Why Iran nuclear deal may lead to windfall

gains for India

Preetam Kaushik Aug 2, 2015, 06.51 PM
http://www.businessinsider.in/Why-Iran-nuclear-deal-may-lead-to-windfall-gains-forIndia/articleshow/48318611.cms

The recent pact between Iran and the US, along with the European Union (EU) and other western
countries, is hailed as US President Barack Obama's biggest diplomatic victory. The western
countries have managed to coerce Iran to agree to a deal that is seen as the once-belligerent
Tehran conceding defeat in its efforts to combat the US' attempts to strangle it economically for
nursing nuclear ambitions.
Under the deal, Iran has agreed to limit uranium enrichment to only one facility by:

Redesign a plant that refines plutonium heavy-water

Converting another uranium enrichment site into a facility for production of medical
isotopes

Cutting down the number of centrifuges enriching uranium from 19,000 to about 6,000.

More importantly, it has acceded to a rigorous inspection of its nuclear facilities in return for
lifting the US, EU and UN sanctions. While the dealstarted after the election of Hassan
Rouhani as Iranian President in 2013 and mediated by Sultanate of Omanhelped restore
diplomatic relations between the US and Iran, which have been hampered since the 1979 Iranian
Revolution. It has significant implications for countries in Middle East and Asia, especially
India.
As a major net importer of oil, India has already benefited from the US-led nuclear deal with
Tehran. Oil prices have declined in recent days, driven largely by expectations of more Iranian
crude hitting the market (India saves nearly $1 billion in import costs for every dollar drop in
global crude prices).
In fact, India has been preparing for the dealPrime Minister Narendra Modi recently met with
Rouhani on the sidelines of the Shanghai Cooperation Organisation summit in Russia's Ufa,
where he invited Rouhani to visit India and expressed his desire to visit Iran. His desire to travel
to Iran is seen as part of a calibrated strategy to visit the Middle East neighbourhood, including
Israel, Palestine, Jordan and Turkey, in the second year in power after visiting countries in the
immediate neighbourhood and Asia-Pacific besides G-7 partner countries within a year of

coming to power.
The US-Iran deal will have significant impact on the energy and economic ties between Indian
and Iran as India continues to be the world's fourth largest energy consumer and imports more
than three-quarters of its oil and an increasing amount of its natural gas.
A few years ago, 17% of Indian oil imports were from Iran, which had become the country's
second largest supplier. Last year, Iran was seventh on the list, supplying only 6% of Indian oil
imports.
The enhanced volume oil that is expected to flow to India following the lifting of sanctions on
Iran will help the country meet its burgeoning fuel needs as it embarks on an ambitious journey
to solidify its position as the top economic power in the region along with China. This is
particularly significant considering sanctions on the Iranians since 2003 have forced India to
increasingly look at Iraq, Kuwait, the UAE and Saudi Arabia for oil imports.
The Modi government, which benefitted a lot from falling oil prices (when Modi came to power,
the price for crude oil was $108.05 a barrel which declined to $57.19 a barrel on the day of the
Iran-US deal), hopes that a possible oil glut following the re-entry of Iranian oil in global oil
marketwhich has already inundated with increased Shale production in the USwill greatly
benefit Indian oil refining firms.
Considering China's role in developing and modernising the port of Gwadar in Pakistan and with
Pakistan not a feasible transit option, India sees the potential for Iran to serve as a transit route to
Afghanistan and Central Asia. This has enhanced India's desire to invest in upgrading the Iranian
port of Chabahar. While talks over Chabahar have been halted over and over again, the nuclear
deal has cleared crucial political and financial obstacles and India expects the port to be
operational by the end of 2016. The deal may also lead to fruitful discussions over developing
another transit corridor through Iran to Europe and Russia.
The deal will also enhance the relation between India and the US which has been under strain of
late as the US has been looking askance at India's relationship with Iran and especially its oil
imports. Indian energy firms like ONGC have also found their financial interests being hampered
due to American sanctions as they have made considerable investments in Iran.
However, the deal is also going to hurt Indiaas India refused to fully take part in the US-led
sanctions on Iran, it has emerged a key trading partner of Tehran in the recent past with Indian
corporates making a windfall (exports to Iran nearly doubled to $3.3 billion between 2009 and
2013). However, once the sanctions are lifted, Indian businesses will begin to face stiff global
competition in doing business in Iran. For instance, India has been a major exporter of
automobile components, tools, motors and chemicals to Iran. Now Indian exporters will have to

compete with Eastern European manufacturers, who produce low-end products like spanners,
hand tools and auto parts. The fall in the value of euro, over the last few years, is expected to
further enhance the competitiveness of European manufacturers.