The latest tranche of US sanctions targeting Iran’s oil exports and transactions between foreign financial institutions and central bank of Iran not only could take billions out of the country’s shrinking revenue stream but also hurt the economic interests of major buyers of Iranian oil.
However, Washington granted temporary waivers to nine countries including India, allowing them to buy reduced quantities of Iranian oil. India also secured a waiver on its investment in Iran’s Chabahar port, being developed by New Delhi as an entrepôt for expanding its trade with Iran, Afghanistan and Central Asian republics.
As the United States withdrew from the Joint Comprehensive Program of Action, JCPOA, hailed as an achievement of multilateral diplomacy, it once again turned to the great power style of dealing with countries on a bilateral or case by case basis, where it is better able to exert pressure and seek concessions. After denying ‘blanket waivers’ to European business operating in Iran, the US approach in granting waivers is about giving countries more time to wind down import of oil from Iran, while also avoiding disrupting global oil markets.
Dealing With the US’ Secondary Sanctions: India’s Balancing Act
Notwithstanding New Delhi’s assurance to Iran that “it follows only UN sanctions and not unilateral sanctions by any other country,’ it had to find its way around the US secondary sanctions, which can punish third-country business entities doing business with Iran by limiting their access to American financial network. Deterred by these sanctions, major Indian private refiners, such as Reliance industries, Nayara Energy (formerly Essar Oil), and HPCL-Mittal Energy halted purchase of Iranian oil as soon as the US announced its decision to re-instate sanctions.
India therefore had to either secure a waiver from the United States or find alternative payment mechanisms independent of the US dollar system.
Early on, India decided to get in touch with the European Union, which was working to create a Special Purpose Vehicle (SPV) that would sidestep the US financial system by providing an EU intermediary to handle trade with Iran. But the slow progress on operationalising the SPV and the sharp opposition of the United States to the initiative, denounced by Secretary Pompeo as “one of the most counterproductive measures imaginable for regional and international peace and security,” seemed to have pushed India to seek a better understanding with the United States.
In the first week of October, the state-run refiners Indian Oil Corp Ltd (IOC) and Mangalore Refinery and Petrochemicals Ltd booked Iranian oil for the month of November, the volume was nearly half of what they had imported earlier in preparations for sanctions.
Many saw it as India’s willingness to defy US pressure, but the reduction in volume was also an attempt to secure a waiver. When Brian Hook, US special envoy on Iran came to New Delhi to persuade it to slash its imports of Iranian oil, the prospects of shortfall in global supply as a result of embargo on Iranian oil had already sent the oil prices soaring. While the rapid devaluation of rupee against dollar had made it further difficult for the United States to pressurise a country sympathetic to its objectives vis-à-vis Iran. Hook left New Delhi declaring that the two countries share the goal of denying Iran the money it needs to destabilise the region.
Reaching a Compromise: Oil Payments to be Made in Escrow Account
While the details did not emerge at that time, the two countries had reached a compromise whereby India would be allowed to import Iranian oil, securing its vital economic interests, and Tehran would be denied the ‘hard’ currency it can potentially use to geopolitical games. India will make the complete payment for its Iranian oil imports in an escrow account set up in UCO bank in India, and Iran will have to spend down that amount to pay for its imports from India.
The compromise was a significant achievement from the US point of view, given the biggest failing of the JCPOA, according to the Trump administration is that the nuclear agreement provided economic benefits to the Islamic Republic, allowing it to consolidate its destabilising influence in the region.
The US Treasury’s decision to exempt Indian investment in Iran’s Chabahar port is hardly surprising, given President Trump’s South Asia strategy, announced in August last year, strongly exhorted India to play a bigger role in Afghanistan, especially in the field of economic assistance and development. The railway link between Chabahar and Zahedan on Iran-Afghan border was also exempted from the sanctions. This railway link is to be extended to Mashhad in eastern Iran and thereafter to Central Asia, and is crucial to the trade and transit corridor that would operationalise the potential of the Chabahar port.
What US Waivers Mean in the Way International Politics Works
Now that nine countries have secured waivers to import Iranian oil seem to suggest that repeated declarations by Trump administration to reduce Iran’s oil revenue to zero were more a tactic to create an atmosphere of uncertainty within which waivers negotiations would have to take place.
It also means that the United States may have torpedoed a multilaterally negotiated deal with Iran, but there is a limit to which it can push its unilateral agenda on the world.
The fact that all the major buyers of Iranian oils are economic heavyweights of Asia, who share the cause of safeguarding free and open international order threatened by Trump’s America first approach, is reflective of an ongoing global transition in which regional powers have increasing space to shape the world.
(Deepika Saraswat is a Research Fellow at the Indian Council of World Affairs. This is an opinion piece. The views expressed are the author’s own. The Quint neither endorses nor is responsible for them.)