The Challenges and Limitations in India-Iran Relations

Bilateral relations between India and Iran have faced various challenges since the United States imposed sanctions on Iran after withdrawing from the Joint Comprehensive Plan of Action (JCPOA) in 2018. Bilateral energy relations between India and Iran have yet to be restored, despite Indian refiners acuity to import oil from Iran. US sanctions on Iran remain the main impediment to resuming energy cooperation between the two countries.

In a recent attempt to further crack down on entities that allow Iran to trade oil, the United States has imposed sanctions on a number of trading companies. among those managed by the US Treasury Department was Tibalaji Petrochem Pvt. Ltd., a Mumbai-based petrochemical trading company. This was the first direct response US sanction against an Indian company for engaging in business with Iran in relation to the oil trade.

by officer statements From the US Treasury Department, Tibalaji “has purchased millions of dollars” worth of Iranian oil and petrochemical products from the sanctioned Iranian petrochemical broker Triliance, “which were eventually shipped to India.” Tibalaji had reportedly purchased methanol and base oil along with other petrochemicals from Triliance, which negotiates the sale of Iranian petrochemicals to international buyers, on several occasions.

In the context of the Russia-Ukraine war, India decided to continue its energy ties with Moscow despite US warnings like New Delhi. In doing so, India wanted to avoid repeating the mistake of abiding by US sanctions on Iran while China continued to benefit economically by increasing its oil imports from Iran. Previously, Iran featured significantly in India’s energy basket, with Iranian oil accounting for nearly 11 percent of India’s total oil intake. The Indian government, under pressure from the Trump administration, halted oil imports from Iran in 2019 after the US decision to leave the nuclear deal.

With the Vienna talks still unable to generate any breakthrough, the prospects for resuming the nuclear deal remain uncertain, especially amid several disagreements between Washington and Tehran regarding the nature and extent of sanctions relief, as well as to binding guarantees of the longevity of the agreement.

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According to recent trade reports, the US, Iraq, Saudi Arabia and the United Arab Emirates together account for about 63 percent of the total value of India’s crude oil imports. New Delhi is now considering diversifying its oil imports by buying fuel from Canada, Gabon, Brazil, Colombia and Guyana amid fluctuations in the energy market since the war between Russia and Ukraine. India has expanded its cooperation with the Gulf powers in recent years and strategic partnerships with GCC countries have become a critical factor for India to change the status quo of engagement with Iran, especially amid persistent regional tensions. in the Middle East. The post-Abraham Accords realignment of regional geopolitics has prompted New Delhi to explore prospects for cooperation with the US, Israel and the United Arab Emirates through mini-lateral forums such as the I2U2 that are rooted in geoeconomic factors.

Amid a severe economic crisis in Iran, Ebrahim Raisi’s government has focused more on deepening ties with its regional allies and expanding cooperation in Central Asia. Furthermore, Iran’s strategic partnerships with China and Russia have given Tehran further leverage to challenge Washington in the region, and support from Moscow and Beijing remains crucial to both the Iranian economy and Iran’s regional power posture. Iran. Thus, although New Delhi has followed a balancing act in the Middle East, evolving geopolitical realignments could pose new challenges for India to deepen its cooperation with Iran amid escalating tension between Iran and the West and more US strongholds to target entities. trade with Iran

Despite the limitations and challenges, in the current context, New Delhi and Tehran have converging interests in trade and connectivity. Iran’s full membership in the Shanghai Cooperation Organization, where India is also a member, could accentuate mutual efforts to approach in connectivity projects such as the Chabahar port, which links to the International North-South Transport Corridor (INSTC).

India and Iran have also been trying to diversify their payment channels to increase bilateral trade. according to recent reports, bilateral trade between India and Iran has increased; Iran’s exports to India amounted to $361 million during January-July 2022, while they were $267 million during the same period in 2021. India’s exports also saw a 54 percent increase during the first seven months of 2022.

With Iran’s economy heavily dependent on its oil revenues, the lingering effects of the sanctions will continue to limit Tehran’s economic prospects, especially as recently Iran’s major energy customers, such as Chinese kettle refineries, have also turned to Russia for cheaper oil. In addition, Iran now faces more Western sanctions As the Iranian regime has become increasingly assertive and violent in its responses to protests.

The Biden administration is already facing bipartisan opposition on the scope of sanctions relief as part of any potential nuclear deal. Therefore, prospects for a resumption of oil trade between India and Iran would largely depend on the outcome of the nuclear negotiations.

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