New Delhi stands by trade-stifled Tehran

Iran is torn between compliance and defiance as former trading partners attempt to evade US sanctions in order to conclude new commercial deals. Potential trade and investment agreements remain hostage to the US Treasury Department although Tehran has complied with the terms of the agreement to dismantle its nuclear programme made with the 5 permanent Security Council members plus Germany.

Last week, Iran’s Foreign Minister Mohamed Javid Zarif met twice with his US counterpart John Kerry with the aim of overcoming banking obstacles faced by Iran and its commercial partners, including India. Although Kerry attempted to reassure Zarif, Iran still faces almost total blockage on dollar-denominated transactions cleared through US banks which are still banned from dealing with Iran as UN, but not US, sanctions have been lifted.

So far, of the estimated $100 billion in Iranian funds frozen in foreign banks, only $3 billion has been released to Iran due to US restrictions and the fears of non-US banks and firms of being heavily fined for violating the web of US sanctions. Some $15 billion in fines have already been imposed.

The US also bars dealings with leading Iranian banks, institutions, organisations and individuals, and the nuclear deal, signed in July 2015, still faces opposition from Congress and the US political establishment.

This has made Tehran’s path to normalisation of commercial and political relations with the world all the more difficult and has prevented hard-pressed Iranians from seeing expected improvements in their country’s depressed economy.

In response to the refusal of the US to deliver even partial easing of sanctions involving its own banks, institutions and firms, Iran has responded with defiance. Supreme Leader Ayatollah Ali Khamenei has called for maintaining the country’s policy of economic independence adopted in 1979 while the military has tested ballistic missiles and displayed the recently delivered Russian S-300 defensive missile system in the army day parade.

While Khamenei and the high command of the powerful Revolutionary Guards Corps supported the nuclear deal with the 6 powers, they also have serious reservations over the determination of the US to carry out its side of the bargain. Khamenei blasted Washington for “bad faith.” The US is stifling trade at a time deals are suppo-sed to be proliferating. Foreign participation in the Iranian st-ock market is still under 1% and GDP growth remains at 0.5%.

Fortunately, India has pursued a foreign policy independent of the US and has maintained close political and trade relations with Iran. Even under sanctions, India continued to export basmati rice, agricultural produce, medicines and medical equipment to Iran and to buy Iranian oil, shipped free of charge and paid 50% in rupees and half in euro frozen in Indian banks. Now that UN sanctions have been lifted, Iran expects to receive $6.5 billion in frozen funds paid in euros.

Cementing economic ties

This month, Minister of State for Petroleum and Natural Gas Dharmendra Pradhan and External Affairs Minister Sushma Swaraj visited Tehran with an aim of cementing economic ties between the two countries. In addition to concluding arrangements on taxation, preferential trade and bilateral investment, New Delhi and Tehran have agreed on $20 billion in investment in petroleum, fertilisers and other projects.

India seeks to develop Iran’s Farzad-B gas field, the largest foreign to be discovered by an Indian company, and to commence work on the Chabahar Port in south east Iran which will permit India to bypass Pakistan when exporting goods to Afghanistan and Central Asia. India is set to issue a $150 million line of credit and to form a company in Iran to carry out the project.

To complete the strategic connections, India has already constructed a highway from the Afghan border and expects to build a rail line from Chabahar to Mashad, supplying tracks, rolling stock and other equipment, to facilitate trade.

A major customer for Iran’s oil even under the punitive US-driven sanctions regime, India is likely to benefit from Iran’s refusal to curb oil exports in line with a decision to freeze crude sales taken by Saudi Arabia, Qatar, Russia, and Venezuela. Their aim was to raise the price from less than $30 a barrel by limiting supply. Having suffered severely reduced oil exports under sanctions, Iran has refused because it seeks to re-establish its market share even if the price remains low.

Chinese president Xi Jinping and a handful of Western leaders seeking lucrative commercial connections have already taken the road to Tehran. Prime Minister Narendra Modi received an invitation in January but the date for his visit has not yet been set.

His visit to Saudi Arabia this month was intended to balance New Delhi’s growing cooperation with Tehran and to maintain relations with Riyadh, another major oil supplier, and host to 2.9 million Indians who remitted $10 billion to India last year.