Four days before the deadline to renew the presidential waiver that lifts certain sanctions against Iran, President Donald Trump has decided to re-impose sanctions and pull out of what he referred to as "the worst deal ever", and what others celebrated as one of the diplomatic victories of the decade. His decision to do so brings the US, and subsequently the world to a state of affairs many thought were bygones after the Joint Comprehensive Plan of Action (JCPOA), 2015.
Trump's refusal to renew the presidential waiver has been succeeded by a promise to reinstate broad economic sanctions on Iran, and a threat to act against any company that assists Iran in busting these sanctions. His speech detailing his reasons to withdraw from the agreement is fraught with falsehoods and incomplete information and deserves a detailed deconstruction by itself. However, this commentary aims to lay out the consequences of his decision for the domestic politics of Iran, and the consequences for India.
Domestic Politics of Iran
The most significant impact of Trump’s decision is expected to be felt in the complicated arena of Iranian domestic politics. The power centres in Iran include the moderates led by Hassan Rouhani, the current president who pushed for the JCPOA domestically; Supreme Leader Ayatollah Khamenei, who holds absolute power in the country; the Islamic Revolutionary Guard Corps and its allies, a group of hardline conservatives who advocated for and ran Iran's nuclear programme solely by themselves.
In the wake of the IRGC pursuing Iran's nuclear programme in earnest and the crippling sanctions that followed, the economic fallout built up popular unrest which led to Ayatollah Khamenei extending support to the moderates in Iran. Most significantly, Khamenei allowed the JCPOA to be signed, with Iran committing to dismantle much of its nuclear infrastructure — something that would not have been possible without his support. This is further reflected in the Iranian Presidential Election of 2017, where the Guardian Council, a body of experts that reflects much of Khamenei's will had disqualified former president Mahmoud Ahmadinejad from standing for election, along with many other serious contenders who could give reasonable competition to Rouhani.
By announcing the US withdrawal from the JCPOA in no uncertain or diplomatic terms, Trump has fulfilled what the IRGC promised 'The Great Satan' would do, and reinforced their message to Khamenei and the Iranian population that the US cannot be trusted to keep its end of the bargain. This move is possibly one of the most significant blows to the moderates in Iran — a group that has combated numerous obstacles domestically to negotiate the path to more economic and diplomatic integration with the West — in recent times. It comes at a time when they are already being criticised for the Iran nuclear deal not bringing the broad economic benefits that were promised to the populace, with popular protests in the country in recent months adding to the unrest.
Trump has effectively handed power to the IRGC, arguably the greatest threat to American national interests in the region, while sidelining a group that held the potential to lead Iran towards peace in the region. Even reformists in the country have stated it would be naïve to enter into negotiations with the US again, with more conservative elements pushing to restart Iran’s nuclear programme that was put on hold because of the JCPOA. The Iranian president, a designated moderate has been quoted as saying Iran will enrich uranium more than before in the next few weeks if negotiations fail — a major bone of contention during negotiations for the JCPOA.
In the coming years and next Presidential Election, one can expect to see more sub-conventional warfare from Iranian proxies in West Asia (which are supported by the Quds Force, an arm of the IRGC), the balance of power shifting towards the IRGC, and the restarting of an aggressive nuclear programme. While this commentary has not detailed the severe implications of this decision on regional security, one ought to consider the aggressive stances Israel and Saudi Arabia take against any hint of nuclear escalation by Iran, with Riyadh even threatening to develop its own nuclear weapons in response to Tehran's actions.
Impact on India
Many commentators touted the Indo-Iranian Chabahar agreement as a major success for the Indian foreign policy establishment, for the access it provides to Central Asia and Afghanistan. However, Trump’s decision to re-impose sanctions calls for reflection about trade between Iran and India, and India’s involvement in the Chabahar SEZ. Previously, New Delhi had maintained its right to trade with Tehran despite expansive US and EU sanctions on Iran, and had even received waivers from the US to continue respectable purchases of Iranian crude oil.
However, the uncertainty that arises from the sanctions imposed is not specifically on trade itself, but how it pressurises financial institutions to cut all ties with sanctioned companies, greatly restricting financial mechanisms from building an economic relationship. Most importantly, the sanctions disallow access to the US financial system for any foreign, or domestic entity that conducts business with the expansive list of sanctioned Iranian companies/banks. This has led to situations where countries like India may be willing to trade or invest in Iran, but have no financial institutions willing to insure the shipments themselves.
Today, Iran offers India various incentives to purchase oil, which allowed India to import approximately 471,000 barrels per day from Iran alone in 2017, with government-owned refineries planning to double their imports in 2018-19. Pursuant to Trump's announcement, the US Treasury has re-imposed sanctions on the purchase of petroleum from Iran, bringing India back to a period where it had to rely on intermediaries and escrow accounts to buy lesser amounts of Iranian petroleum.
Per the Chabahar agreement signed in 2016, India will operate two terminals in the port for a capital investment of $85.21 million and annual expenditure of $22.95 million, along with a plethora of other investments and credit. The US Treasury has also stated it is re-imposing sanctions on various Iran’s port operators and shipping sectors. While Aria Banader, the Iranian port operator for Chabahar has no known links to Iran’s nuclear programme or the IRGC, one must carefully watch the scope of US sanctions increasing, and the extent to which this will directly affect the Chabahar agreement.
In summary, all of India's investments, commitments and perceived success of connectivity to Central Asia and Afghanistan face the possibility of gathering dust and one of India’s most prominent overtures for expanding influence in the region is effectively crippled. Worsening the situation, evidence points to China ignoring any sanctions on Iran, especially for the import of Iranian crude oil. This move is likely a result of the tensions around a trade war with the US, and the fact that Beijing has the wherewithal to ignore unilateral sanctions imposed by Trump. Iran has already offered Pakistan and China participation in the Chabahar port, with reports even suggesting that Tehran was looking to China to mitigate the various delays in developing the port. There should be no doubt that when India is forced to halt activity in the Chabahar SEZ, sanction-laden Iran will be receptive to any offers of assistance for the same, which China will not be slack in providing.
In a span of two years since 2016, the narrative will shift from "India counters a Chinese presence in Gwadar with Chabahar" to "India resigns itself to Chinese control over both ports".
At this juncture, the extent to which the UK, France and Germany will continue to honour the terms of the JCPOA is unclear, despite assurances that they intend to. It should be noted that the true blow to the Iranian economy pre-JCPOA was not the US sanctions against it (the US has imposed sanctions on Iran since 1996), but broad EU sanctions in 2009-2010 coupled with increasingly restrictive US sanctions. It is highly unlikely that the EU will re-impose such sanctions, however, US regulations pre-2015 had become much more stringent in plugging the loopholes that companies utilised to bust sanctions. Today, the fear of US sanctions being triggered will deter companies from investing in and continuing economic activities in Iran, even with no snap-back sanctions from other countries.
Disregarding the investment losses for Iran, and the damages to the numerous companies and countries with interests in the country, it is the Iranian people who have the most to lose. They will now have to contend with an economy in a shambles (again), an increasingly conservative government in power, along with the consequences of living in a country that is responsible for a great of unrest in the West Asian region. The onus of saving the deal now falls to the remaining P5+1 countries — UK, France, Germany, Russia, and China, by putting in place mechanisms that allow continued economic relations with Iran while not triggering US sanctions.
One must also hope the moderates in Iran can weather the storm that is coming, and that Khamenei recognises the Iranian self-interest in not allowing the IRGC to run amok with suspended nuclear activities in violation of the JCPOA, or whatever is left of it.
Updated Date: May 09, 2018 07:39 AM