. Iranian Foreign Minister Javad Zarif met with Pakistani Prime Minister Imran Khan, Foreign Minister Shah Mehmood Qureshi and Army Chief Qamar Bajwa on 23 May 2019 and focussed on developing connectivity between Chahbahar port and the Pakistani port of Gwadar and integrating the Iranian port with the China-Pakistan Economic Corridor. Iran is promoting an image of cooperation and connectivity between the two port projects and it is avoiding any projection of Chahbahar port being a competitor to Gwadar port.²⁹ These developments would deeply affect India’s dual efforts at counter-balancing China as well as developing connectivity with Afghanistan by bypassing Pakistan.

To conclude, recent attempts at de-escalation by Iran and the US in which the Mike Pompeo has hinted that it does not desire regime-change are positive signs. However, the continuation of sanctions is likely to further strangle Iran’s economy and embitter Iran’s commitment to the JCPOA. In the context of Indo-Iran relations, India’s compliance with the US demands may have shocked Iran and halt in crude oil purchases could impinge on the Chahbahar project. The development of the Chahbahar port is highly critical for India as compared to Iran to maintain access to Afghanistan. The present development has, therefore, weakened India’s geostrategic and geo-economic engagement with Iran. India is a crucial strategic partner of the US, however, denial of exemptions, US’ trade policies and its objection over India’s defence deals with Russia have soured the ties. At the same time, India’s compliance is rooted in the US’ dominance in the international financial system that could motivate trade patterns for Indian firms. India at this stage has not shown any signs of adopting an alternative model to trade with Iran. India, therefore, requires a careful examination to balance its need for autonomy and alignment while dealing with the US.

References:

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