International Relations CIA III

Engaging with post sanctions Iran

The day of the 16th of January is of curious coincidence, when it comes to Iran's history. This
date, in news for the lifting of the P5+1 imposed sanctions on Iran is the same day in 1979
that Reza Shah Pahlavi left Iran for good,enabling the Ayatollah to seize power and to climb
on to the position of the Supreme leader of Iran. The Iranian President, Hassan Rouhani
described the lifting of sanctions as a glorious victory for the patient nation of Iran. As a
measure of goodwill, immediately after the lifting of sanctions, President Rouhani made
arrangements for the release of US navy personnel, who had strayed into Iranian waters, and
sub sequentially got arrested by the authorities, in Tehran. As soon as this exchange took
place, the US placed fresh sanctions on Iran for violating certain security Council guidelines
with respect to its ballistic programme. This development points out to international
observers the delicate nature of the Iran-US dynamic, despite a lifting of a plethora of
economy stifling sanctions.

Iran was a major economic and political west Asian power prior to the sanctions which were
activated by suspicions of enrichment of weapons grade uranium and the construction of deep
earth centrifuge facilities inside the mountains of Fordow.Home to 10 percent of the world's
oil reserves in its various petroleum fields, the export of oil was a major source of returns for
the Iranian economy. The sanctions ,which prevented many EU and Asian countries from
doing business with Tehran, thus crippled the economy and made it dependent on a few
countries, who continued to trade with it ,like China, who functioned as a challenger to the
existing world order. The United States, being an indispensable important player in
international trade and capital flows ,brought in laws which prevented visa free entry of EU
citizens, who had either visited Iran or were born there. This made Iran a pariah state when it
came to industrialists, as they feared to tread there, in fear of inviting the ire of the United
States. Iran also functioned as the custodian of the religious head of the Shia world, with the
Ayatollah enjoying the position of the Supreme leader within the state of Iran.
Geographically situated amongst a melee of Sunni nations, Iran has always been vocal about
the rights of Shias worldwide and condemned persecutions of shias in Iraq and Syria with the
involvement of the Daesh.However,with the sanctions limiting the potency of the state, Iran
was unable to actively involve itself in the protections of Syrian and Iraqi Shias and ensure
their asylum.Tehran has however supported the cause by financially funding groups such as
the Hezbollah and rendering aid to the Assad Regime in Syria.

The lifting of sanctions will alter the bargaining power of Iran considerably as a force to
recon with and will alter the world's existing economic and political status quo
considerably.With this new paradigm shift, heavily consumer driven markets such as the
European union will make inroads to Iran,which will positively impact the demand starved
domestic market there.This is in every eventuality,going to set off a domino effect,as a
pressure from the industrialists in the United States on the government to allow the sale and
manufacture of heavy industries such as aircraft parts and automobiles. Another major boost
to the Iranian economy will be the mobilisation of frozen funds which amount to around a
100 billion US dollars, from transactions on account of trade conducted just prior to the
sanctions period. Though a large sum of money will be requisite to pay economies like China
to whom Tehran owes credit for doing business during the sanction period, a considerable
amount of money will reach their coffers, which will help them to catalyse their hydrocarbon
sector. With Iran's oil minister announcing a doubling of oil exports, the IMF has predicted a
4-5.5% growth in terms of GDP for the nation

.Iranian policy makers have brushed aside the global downward slide in oil prices and
declared that Iran, under no circumstance is willing to reduce its oil production and concede
its market share to 'other' countries. This could be a jibe to other oil driven middle eastern
behemoths like Saudi Arabia, who benefitted considerably during Iran's sanction period.
Saudi Arabia's hopes of thus working out an OPEC driven consensus at cutting down oil
production quotas amongst west Asian countries could now prove to be futile. Saudi Arabia's
last ditch efforts at taking a political route to pull up the oil prices and discolour the Iranian
regime with a single effort can be observed by the execution of the Shia cleric Nimr Al Nimr
on the 2nd of January. The Sunni monarchy ,unsettled by the lifting of sanctions on Iran,
fearing a nuclear power in its periphery ,in an effort to attract a knee jerk reaction from
Tehran ,executed the top cleric, which attracted a condemnation from the Ayatollah and
momentary diplomatic crisis between the two countries, with the attack on the Saudi embassy
in Tehran. Iran in a spate of level headed response did not react violently, which led to the
status quo in the region. Also ,there always has been a precedent of political tensions in west
Asia pulling up the oil prices, as speculators demand profit. Riyadh clearly seems unsettled
with the prospect of the new liberated Tehran and the prospect of the return of its Shia rival to
the earlier period of political and economic glory.

From the geopolitical angle,it remains to be seen if Saudi Arabia decides to adopt a policy of
confrontation or reconciliation. As of now, Saudi follows an approach of confrontation
which could lead to further destabilisation in the region. A new Iran with better economic and
political clout could help beat back the rebels in Yemen and Syria. The U.S and Russian
regimes are already embroiled in an effort to find a political solution to the stalemate in Syria.
A more decisive Iran with any kind of anti shia move by the Daesh could escalate further
tensions,due to the involvement of multiple players in the region. Even considering the
relationship between US and Iran, we cannot expect a complete normalisation of ties.As
depicted by the slapping of fresh sanctions and the caution that the Ayatollah advises by
referring to uncle Sam as 'great Satan', any sovereign move on part of Iran ,at flexing its
military muscle, or clandestine methods of nuclear enrichment, can bring the two at
loggerheads again.Only a pragmatic ,trust driven approach can stabilise the momentary peace
that exists in the region.

Indian interests in Iran

India has been an ally of Iran even during the sanctions period and has exported steel to Iran
by putting off payments post the lifting of sanctions,and an arrangement of paying for oil in
terms of the rupee through banks based in India. Tehran stands to gain a lot of money from
these frozen accounts sans sanctions. India has huge interests in the countries sources of
petroleum and natural gas,with a huge domestic demand that will benefit from the falling oil
prices.The IPI(Iran Pakistan India) pipeline project was one that was crippled when the
sanctions were imposed.The two energy hungry nations would have benefitted from this
project.Washington,in a bid to isolate Tehran pushed for the TAPI(Turkmenistan Afghanistan
Pakistan India) pipeline project,which continues to be problematic,given the situation of
instability in Afghanistan.Pakistan has showed immense support to implement the IP segment
of the project,with India remaining indecisive about the project,save a few ministerial
declarations depicting India's interest. Iran and India could implement their gas trade by
reviving the Oman-India sub-sea pipeline, with gas sourced in Iran. The pipeline, which was
known as the Middle East to India Deepwater Pipeline (MEIDP) project, was originally
proposed in the 1990s. This would allow India to bypass Pakistani territory, which was one of
the major concerns of India. The proposal for the gas pipeline project, known as South Asia
Gas Enterprise (SAGE), could see over 31 million cubic metres of gas per day delivered from
Chabahar on the southern coast of Iran and Ras Al-Jafan on the Oman coast to Porbandar in
the western Indian state of Gujarat via a deep sea pipeline under the Arabian Sea.But this
cannot come into fruition ,given the UN mandated expansion of Pakistan's seabed,which
enables the UNCLOS provisions which prevent trading within a countries exclusive
economic zone.

The Elephant and the Dragon

China remains Iran's closest partner, trading with Iran even during sanctions and the Chinese
premier Xi Jinping being the first head of state to visit Iran post the sanctions.Hassan
Rouhani has hailed China as its most trusted trade partner and expressed his expectations of
future co operation as well. China depends on Iranian oil for 10-15 percent of its oil
needs.Unlike the elephants policy of wait and watch, the dragon has engaged the Iranian
establishment in a tight embrace and has most willingly done normalised trade with Iran
during the period of sanctions in 2012.

One area where the Indian side can establish solid engagement is the development of the
Chabahar port in Iran.The port holds immense strategic and economic significance for
India.India has spent considerable amounts of money building roads from Delarama and
Zaranj along the afghan border towards this port to enable connectivity with India,bypassing
Pakistan.The port,once fully developed,will improve Indias access to Afghanistan and other
central Asian countries,without depending upon Pakistan for access.

Iranian ambassador to India,Golamreza Ansari has declared that though the business classes
in India are keen on investing in the development of the port, the Indian government seems to
be dragging its feet in taking effective measures to start on the ground work.Any kind of
lacklustre interest will lead to the loss of Indi's bid at developing this port,which the
Chinese,will be more than willing to invest and develop,which is detrimental,considering the
Chinese friendship with Pakistan.India must take note that the only requirement of Iran is
economic development as of now.The usual bureaucratic indecisiveness can render the loss
of a major strategic and economic asset to a more decisive ,expansionist neighbour.Not only
will the development of Chabahar render cheaper imports into China and easier access to
central Asia,but also contribute effectively to India's larger regional agenda.

Conclusion

The entire world is in pursuit of effective engagement with the new sanction free regime in
Iran, considering its huge supplies of hydrocarbons and petro chemical.A friendly
engagement with Iran can ,in the future help the United States to work out fuel supply
arrangements and control the collapse of fuel prices, once the nation recovers from the harsh
condit (Fabian, 2016)ions of sanctions that it went through .It would be in the american
interest to control global deflationary trends triggering recession. Also being a regionally
important player in terms of religion and culture,the interests of Iran should be
accommodated as an active party,in the discussions with respect to the future of battlegrounds
such as Syria and Yemen.Saudi Arabia's belligerent arrogance has to be avoided to maintain
the sense of peace in the region and Riyadh has to strive for co operation with Tehran,
identifying larger enemies such as the Daesh. India has a unique window of opportunity to
fulfil its regional interests of strategic emergence and economic stability in the form of steady
supply of low priced fuel to fulfil its growing needs of oil. India must think on its feet to
counter the rise of China as an active player in the west Asian region .With the One belt One
Road idea coming into materialisation, India must not be isolated in a ring of fire of nations
with an allegiance to the dragon. The elephant must recognise its capacity and immediate
needs and wade north westwards towards the Ayatollah's realm.

Bibliography
Cherian, J. (2016). Iran in leap mode. Frontline , 46-48.

Dadwal, S. R. (2015, NOV 10). Recalibarating India Iran Energy Ties. Retrieved FEB 21, 2016, from
IDSA: http://www.idsa.in/idsacomments/iran-india-energy-ties-gas_sdadwal_101115

Fabian, K. P. (2016, January 18). Iran sans Sanctions. Retrieved feb 21, 2016, from IDSA:
http://idsa.in/idsacomments/iran-sans-sanctions_kpfabian_180116

Rizvi, A. K. (2015, MAY 13). Indias renewed interest in Chabahar:Need to stay the course. Retrieved
FEB21, 2016, from IDSA:
http://www.idsa.in/issuebrief/IndiasRenewedInterestinChabahar_BehuriaRizvi_130515

Submitted by:

Mithun P V,1313669

6EPS