US withdrawal from Iran Nuclear Agreement – An Analysis

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Usa Withdrawal From Iran Nu
US withdrawal from Iran Nuclear Agreement – An Analysis - © Indian Defence Review

It was in June 2013 that the maverick President of Iran, Mahmoud Ahmedinejad, relinquished office after the present incumbent, Hassan Rouhani, was elected in a surprisingly low-key election process. Rouhani, now in his second term as President having been re-elected in 2017, is known to many in the West and in USA having participated in the Islamic Revolution. He also had an association with Ayatollah Khomeini, the founder of the Islamic Republic and has had ties with Ayatollah Hashemi Rafsanjani, Iran’s second clerical President. Rouhani has served as Secretary of Iran’s Supreme National Security Council for 16 years and as an extension of this position, he was Iran’s chief nuclear negotiator from 2003 to 2005. It was during this period when observers and analysts in the US and Europe, took note of Rouhani’s foreign policy credentials. It was also during this period when Western and Iranian nuclear negotiators came closest to reaching a deal.

It was, therefore, no surprise when the machinery for a nuclear deal with Iran started moving once again in June 2013, culminating in an agreement on July 14, 2015. Iran and the six major world powers, after hectic debates and discussions, intense, and at times even testy, negotiations, announced a deal which sought to control Iran’s nuclear ambitions. In exchange, the nearly four-decade standoff with the West, and the imposed sanctions, were to end. The agreement was to keep Iran from producing enough fissile material for a nuclear weapon, for at least a decade with obligatory new provisions for inspections of nuclear reactors in Iran, including military sites.

The Agreement Comes into Force

The International Atomic Energy Agency (IAEA) released a report on January 16, 2016, confirming Iran’s honouring its commitments to the nuclear deal. With the announcement came the expectation of Iran’s return to the international community and, more important for its government, the end of most EU sanctions and several important US sanctions. With the legal framework already in place the EU and US, announced the formal rescinding of their respective sanctions shortly after the release of the IAEA report.

USA formally lifted third-party economic sanctions imposed on Iran over its perceived ‘illegal’ nuclear programme, a limited breakthrough for a troubled bilateral relationship. USA however, continued to retain a large number of other sanctions, including disallowing US firms and entities from doing business with Iran, with an aim to target Iran’s missile programme. That some sanctions remained, and newer ones imposed due to Iran’s repeated missile tests, is a reminder, that while USA and Iran may have patched up an agenda to resolve their nuclear differences, the two continue as adversaries on a host of other issues.

The blow-back reaction to the nuclear deal, and subsequently to the lifting of the sanctions, from Iran’s Middle-East rivals – Israel, Saudi Arabia, and other Sunni dominated monarchies of the region – was as per expectations. After the initial criticism that the Iran deal was a ‘stunning, historic mistake’, Israel remained generally quiet, probably at the behest of President Obama. Saudi Arabia’s laments, at the time of the finalisation of the deal, that the region would be ‘more dangerous’ than ever before, were not considered as forewarnings of the drawing of battle-lines between the two traditional rivals of the region, each wanting to curtail the other’s influence and ensure own influence.

USA Withdraws from the Agreement

The year of the nuclear deal with Iran was also the election year in USA. All through the campaigning, President Trump called the deal as ‘the highest level of incompetence’, and promised to revoke the deal, if elected. Despite warnings of not to discard the nuclear deal by advisors, who he has conveniently replaced, and allies, who he has conveniently ignored, President Trump finally declared on May 08, 2018, that USA was pulling out. Almost all parties to the deal claim to have foreseen this move, and the reactions have been probably as expected. President Trump, on his part, stated that America would use its muscle to extract far bigger concessions from Iran; USA, on May 21st, has issued a long list of 12 demands for inclusion in the nuclear treaty with Iran, to prevent Iran from developing nuclear weapons and delivery systems in the far future too.

The leaders of the three EU nations that signed the deal – Britain, France and Germany – reacted immediately against the annulment, which was despite their advice to President Trump to the contrary, with a declaration of continued support to the pact. This was on expected lines since a range of UN and other independent observers, including Tamir Pardo, a former intelligence chief of Israel, had confirmed that Iran’s nuclear ambitions had been severely curbed and that Iran had, by and large, kept its part of the accord. Russia and China, the other two signatories to the nuclear deal, issued their assertion of resolute support to the accord.

Iran’s reaction to the US withdrawal from the agreement was also on predicted lines. Its supreme leader, Ayatollah Ali Khamenei, warned of making President Trump ‘worm food’ before Iran bowed to his threats. Mr Rouhani’s reactions were a little subdued and spoke of negotiations with the other participants of the deal, to recover the agreement. On the other hand, he has also ordered Iran’s atomic agency to be prepared to boost its enrichment programme, should the efforts to salvage the deal fail.

Israel, which had opposed the deal from its very conception, hailed the US action as a ‘bold step’, although many in Israel’s defence and intelligence establishment continue to feel that the deal was beneficial and had controlled Iran in the region. Enhanced Iranian activity was reported in the Golan Heights immediately after the declaration of withdrawal by USA, with attacks and counter-attacks by Iran and Israel, from within Syria increasing. Israel has called on Russia to advise restraint by Syria and Iran; Russia, however, has not responded and is unlikely to exercise its influence.

Across Middle-East too, the ripples of the US action were felt; hostility between the two regional powers, Saudi Arabia and Iran, respective supporters of Sunni and Shia Islam, have increased throughout the region, where the two nations, through their proxies, have already been confronting each other in Yemen and Syria. However, Iranian influence, which was expected to favour the Shias in the elections held in Iraq on May 12, 2018, has not borne fruit; although a Shia cleric has been elected, he is not likely to toe Iran’s line.

Effect of the US Action on India

Relations between India and Iran are based on a typical political maxim that there are no permanent friends or enemies in politics, only permanent self-interests. Ranjan Mathai, India’s former Foreign Secretary, quoted in Deccan Chronicle, February 19, 2012, summarised the necessity of why India needs Iran: “Our relationship with Iran is neither inconsistent with our non-proliferation objectives, nor is it in contradiction with the relationships that we have with our friends in West Asia or the United States and Europe. Iran is our near neighbour, our only surface access to Central Asia and Afghanistan and constitutes a declining but still significant share……of our oil imports”. It is, therefore, a requirement of serving Indian national interests.

India needs Iran, not only for its gas and oil but also because of its geo-strategic location. Iran provides the link for India to tap the vast iron ore reserves in Afghanistan, by building a 900 km rail-link through Chabahar Port of Iran to the iron ore mines. Iran also provides India the connectivity to the hydrocarbon reserves of Central Asia. On geo-political issues, India and Iran are on the same side in Afghanistan with a mutual distrust of Taliban. Any straining of relations between India and Iran could be an open invitation to China to step into the void created. Iran, therefore, has been a crucial test for Indian foreign policy, where, so far, Indian diplomacy has achieved success by walking a tightrope between the realpolitik and ideological policy options, with some surprising finesse.

Development of Chabahar is beneficial not just for India, but also for Iran. It lies outside the Persian Gulf, thus safe from a hostile blockade and providing an opening to the Gulf of Oman and Indian Ocean. India has committed $500 million in the development of the port and Farzad gas fields. Application of sanctions, albeit after about six months, could push back the progress of development of Chabahar and the other connectivity projects.

The other major challenge for India will be to contain the resultant spike in oil prices, already a cause of concern due to OPEC policies; the cost of the OPEC basket had touched $72 as on May 09, 2018. A payment crisis can also be seen looming on the horizon as all banks, barring UCO Bank, have an American presence, and therefore are susceptible to US sanctions. India needs to look at all options, including a rupee-rial trade on oil purchase, as was done the last time when India’s oil imports were hit by sanctions.

Concluding Thoughts

Sanctions relief was a welcome reprieve for the Iranian economy. Re-imposition of sanctions targeting third countries has a 90 or a 180 days window, depending on the nature of business being transacted with Iran. By November this year, sanctions on Iran’s Central Bank, energy sector, port operations, and oil related deals, will be re-imposed, with sectors such as deals in precious metals and others, coming under sanctions earlier in August.

The signatory nations of the agreement may use this window to negotiate with Iran to sign some amendments to the earlier deal, to get USA back on line. While both EU and Iran have suggested that the agreement can survive without the US, it seems unlikely, since financial stakes are high.

India will have some difficulties dealing with President Trump’s decision to walkout of the nuclear deal, but the Indian diplomacy, with previous experience in handling US sanctions, could be expected to handle the situation with some deft moves. India is already in touch with Russia, EU, and Iran to gauge the impact of impending US sanctions. The one real downside of the US action would be on India’s involvement in the Chabahar port where work had picked up after 2016. There is some talk of granting waivers, but it is too early to predict. India needs to work around the US policy of withdrawal from the Iran agreement to prevent Chabahar becoming a victim of geopolitical factors.

Come August and then November, the world will see if President Trump’s bite is worse than his bark!

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