The United States under the Trump Administration is going hammer and tongs after Iran to save the petro-dollar. In May 8, 2018, USA re-imposed the sanctions which were lifted two years ago. When US President Donald J Trump decided to withdraw from the Joint Comprehensive Plan of Action (JCPOA) agreement, and re-imposed sanctions against Iran, what he achieved was to throw the arms control agreement by Iran into jeopardy. Though Iran, along with European Signatories, is trying to salvage the agreement, the pressure from the Trump Administration will be too huge to overcome.
The sanctions will bring back in force two sets of sanctions, the first set will prohibit Iran from buying US dollars, trading in gold and other precious metals, sale of auto and aircraft parts and services to Iran. The next set which came into force from November 4, imposes ban on the sale of oil and petro products by Iran.
On November 20, 2018, America sanctioned an international network alleging that the Iranian regime and Russia are providing millions of barrels of oil to the Assad regime in exchange for the movement of hundreds of millions of dollars to the Islamic Revolutionary Guard Corps-Qods Force, and for onward transfer to terrorist organizations such as Hamas and Hizbullah.
The sanctions, in conjunction with economic, diplomatic, and other strategic initiatives, are part of the US government’s long-term maximum pressure campaign to counter the Iranian regime’s influence and destabilizing regional activities, to deny it the funds it uses to bankroll terrorist and militant proxies, and to secure the removal of all Iranian forces from Syria.
There is no doubt that this will certainly impact the Iran’s economy and these sanctions have already triggered a triple-digit inflation and its citizens are trying to get cover under the US Dollar or gold as a safety measure. It is certainly going to be troubled times ahead for Iran, yet again.
India, along with seven other countries, was accorded exemption on oil imports, which is considered to be a significant announcement for both India and Iran. While India is the second largest importer of oil from Iran behind China, but there has been significant reduction in import of oil from Iran by India. It is pertinent to note that this exemption is only for a period of 180 days and is subject to review, but Indian government recognizes only UN sanctions and not any unilateral sanctions by another nation. We will need to wait and see what happens to the cordial bi-lateral ties between US and India after this period.
For an oil rich nation which has seen worst times, the recent sanction may not lead to an economic doom. It will be unwise to predict that the Iranian economy will implode under the weight of the US pressure tactics. This can bring in a spirit of survival by looking into its domestic market which can seep the 82 million population, with 100% literacy. The barter system is back with a bang as an alternative for now.
From being the second biggest supplier of oil to India in 2010-11, it dropped to the seventh spot, only to climb one spot up in 2015-16. Indian refiners will certainly favour Iranian oil as they get a 60-day credit for its purchases, which is not extended to it by other suppliers. However, this may not a smooth operation as the government of India has agreed to reduce its imports and also the it is finding it hard to get shipping companies to transport crude and insurance companies for insuring the consignments. However, the Chinese and Russians are pitching for shipping contracts which can blunt the sanctions by the USA.
India certainly looks at the positive side of the sanctions against Iran. The payments it has to make for the purchases can now be made in Indian Rupee. An agreement to this effect was signed by both the governments on November 2, 2018. Out of the payments to be made, 50% is earmarked for exports — the barter route. The balance 50% will stay in Indian banks for some time. The utilisation of Indian Rupee for anything other than goods and services from India looks like a near impossible thing.
A careful handling of international relationship by the Indian administration can bring about a lot of benefit from this exemption from sanctions, albeit for 180 days or so. The increase in agri-based exports, especially in rice and tea will add impetus to the agricultural sector. The demand for dollar will be lowered and the rates will fall in the coming days thereby giving a relief to the imports, especially the oil and petrochemical imports. This can lead to a more vibrant economy and the Prime Minister Narendra Modi who was an influencer to bring down international oil prices will be certainly a happier man. The prospects of 2019 look brighter.
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