JCPOA and India

Prime Minister Narendra Modi meeting Iran’s Supreme Leader Ayatollah Seyed Ali Khamenei in Tehran on 24 May 2016. Image Credit: via Wikimedia Commons CC BY 4.0

What does the US withdrawal from the Iran deal mean for India?

In the days since, Trump’s decision to exit the Joint Comprehensive Plan of Action (JCPOA), some analysts in India have pointed out that the possible death of the agreement gives Delhi more leverage in its oil price negotiations with Tehran. They’re not wrong, but the hydrocarbons opportunities come to India in a package deal that includes a great deal of geopolitical risk.

First, the opportunity. It’s true that US pressure will thin out Iran’s roster of potential customers for oil. That could leave India one of its prime buyers. Ever since JCPOA came into effect in 2015, India-Iran oil trade has risen- indeed, Iran now accounts for 10% of India’s crude imports, making it the third largest supplier after Saudi Arabia and Iraq. That figure could have been higher if Tehran had offered more attractive prices.

Some believe that’s exactly what it will have to do now.

“India’s refineries are uniquely suited to process Iranian crude,” argues analyst Abhijit Iyer-Mitra. “It also means the negotiating advantage is now decisively with India and the barter agreement with Iran will have to be reinstated, which once again favours India.”

The barter system alluded to above was a sanctions-busting system India and Iran put in place in the years before 2015. Iran opened an Indian bank account which received oil payments in rupees. It would then use those rupees to fund its imports from India- though there was little demand for Indian goods.  A return to a similar system will probably favour India, though an Iran hurting from sanctions will have even less appetite for India’s typical exports like basmati rice.

Of course, all of this assumes India is able to withstand American pressure. With US secretary of state Mike Pompeo threatening to levy the “strongest sanctions in history” on Iran, Delhi will be hard-pressed to maintain its separate relationship with Tehran. This will be especially so if Iran responds to American sanctions by resuming uranium enrichment.

Chabahar’s prospects

India’s Chabhar project and the related effort to improve connectivity between Iran and Afghanistan present a conundrum for the United States. When asked about India’s shipment of 1.1 million tonnes of wheat to Afghanistan via Chabahar last October, then secretary of state Rex Tillerson had said Washington did not want to “interfere with legitimate business activities”.

The US is aware that the Iranian route allows India to step up assistance and trade ties with Afghanistan- a goal it supports. Americans also know that if Pakistan were to once again block supply routes into Afghanistan, India could despatch non-military supplies to US forces via Iran. However, America remains deeply suspicious of Iran’s role in Afghanistan, including its apparent links with the Taliban. It’s not clear if Trump and the US Congress will leave projects like Chabahar outside the scope of their sanctions. Tillerson’s successor certainly appears to be far more bellicose about Iran.

Unfortunately, edging India out of Iran will only cede more space to China, which has made Iran a linchpin of its Belt and Road Initiative (BRI).

Unbalancing India’s West Asian tightrope act

A broader concern for India is the impact on West Asian stability and India’s diplomatic posture in the region. Some nine million Indians live and work in West Asia and send back about $40 billion in remittances. Those remittances in turn help fund India’s oil imports from the region, which exceed $70 billion.

For India, the key to keeping its expats safe and the hydrocarbons flowing is to get along with everyone. As Manoj Joshi notes, the “regional stability India seeks there is built on carefully nurtured relationships between the various antagonistic powers there — Saudi Arabia, the UAE, Qatar, Israel and Iran.”

As this blog observed earlier this year, “India simply pursues bilateral ties with each country separately and declines to be drawn into their quarrels.” America’s withdrawal from the JCPOA will complicate this task.

India’s West Asia diplomats are likely to have their hands full in the coming months.

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