Game-changing Iran deal a god-send for UPA, rupee and petrol prices

After the amicable resolution of the Syrian crisis, the Iran nuclear deal with P5+ 1 countries in Geneva on 24 November has come as a major relief for India, which is home to the second-largest Shia population in the world after Iran. The huge economic gains from this development would be a god-send for the UPA government which has to face general elections within six months or so.

Both the developments which are meant to cool volatile politics of the Middle East have already brought relief to the Indian economy and will do so even more substantively in the coming weeks and months. The Indian Rupee was under tremendous stress and could have crossed 70 or even 80 to a US dollar, if the war clouds had not been lifted from Syria at the last minute.

International oil prices would have inevitably spiked and could have reached an all-time high if the Syria war had erupted.

Both the scenarios were very much likely for India if the P5+1 talks with Iran had broken down. Thankfully for India, the new Iranian government of President Hassan Rouhani has managed to clinch the deal, though an interim one with an expiry tag of six months unless the two parties thrash out a permanent arrangement during this period.

India can hope to start reaping the fruits of the Iran deal from next month itself, if Iran follows the Geneva script and continues to walk its talk and if opponents of the deal don’t do something dramatic. This is a big ‘if’, but nevertheless Indian foreign policy makers and economy drivers can afford to grin from ear to ear and hope that the deal is implemented in letter and spirit by the two sides and manage to culminate the process with a permanent agreement during this brief six-month window.

[caption id=“attachment_1107751” align=“alignleft” width=“380”] Representational image. Reuters[/caption]

Iran is likely to enter the international oil market with a bang and announce competitive prices which will inevitably trigger fall in prices of the black gold.

This will result in free fall of petroleum products’ prices and Indians can look forward to cheaper petrol and also cheaper air travel as the aviation fuel too should become cheaper in coming months.

The rupee is also likely to be stronger as it is a known fact that its future is tied to oil imports. Fall in international oil prices would lessen the Indian oil import bill and thus would have a cascading positive impact on India’s current account deficit which currently is a staggering $ 88 billion or 4.8 percent of the $1.8 trillion Indian economy.

India is heavily dependent on oil imports and 80 percent of its oil supply is met through imports. This burns a huge hole in the Indian government’s pocket as the Indian oil import has been steadily rising, quintupling in the last decade.

Indian oil import bill has been hovering around Rs 8 lakh crore. Last year, India’s oil import bill was to the tune of $146 billion which enlarged its trade deficit to $196 billion.

The Indian government is now working in double quick time to make the most of the opportunity thrown up in Geneva, substantially increase imports from Iran and cut oil import bill by $ 25 billion.

Apart from these economic gains, India is also going to benefit hugely politically, diplomatically and strategically from the Iran deal.

The Left parties have been clamouring for better and closer relations with Iran but the UPA government could not do it and had to vote several times against Iran at international forums under intense US pressure. The Iran deal paves the way for taking India-Iran bilateral relations to a new level. This would gladden the heart of the Reds in India.

Significantly, the Congress-led UPA can hope to milk this opportunity politically in the aftermath of next general elections and hope to improve chances of cobbling up a post-poll coalition.

Diplomatically, India can now boldly go forward to Iran and revive the Iran-Pakistan-India (IPI) gas pipeline project which has remained a pipe dream and India had to finally bury it in 2008. While the IPI project revival will inevitably take Indo-Iran relations from strength to strength, a thaw in India-Pakistan relations can be an important by-product. After all, the IPI project will be a win- win situation for all the three sides.

Strategically, the Iran deal will lessen the importance of Pakistan for the US. Needless to say, this would suit the Indian strategic interests.

Better vibes between the US and Iran would make the Americans’ task easier in executing their plans of withdrawing troops from Afghanistan by 2014 end. Iran, which shares border with Afghanistan, can be useful for the Americans (if the two sides continue to smoke the peace pipe) and provide an additional and valuable option for the Americans in planning their Afghanistan strategies.

Iran’s integration with the international community and its better understanding with the Western world will make it far easier for India to redouble efforts to speed up the Chabahar port project, the only Iranian port with direct access to ocean as it lies on the border of Indian Ocean and Oman Sea. India can reach out to Afghanistan through Iran’s Chabahar port and thus negate Pakistan’s strategic leverage as Pakistan has consistently refused to give India land transit rights to Afghanistan for trade purposes.

Once the infrastructure - roads and rail links - on the Afghanistan side is completed, India can tap Afghanistan’s vast mineral market, estimated to be worth $1 trillion to $3 trillion. India has already invested over $100 million on building the road infrastructure in Afghanistan for linking it up to Chabahar and has ambitious plans to build a 900-km-long railway line between Chabahar and Afghanistan’s Hajigak mine which is estimated to contain almost two billion tonnes of iron ore.

With this kind of hands-on economic engagement between India and Afghanistan with sweepstakes worth billions of dollars, made possible by the Iran factor and better Indo-Iran ties, Pakistan will not be able to get India kicked out of Afghanistan which it has been dreaming to do.

The Iran deal could not have come at a more inopportune time for Pakistan. Watch this space!

*The writer is a FirstPost columnist and a strategic analyst who tweets @Kishkindha.