[Answered] Discuss the Impact of sanctions on Iran by USA on Indian trade and ties with Iran.

Recently US had imposed new sanctions on Iran unilaterally. In 2018, U.S. President Donald Trump announced that the U.S. is withdrawing from the Joint Comprehensive Plan of Action (JCPOA) or “ Iran deal”.  This has not only impacted Iran but also many countries who are importing oil from Iran including India.

How did US sanctions impacted India-Iran relations?

1. Bilateral ties took a beating during the sanctions years. Till sanctions were imposed on Iran, it was India’s second largest source of crude oil after Saudi Arabia.
2. India had voted against Iran at the International Atomic Energy Agency over its clandestine nuclear programme and, under pressure from the U.S., slashed oil imports from the country by up to 40% during the period.
3. New Delhi had also backed off from a pipeline project that aimed to bring natural gas from Iran to India through Pakistan.
4. It would Impact development of the Chabahar port in Iran which will offer India alternative access to landlocked Afghanistan, bypassing Pakistan.
5. Iran was the fourth largest supplier of oil to India in 2018-19. The big concern is that the substitute crude suppliers — Saudi Arabia, Kuwait, Iraq, Nigeria and the US do not offer the attractive options that Iran does, including 60-day credit, and free insurance and shipping.
6. Higher crude oil prices due to sanctions will widen the trade deficit and current account deficit of India.
7. The currency could be impacted if the trade and current account deficits were to widen. An increase in the import bill will tend to put pressure on the rupee.
8. There could be significant impact on inflation, given how crude oil prices move and the extent to which the government allows the pass-through to the consumer.
9. After the announcement, Indian benchmark indices slid by around 1.3%, as investors rushed to sell shares on concerns that rising oil prices could stoke inflation and dent the already weak consumption story.

According to experts, India will cut imports substantially, but probably maintain some of Iranian imports paid for using a rupee payment system. India should accelerate its strategic oil reserves project that would help it in tackling such issues in future.