If the USA and Iran cannot work this out, India faces severe drawbacks to growth, progress and relations.
After the surprise airstrike by the USA that has killed Iranian General Qasem Soleimani, tensions have substantially spiked between the two nations. So much so that the possibility of war has been brought up by media, creating fear among the masses globally. Specifically, India should take special heed of this because of our economic and oil interests, at a time when we are undergoing rapid growth in multiple sectors.
Approximately 66 per cent of the crude oil imported in the last financial year was from the Middle East. With India, this dependent, a major war in the Middle East region; an area that is in any case, conflict-prone, will substantially increase consumer prices. Geographically speaking, the Strait of Hormuz, located between Oman and Iran, is the planet’s most important oil checkpoint because of the large volumes of oil that flows through the strait. Furthermore, the Persian Gulf holds a significant percentage of the world’s oil reserves and production. This gulf shares coastlines with Iran, Oman, the UAE, Saudi Arabia and Qatar.
The USA and Iran share a rocky relationship that dates back to the Islamic Revolution, 1979 that overthrew the Shah, an American ally and brought Iran under a regime that was incompatible to the USA. America placed sanctions on Iran in the 1980s and 1990s in order to put a check on Iran’s regional activities. Heavy economic sanctions were again placed on Iran when President Trump pulled out of the JCPOA in 2018. The pact was signed under the Obama administration in 2015. The JCPOA basically aimed to halt Iran’s nuclear agenda. For Trump, the JCPOA was not enough. Trump said that the pact provisions would still let Iran attain nuclear weapons. Additionally, the American President has made multiple statements expressing that Iran’s nuclear issues, missile program and military expansionism (which garners support from non-state actors) undermine US national interests.
Bilateral relations are strong via economic, cultural and historical links. India and Iran look to each other as key actors in maintaining stability in the region. In 2016, PM Modi and Iran President Rouhani strengthened relations even further through strong partisan engagements. In terms of trade, energy is the most important between India and Iran. Moreover, the development and operationalisation of the Chabahar Port also ties the two nations together. India sees Chabahar Port as a key transport and trade corridor with Afghanistan and Central Asia.
The Impact on India’s Economy
Continued tensions between America and Iran Is detrimental to India’s economy. Because oil prices would heavily increase, India would have to spend much more on oil. This means that less money would be allocated to integral areas such as affordable housing, healthcare and infrastructure and development. Since the death of General Soleimani, oil prices have already surged four per cent in India. This increasing rise in crude oil will also undesirably affect India’s energy supply. It will result in an increase in India’s exports and deplete foreign exchange reserves. There is a more than definite probability that the value of the rupee will go down. And at a time where India’s economy is facing temporary slow growth, this could have severe consequences to national development and infrastructure.
Tensions also affect approximately eight million Indians who live and work in West Asia. India currently receives a whopping $70 billion in remittances from Indian nationals. If eight million are affected by tensions, this means India stands to lose $40 billion in remittances overall. That’s over 57 per cent of received money instantly gone!
The Impact on India’s Foreign Policy
Rising US-Iran tensions massively hinders India’s foreign policy agenda. Development of the Chabahar Port would be halted or, in grave circumstances, ceased altogether.
On one hand, India and Iran carry good relations and cooperate on trade, oil and development. India, Iran and Afghanistan had also recently signed a trilateral agreement to increase trade, collaboration and transit. On the other hand, India carries very strong relations with America as well. We even have a preferred military partnership with the USA. Notably, in 2019, India had to stop importing Iranian oil to comply with US sanctions on Iran to appease Trump’s continued cooperation at a preferred level.
The United States of America and Iran are incredibly strategic for India; a rapidly developing country. Prime Minister Modi has actively worked to meaningfully improve India’s relationship with America over the past few years. India cannot lose such an important ally. Simultaneously, however, our energy security is heavily dependant on Iran. If the USA and Iran cannot work this out and war becomes a stark reality, India faces severe drawbacks to growth, progress and relations.
What is the best plan of action? PM Modi should step up and play an active role in any capacity to ensure that these two countries can somehow work it out without resorting to a full-scale conflict. A hand of help should be offered to both Iran and the USA to help in any way to alleviate tensions.
(Views expressed above are the personal views of the author and do not reflect the views of ZMCL)