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Iran Sanctions and India

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  • May 15, 2015
    Fellows' Seminar

    Chair: Prof. Girijesh Pant
    External Discussants: Prof. Gulshan Dietl, Nidhi Verma
    Internal Discussants: Dr. G. Balachandran, Shebonti Ray Dadwal

    The paper examined the sanctions imposed by the UN Security Council (UNSC), the United States (US) and the European Union (EU) against Iran in the aftermath of the Iranian nuclear issue being referred to the UNSC in February 2006 and the responses and implications for India as a result of these measures. UNSC sanctions primarily involved asset freezes of and travel bans on entities and individuals connected with Iran’s nuclear and missile programmes. India took executive actions to conform to UNSC sanctions measures and prevent possible misuse. These were however in continuation of measures it had been taking prior to 2006 as well (like the June 2005 WMD Act), which strengthened its regulatory and legislative mechanisms for preventing the sale of WMD-related materials and technology to wrong hands. The paper dwelt on some pertinent issues relating to the Iran-O-Hind shipping Company (IHSC), which was specifically targeted by UNSCR 1929 of June 2010.

    US and EU sanctions targeting Iran’s crude oil exports have had a significant impact on major importers like India. These measures were based on the contention that Iran was using oil revenues to fund WMD-related programmes, a concern that was first raised in the preamble to UNSCR 1929. The foundational US sanctions legislation targeting Iran’s petroleum sector was the Iran and Libya Sanctions Act (ILSA) of 1996, which became the Iran Sanctions Act (ISA) in 2006. The paper gave a brief account of the legislation, as well as changes carried out in ISA as part of the Comprehensive Iran Sanctions and Divestment Act (CISADA) of 2010. CISADA further imposed restrictions on the sale of refined petroleum products to Iran, affecting Indian companies like Reliance. Section 1245 of National Defence Authorisation Act (NDAA) 2012 targeted the Central Bank of Iran (CBI) for the first time and called for ‘significant reductions’ of imports of Iranian crude and prescribed exemptions from sanctions if a country did so. Section 504 of the Iran Threat Reduction and Syria Human Rights Act (ITRSHRA) severely curtailed Iran’s foreign exchange earnings by mandating that funds owed to Iran as a result of bilateral trade in goods and services be “credited to an account located in the country with primary jurisdiction over the foreign financial institutions.”

    The EU Decision of July 2010 and the subsequent EU Regulation of October 2010 (specifically Article 10) impacted payment mechanisms like the Asian Clearing Union (ACU) which India was using to pay for Iranian oil. Further, prohibition on the provision of insurance services (Article 12) by European-based insurance providers for ships transporting Iranian crude had a negative impact on Indian refineries. The paper briefly described the impact and responses of Indian oil companies like the Chennai Petroleum Corporation Limited (CPCL) and Mangalore Refinery and Petrochemicals Limited (MRPL) to these measures, as indicated in their annual reports.

    The US and EU sanctions measures led to a significant reduction in India’s import of Iranian crude, which came down to less than five per cent of the total imports in 2014-15, from 13 per cent in 2009-10. Indian policy makers have also often cited the prevailing sanctions regime as negatively affecting India’s investments in Iran’s energy sector. The paper gave a brief account of the status of the agreements signed between Indian and Iranian companies including the December 2009 agreement for the South Pars Phase-II and Farzad-B gas field, IOCL ‘s investments in the Farsi Block, among others. The paper closed by noting some of the pertinent developments in the post-Joint Plan of Action (JPOA) period, including the significant role played by Indian oil companies in JPOA sanctions relief. It ended by noting that the sequencing of sanctions relief as part of a comprehensive nuclear deal would have a bearing on the nature of Iran’s oil trade with key energy partners like India.

    Discussion and Suggestions to the Author

    • India is not the only state affected by sanctions. It will be interesting to know how other countries have coped with these measures.
    • China for instance seems to be more adept at engaging economically with Iran, though it is also circumscribed by the same sanctions and it is also part of the P5+1. China has also apparently built a business centre and is in the process of building a petrochemical complex in Chabahar.
    • Aspects regarding India’s recent decision to go ahead with investing in Chabahar could be explored. What material changes if any has resulted in this decision?
    • An exploration of the context surrounding these various sanctions measures would be useful. What were the reasons underpinning the increase in the nature of sanctions targeting Iran’s petro-chemical sector from 2010 onwards? An examination of US as well as Iran’s domestic political and energy context would throw more light on the issue.
    • The author was urged to conduct interviews with retired or serving policy makers to the extent possible to get inputs on some of the aspects covered in the paper.
    • Some forward-looking aspects in terms of policy recommendations could be incorporated into the paper, including on such issues like the possible impact of an impending deal on Indian businesses and oil companies as well as on India’s balance of trade with Iran. It was pointed out that India would be dealing with a ‘different Iran’ in the aftermath of a nuclear deal.
    • The paper could explore US-EU interaction on the issue of sanctions vis-à-vis Iran and see if there were any divergences or convergences over the issue, especially since EU countries were significant importers of Iranian oil prior to 2012.
    • Regional dynamics specifically the role of Saudi Arabia and the nature of increase in its oil exports in the aftermath of sanctions targeting Iran could be highlighted.
    • US pressure on India vis-à-vis its energy trade with Iran as well as investments in Iran’s energy infrastructure and view towards projects like IPI can be included.

    Report prepared by Sourabhi Mukherjee, Research Intern, Nuclear and Arms Control Centre, IDSA.