P5 Plus 1 – Iran Nuclear Deal: What It Means for India

Lausanne witnessed a historic moment on April 2, when Iran and the P5 + 1 (United States, Russia, China, France, Britain, and Germany) announced the interim agreement on the Iranian nuclear programme. The agreement is currently in progress and the final deal is scheduled to be signed on June 30 (fingers crossed). If the agreement does transform into a deal, the development is set to bring a monumental shift to the global strategic landscape.

The deal will restrict the scope of Iran’s nuclear programme, with severe reductions in terms of its installed enrichment centrifuges, size of uranium stockpile, etc. Additionally, Iran will have to turn its second enrichment facility, Fordow, into a physics research centre and end all enrichment activities there. Tehran will also be expected to provide greater access to the International Atomic Energy Agency (IAEA) to “inspect any facility, declared or otherwise, as long as it is deemed to be suspicious.” As long as Iran abides by these and many more terms, strict economic sanctions that have been levied on the country, both internationally and bilaterally, will be eventually lifted.

Much to the relief of Iran and many other countries (minus the sulkers such as Saudi Arabia and Israel), Tehran would return to the global arena as a ‘normal state.’ Iran’s homecoming will be greatly significant for New Delhi. The announcement of the Lausanne agreement was met with jubilation in India’s political circles. Hailing the development as a “significant step,” External Affairs Ministry Spokesperson Syed Akbaruddin said, “India has always maintained that the Iranian nuclear issue should be resolved peacefully by respecting Iran’s right to peaceful uses of nuclear energy as also the international community’s strong interest in the exclusively peaceful nature of Iran’s nuclear programme.”

A culmination of the agreement into a deal will resolve a lot of issues for India and Iran in multiple aspects, and facilitate greater political and economic interaction between the two countries. The following are some of the areas (with no order of significance) wherein India would benefit from the P5+1-Iran nuclear accord:


Easing of Political Pressure on India

Firstly, a thaw between Iran and the United States is likely to lift significant pressure off Indian diplomats. The Indo-U.S. friendliness following the India-U.S. civil nuclear deal brought with it immense Western pressure on New Delhi when dealing with Iran. Indian diplomats found it difficult to conduct ‘business as usual’ under American pressure, the United Nations-mandated and non-UN mandated sanctions on Tehran. India’s vote against Iran at the IAEA and its reluctance to proceed with the Iran-Pakistan-India pipeline or other energy-related deals remain a testament to India’s succumbing under U.S. pressure. With a possible consensus between the United States and Iran, it would be easier for New Delhi to conduct its relations with Tehran without worrying about irking Washington.

However, India now faces a new diplomatic challenge. It will have to maintain a balance when dealing with Israel, an equally important partner for India. While engaging more deeply with Iran, Indian diplomats will now have to be wary of displeasing Israel, which remains a staunch opponent of the nuclear deal.


The Afghanistan Factor

Iran’s economic and political revival will bode well for India because of their growing geopolitical and strategic convergence regarding the future of Afghanistan. Currently, Afghanistan is in a precarious situation wherein President Ashraf Ghani is trying to strike a balance with various domestic, regional, and international players while simultaneously negotiating with the Taliban. With the U.S. withdrawal and the growing influence of China and Pakistan in Afghanistan, India seems to have limited countries to cooperate with.

Iran and India’s views on Afghanistan merge greatly, as both are wary of the Taliban’s regaining control of the country. Indo-Iranian convergence on Afghanistan opens up new avenues where both countries can work together. One such avenue is India’s accessing Afghanistan through Iran. With the limited scope of gaining access to Afghanistan through Pakistan, India can utilise this alternate route in order to achieve a greater Indo-Afghan economic equation. It is in this context that the Chabahar port project becomes relevant. India and Iran have been working on the Chabahar-Milak-Zaranj-Dilaram land route from Iran to Afghanistan. Upon completion, Iran will facilitate India’s sea and land access to Afghanistan. The three countries have already signed a deal that would give Indian goods preferential treatment and tariff reductions at Chabahar.

If the deal is finalised on June 30, the United States will probably be more willing to regard Iran as an important stakeholder in the future of Afghanistan. Such a development would imply minimum opposition from Western powers to India-Iran cooperation towards a stable Afghanistan.


Greater Energy-related Engagement with Iran

A successful deal between Iran and the P5 +1 would instill greater rigour in the Indo-Iranian oil trade. Iran has always been a significant partner for India’s energy security. This is largely because of its huge oil and gas reserves, combined with its geographical proximity to India. India has been the second largest client of Iran’s oil exports, after China. Under pressure from Washington and UN sanctions, New Delhi was forced to reduce its oil imports from Tehran. Although India did not agree to abide by bilateral sanctions, numerous other problems have continued to plague Indo-Iranian oil trade.

Due to sanctions, India has been unable to “deposit dollars or euros in any foreign banks” to pay Iran for its oil supplies. Although in 2013, India opted to make oil payments through Turkey, the route was halted after Western opposition in February the same year. Following that, India had to make part payment to Iran in rupees, a currency which has limited international acceptance. Therefore, Iran had to use that money to buy non-sanctioned goods and services from India. According to recent figures from March 2015, India owes Iran $8.8 billion for oil.

Furthermore, foreign insurance companies continually refused to cover refineries using Iranian oil supplies or insuring ships taking cargo to or/and from Iran, further hampering India’s oil-related trade with Iran. As a consequence, during the financial year 2012-13, India slashed its oil imports from Iran by 26.5%. For the first time in a decade, India did not import any oil from Iran in the month of March 2015. With significant easing of sanctions on Iran, India will be able to conduct energy-related trade more smoothly. Indian companies will also be able to get insured by European firms, raise more capital, and not face international hurdles for oil payments.


Progress on Major Projects

India will gain immensely by making possible progress on numerous stalled or delayed Indo-Iranian projects. Most importantly, India will heighten its participation in the operationalisation of the strategically pivotal Chabahar port in Iran.

There is also high probability that the countries would re-work the stalled 2005 Liquefied Natural Gas (LNG) deal between National Iranian Gas Export Co. (NIGEC) and Indian companies GAIL (India) Ltd, Indian Oil Corp. Ltd and Bharat Petroleum Corp. Ltd. If finalised, the project would allow India to buy almost 5 million tonnes per annum (mtpa) of LNG from Iran, which would satisfy India’s energy needs to an extent.

Another project of great interest to India is the offshore Farsi block of Iran. An Indian consortium of ONGC Videsh Ltd (OVL), Indian Oil Corp. Ltd (IOC) and Oil India Ltd (OIL) were awarded the Farsi block in 2002 from National Iranian Oil Co. (NIOC) after successful bidding. It is estimated that the block bears reserves up to 21.68 trillion cu. ft (tcf), with recoverable reserves of around 12.8 tcf. A report states that although the consortium does not possess ownership rights, it was to be “paid a 15% return on investment” when awarded “development rights for Farzad-B gas field in the Farsi block.” Indian officials are positive that Iran will “honour their commitment.

Apart from these major projects, another significant venture is the possibility of a deep-water pipeline connecting Oman to India and transporting LNG for the next 20 years. Looking at India’s swelling energy needs, the government is aggressively attempting to expand the proportion of natural gas in its energy mix. The success of the deep-water pipeline will significantly secure India’s present and future energy requirements. Although the project is at an initial stage, with multiple challenges owing to the difficult technology involved, the Iran nuclear agreement will ensure the absence of any Western pressure to stall the deal.

Despite the numerous positives, India is likely to face some inevitable challenges. Once the sanctions are lifted, American and European firms will tap into Iran’s potential in the domains of oil, gas and general markets. With the presence of many more international firms in the market, Indian companies will have to compete more vigorously to gain an edge over others.


Benefits to the Indian Economy

A final interesting possibility that may favour India in the coming year is the stability in international global oil prices. With the finalisation of deal, there will be an influx of greater crude oil supply from Iran into the world market.  This would ensure that the international oil prices do not rise significantly in 2016. A stable international oil price would automatically favour energy consumers, such as India, in keeping their inflation levels under control. Therefore, this development would indirectly have a positive impact on India’s GDP growth and equity markets in the coming year.


Image: Indian Ministry of External Affairs, Flickr


Posted in , Economy, India, Iran, Negotiations, Nuclear, Nuclear Weapons, Politics

Aditi Malhotra

Aditi Malhotra is a PhD Candidate at the Graduate School of Politics (GraSP), University of Münster, Germany. Her areas of interest include security issues in Indo-Pacific region, nuclear proliferation and nuclear security. Follow her on Twitter @aditi_malhotra_

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9 thoughts on “P5 Plus 1 – Iran Nuclear Deal: What It Means for India

  1. Aditi,
    Great post.
    Would add that completion of an agreement and its successful implementation would open the possibility of an Iran-Pakistan-India pipeline that would be win-win-win.

  2. Its very interesting dimension. I am looking forward to see how India, Iran, Pakistan and U.S resettle their interests in Afghanistan. Iran has done developmental work inside Afghanistan in last years to support local communities. Now it ll pay back to Iran in form of its political influence. However it also depends on Pakistan’s political decision toward Afghanistan where it is now a relatively pro-Pakistan Afghan govt. and Saudis are putting all efforts to push back Iranian influence in region. Afghanistan would be a major country in this new political scenario.

  3. The analysis captures fairly accurately the impact of Iran deal on India – Iran relations and Indias ability to work more closely with Tehran on regional issues. I was wondering whether the Iran-Pakistan-India (IPI) gas pipeline would be possible in coming years or that there are still many complex dynamics at play that too much optimism is not warranted at this stage?

  4. @MK: Thank you for the positive response. Indeed, the completion of the nuclear deal would instill much-needed life into the IPI negotiations. However, I suppose the players would still have to work hard to manage other potential problems such as security risks etc.

    @Zahid: Exciting times are in the offing. Even I am curious to see how the Pakistan-Saudi connection bodes for the region.

    @Majid: The case of IPI is quite interesting. I have always maintained that giving more priority to TAPI and putting IPI at the back-burner (a lot got to do with western pressure) seemed a bit imprudent. This is largely because the route for TAPI seems to have many more security issues such as Afghanistan’s instability, in conjunction with sustainability issues owing to Turkmenistan’s supply potential etc. If the deal works out, one may see some movement on IPI but to be frank, I am not very optimistic about its success in the near future, owing to the complexities involved. We can still hope for some good news :)

  5. Hi Aditi,

    Very interesting analysis. What do you think is the likelihood of the Iran-Pakistan-India pipeline actually being implemented now that U.S. pressure is less of a factor? Do you think India has some reluctance for reasons besides U.S. motivations?

  6. @Leslie: Thanks for your comment Leslie. If the deal does materialise, there may be some progress on the deal. However, India has is own share of concerns apart from the issue of western pressure. India is worried about security issues as the pipeline would be passing through some conflict-stricken areas. For example, 475 mile of the pipeline will be passing through Balochistan in Pakistan which has a history of separatists fighting for resources, territory and also attacking infrastructures. Additionally, some in India do worry that Pakistan may use the pipeline as an economic leverage against India.

    @Zahid: You may contact me here http://aditimalhotra.com/contact/

  7. This is a wonderful analysis Aditi. The pipeline issue is hard to resolve considering the recent Pakistan reluctance for opening trade route for Afghanistan with India. This becomes even more complicated as Afghanistan is heading for peace talks with taliban and Pakistan is big player in overall process where in India role is somehow limited. How do you see the two events influence on each other. I am a health researcher and my interest is in health diplomacy. I have been working in Afghanistan from past couple of years.

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