{"id":49892,"date":"2019-07-16T14:44:55","date_gmt":"2019-07-16T09:14:55","guid":{"rendered":"https:\/\/blogadmin.forumias.com\/?page_id=49892"},"modified":"2019-07-16T14:45:54","modified_gmt":"2019-07-16T09:15:54","slug":"answeredu-s-iran-relations-have-reached-a-new-low-whichcan-lead-toserious-economic-consequences-in-the-region-comment-discuss-the-impact-of-us-iran-tussle-on-india","status":"publish","type":"page","link":"https:\/\/forumias.com\/blog\/answeredu-s-iran-relations-have-reached-a-new-low-whichcan-lead-toserious-economic-consequences-in-the-region-comment-discuss-the-impact-of-us-iran-tussle-on-india\/","title":{"rendered":"[Answered]\u201cU.S.-Iran relations have reached a new low whichcan lead toserious economic consequences in the region\u201d. Comment. Discuss the impact of US-Iran tussle on India."},"content":{"rendered":"\n
Demand of the question<\/strong>
Introduction.<\/strong>Contextual introduction.
Body. <\/strong>Discuss US-Iran issue and its impact especially on India.
Conclusion.<\/strong>Way forward. <\/td><\/tr><\/tbody><\/table>\n\n\n\n

Iran recently announced that it would begin enriching uranium above a concentration of 3.67% permitted under the nuclear deal, known as the Joint Comprehensive Plan of Action (JCPOA), reached by Iran and the P5+1 (China, France, Germany, Russia, the United Kingdom, and the United States).<\/p>\n\n\n\n

The\ndownward spiral in U.S.-Iran relations started with US decision to withdraw\nfrom the JCPOA against the advice of the U.S.\u2019s European allies France,\nGermany, and the U.K. that are parties to the deal. The US administration\nfollowed it up with the re-imposition of stringent economic sanctions against\nIran that were being gradually dismantled following the 2015 nuclear deal.\nThese included sanctions against foreign companies doing business with Iran and\nagainst countries buying Iranian oil.<\/p>\n\n\n\n

Economic\nConsequences of US-Iran tussle:<\/strong><\/p>\n\n\n\n

  1. Sliding towards a deep recession<\/strong>: <\/strong>Iran’s\neconomy was badly affected for several years by sanctions imposed by the\ninternational community over the country’s nuclear programme.The reinstatement\nof US sanctions last year – particularly those imposed on the energy, shipping\nand financial sectors in November – caused foreign investment to dry up and hit\noil exports.The sanctions bar US companies from trading with Iran, but also\nwith foreign firms or countries that are dealing with Iran.As a result Iran’s\nGDP contracted by 3.9% in 2018, according to estimates from the International\nMonetary Fund (IMF).<\/li>
  2. Oil exports have more than halved<\/strong>: <\/strong>At the\nstart of 2018, Iran’s crude oil production reached 3.8 million barrels per day\n(bpd), according to data gathered by the Organization of the Petroleum\nExporting Countries (Opec). The country was exporting about 2.3 million bpd.Most\nof the oil was bought by eight countries or territories that were granted\nsix-month waivers by the US when sanctions on the Iranian energy sector took\neffect – China, India, Japan, South Korea, Taiwan, Turkey, Greece and Italy.By\nMarch 2019, Iran’s oil exports had fallen to 1.1 million bpd on average,\naccording to the consulting firm SVB Energy International. Taiwan, Greece and\nItaly had halted imports altogether, while the two biggest buyers – China and\nIndia – had reduced them by 39% and 47% respectively.<\/li>
  3. The value of the rial has plummeted<\/strong>: <\/strong>Iranian\ncurrency has lost almost 60% of its value against the US dollar on the\nunofficial market since the US sanctions were reinstated, according to foreign\nexchange websites.The rial’s slide has been attributed to Iran’s economic\nproblems and a high demand for foreign currency among ordinary Iranians who\nhave seen the value of their savings eroded and worried that the situation will\nget worse.Iran’s currency problems have also led to shortages of imported goods\nand products that are made with raw materials from abroad, most notably babies’\nnappies.<\/li>
  4. Living costs have risen dramatically<\/strong>: <\/strong>IMF\nestimates that inflation soared to 31% in 2018 and predicts that it could reach\n37% or more this year if oil exports continue to fall.The plunging value of the\nrial has affected not only the prices of imported goods but also of locally\nproduced staples. In the past 12 months, the cost of red meat and poultry has\nincreased by 57%, milk, cheese and eggs by 37%, and vegetables by 47%,\naccording to the Statistical Centre of Iran. The poor have also been hit hard\nby almost 20% increases in the costs of housing and medical services in the\npast year.<\/li>
  5. Companies exiting<\/strong>: <\/strong>Many\nforeign companies have announced their intention to exit the Iranian market or\nforego new investments, unwilling to risk losing access to the U.S. market and\nexclusion from the dollar-based financial system. The International Monetary\nFund (IMF) forecasts the Iranian economy will contract by 1.5 percent this\nyear and another 3.6 percent in 2019<\/strong>, a sharp reversal from April when it\nforecasted 4 percent growth for both years.Unemployment is also rising,\nespecially among younger workers. <\/li><\/ol>\n\n\n\n

    Impact of Sanctions on India:<\/strong><\/p>\n\n\n\n

    1. US has refused to renew the exemptions issued for\neight countries including India. This means that Indian companies will either\nhave to stop buying oil from Iran or resort to a Rupee payment mechanism as was\ndone in the past. <\/li>
    2. Other than the oil sector, India is not directly\naffected by US sanctions on Iran though Indian companies involved in the\nIranian automobile, iron & steel and mining sectors will be affected due to\nadditional US sanctions on these sectors. <\/li>
    3. The Chabahar Port also does not come under US\nsanctions and hence Indian investments and involvement in it will not be\naffected. Nonetheless, due to sanctions on the iron & steel sector, certain\ninfrastructure development projects such as the Chabahar-Zahedan railway and\ngas pipeline, part of Iran\u2019s plan to develop Chabahar as a transit hub between\nCentral Asia and the world, could be affected.<\/li><\/ol>\n\n\n\n

      India\u2019s Challenges and Options:<\/strong><\/p>\n\n\n\n

      It might not be difficult for India to meet the\nshortfall in crude oil imports due to US sanctions on Iran. <\/p>\n\n\n\n

      1. While US shale production is expected to grow\nrapidly, the higher flows from countries such as Nigeria, Libya and Iraq have\nalready offset losses from the decline in Iranian exports. Moreover, countries\nsuch as Saudi Arabia, the United Arab Emirates (UAE) and the US have publicly\nannounced their willingness to help meet the shortfall in crude oil that India\nmight face due to sanctions on Iran. <\/li>
      2. Then there are countries such as Iraq, Kazakhstan,\nNigeria, Angola, Mexico, etc. which are among the top ten sources of oil for\nIndia and have the capacity to increase production and exports in case of a\nrise in demand.Therefore managing the economic aspect of continued flow of oil\nto India might not be difficult. <\/li>
      3. The bigger challenge is the political aspect of managing\nrelations with the US and Iran. On the one hand, if India were to stop sourcing\noil from Iran, it will affect bilateral relations. On the other hand, if India\nwere to continue to buy Iranian oil, say by sidestepping US sanctions, it is\nlikely to impact the strategic relationship with the US.<\/li><\/ol>\n\n\n\n

        Given this scenario, India has two options:<\/p>\n\n\n\n