Iran Nuclear Deal: Prospects for Regional Trade

“[The agreement would] open the way to a new chapter in international relations.”

Federica Mogherini, EU’s Foreign Policy Chief

Iran’s relations with the West, and with the United States in particular, have been sour since the Iranian Revolution and subsequent installation of a theocratic regime in Tehran.  Thus, the Iran nuclear deal, formally known as the Joint Comprehensive Plan of Action, with six world powers – the United States, United Kingdom, France, Russia, China, and Germany – is a global victory. The deal was a give and take, but Iran accepted curbs on its nuclear program and in return, it has been returned the right to trade with the world. An embargo on conventional arms will last for another five years. Violating the agreement within 65 days could trigger automatic “snap-back.”

The course of negotiations was certainly not easy. Arduous talks crossed over 20 months of engagement, breaking a deadlock of 12 years. Continuous negotiations for seventeen days in Vienna triumphed diplomacy over coercion and moved the world in a new direction. The deal limits uranium enrichment to 3.67% and stockpiles to 300 kg over the next 15 years. The deal also requires Iran to ship spent fuel out of the country forever, while IAEA inspectors will continue to monitor uranium mining and centrifuges for another 20 years.

President Obama claims that this deal is not about “trust,” but rather it is about “verification.” The deal bags a political victory in the conflict resolution process. The Iranian theocratic regime and western democracies reached a conclusion to ensure security and trade. Economic sanctions played a key role in determining Iran’s position in the negotiation process. During economic sanctions, Iran had reached the point of using state pension funds, military cooperatives, and religious foundations to bounce shares and put them in stock exchange to generate little profit.

Immediately after the UN Security Council adopted the deal, European firms showed much interest in investing in Iran. Germany took clear lead when it announced it would send its vice chancellor and top business representatives including Mercedes Benz, Siemens, and Volkswagen to Tehran. Germany’s exports with Iran are worth 2.7 billion euros with plans of doubling in the future. According to the Iranian oil minister, the country’s gas production will cross 1,000 million cubic meters per day within three years, and oil production will reach 4.7 million barrels per day in the near future. Iran’s crude oil and gas exports are a strong stimulus for energy-deficient Europe. Currently, the deal awaits approval from U.S. Congress. After it is approved, there is an expectation that U.S. companies will invest heavily in the Iranian market.

Iran has the second largest gas reserves and fourth largest oil reserves in the world. In 2012, economic sanctions on Iran reached a culmination when Iran’s central bank came under the blockage, and oil exports dropped rapidly. Further, Chinese and Indian combined imports of Iranian oil had dropped by 31 percent. According to the World Bank, per barrel oil price will decrease by 14 percent in 2016. Currently, $107 billion of Iranian assets are frozen – of which $29 billion is to be available after the deal.

South Asia, neighboring Iran, is in serious energy turmoil. One of the most important Iranian and South Asian projects was the Iran-Pakistan-India (IPI) gas pipeline which became prey to nuclear tension between Iran and the West. Pakistan was quick in responding to the Iran nuclear deal with alacrity and anticipations to move forward on IPI. Pakistan plans to buy $2.5 billion worth of gas annually from Iran through this project. It is still not clear that India will join the project; however, Iran is still ready to pursue this project with Pakistan. India is more interested in the Chabahar port project, as it will give India access to Afghanistan. It will also open a key access port for the International North-South Transport Corridor planned for freight transport between India, Iran, and Russia. But the feasibility of this project depends on security conditions in Afghanistan. Central Asian and Russian markets through this route can be accessed by India only in case of successful arrangements by the government of Afghanistan.

Pakistan has emerged as a very significant economic actor after China’s investment in the China-Pakistan Economic Corridor. Pakistan considers the Iran nuclear deal to be very significant and positive for the regional economy. China and Iran are strategic partners who vow to strengthen relations after this deal. Before sanctions, Iran was the third largest oil supplier to China. In 2011, Iran supplied a staggering 550,000 barrels of oil per year to China. China even continued importing oil from Iran during the sanctions. Over the last five years, Chinese oil imports from Iran have increased by about 30 percent. India is another Iranian trade partner which continued trading in billions of dollars during sanctions. Current India-Iran trade is of about $14 billion, though the trade balance is heavily in India’s favor. Indian exports to Iran are $4.2 billion, since shipping goods to Iran is expensive. The Indian economy is hungry for energy and is the fourth largest oil consumer in the world.

The Iran nuclear deal is a great economic and regional integration opportunity for the South Asian region. India is keen to enhance trade relations with Iran. China is Iran’s strategic partner and intends to take bilateral relations to high ebbs. Pakistan is eager to kick start its halted gas pipeline project and increase gas trade to address its energy shortage. South Asian states can get the most benefits because of land proximity to Iran. Pakistan will emerge as a very significant South Asian state in the near future. India is an emerging global economy. The Iranian nuclear deal opens a gate of huge opportunities for both states and is an avenue for integration and joint economic endeavors.

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Image: U.S. Department of State, Flickr

Posted in , Cooperation, India, Iran, Negotiations, Nuclear, Nuclear Weapons, Pakistan, Security, Trade

Zainab Ahmed

Zainab Ahmed

Zainab Ahmed is completing her MPhil in International Relations at the University of the Punjab, Lahore. Her areas of research include conflict politics, regional security, human security, non-traditional threats, and conflict resolution through economic integration.

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2 thoughts on “Iran Nuclear Deal: Prospects for Regional Trade

  1. The author notes that “Pakistan has emerged as a very significant economic actor after China’s investment in the China-Pakistan Economic Corridor.” That’s an over statement.

    One project shaped/aimed to serve one country while “also” having benefits for the host country is not a game changer for the host country. Pakistan is going to be flooded by all kinds of Chinese goods. Hopefully Pakistani manufacturers are gearing up for competition from Chinese manufacturers.

  2. Zainab – thanks for another interesting piece. Your article focuses pretty heavily on the energy-trade benefits that could come to the region with the lifting of sanctions. In your view, will the overwhelming majority of benefits to regional actors be from energy? Or, are there other areas that could also see major benefits?

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