India had not recognised unilateral sanctions imposed by the erstwhile Democratic administration of Barack Obama and it may be no different this time now that President Donald Trump has unilaterally pulled out of a nuclear accord signed with Iran in 2015. India’s position that sanctions that do not have the backing of the United Nations are not to be recognised is not likely change overnight. India may not abruptly end its trade and investment relations with Iran that has been a steadfast ally in the Persian Gulf region.
If Trump’s European partners were to endorse US action, the noose around Iran might be tightened to keep up the heat on the latter’s nuclear ambitions. But, Iran and India would in all likelihood continue with a “business as usual” strategy. Going by what commerce secretary Rita Teaotia says, India and Iran may comfortably slip into the Rupee-Rial payments system. While choking Iran’s transactions with the world had been the way to impose sanctions, India and Iran’s special system put in place way back in 2011-12 is expected to come in handy. Over 45 per cent of crude import bills could be cleared by India via rupee payments or by exporting rice, wheat and bread that were outside the US sanctions even in the past.
UCO Bank’s Kolkata branch was often used by both Iran and India to clear the circuitous payments system between the two countries in the past. This route may see a revival notwithstanding major glitches in the mechanism. As a direct fallout from the sanctions, import bills worth over $7.2 billion had built up and over last few years a chunk of this has been cleared by India in a phased manner.
In fact, Iran’s $8 billion surplus in merchandise trade can be attributed to crude imports valued at $11.11 billion that India makes from Tehran. Besides, Iran accounts for a good 10.28 per cent of India’s $100 billion crude imports annually making it an indispensable West Asian ally. China and India together source 1.4 million barrels of oil daily from Iran. Their decision on continued imports will be a big boost for Iran’s thriving oil trade and that may not be to the liking of the US and its allies. Like India, China’s decision to make payments in Yuan may be snub to the Trump administration that is already facing differences on this score with its European allies.
India may have to chart a long-term strategy vis-à-vis Iran factoring in its offensive and defensive interests. There is no reason why India should cut off its relations with Iran that have taken twists and turns during most of the cold war era and then matured dramatically.
Widening the trade and investment baskets between the two countries could be a starting point. Prime Minister Narendra Modi has evolved a pragmatic and forward-looking engagement with Tehran. This needs to be nursed, taking into consideration the geopolitical and strategic interests apart from shipping, ports and waterways projects that are being pursued by both sides.