As of this month, India has completely stopped the import of oil from Iran to comply with a US order reimposing sanctions on the country. India was Teheran’s second largest buyer last year and it was the third largest supplier to India. These sanctions had been lifted or waived following the agreement between Iran and five permanent members of the UN Security Council and Germany on the Joint Comprehensive Plan of Action (JCPOA) to curb Iran’s nuclear programme. But with the Trump administration arbitrarily walking out of the JCPOA, they have been reimposed.
The sanctions cover the Iranian banking sector, shipping lines, aviation and, of course, its atomic energy organisation. They direct everyone — Americans or foreigners — to uphold the US law and stop doing business with the sanctioned entities on the pain of facing sanctions themselves.Given the domination of the US dollar in the world financial system, it would require uncommon courage to oppose the US. Leave alone India, both China and Europe are finding it tough to contest the US decision. As of now, 62.7 per cent of the world’s foreign currency reserves are held in dollars, with just 20.1 in euros and 4.9 in yen and 1.2 in yuan. European financial institutions and companies do business in the US and have made it clear that they are not going to forgo that lucrative market.
Another major factor is the US domination of the Society for Worldwide Interbank Financial Telecommunication (SWIFT), the messaging system that connects over 11,000 banks and handles virtually all major cross-border money transfers. Though it is based in Belgium, it has usually bowed to US demands, and SWIFT has now cut off all targeted Iranian banks, given the threat of sanctions hanging over its directors.There have been calls to establish alternative messaging systems that can bypass the US. Because when it comes to international payment transactions the situation is more equal with 39.9 per cent being done in USD and 35.7 in euros. The idea of a parallel European system is not all that far-fetched, provided the Europeans can summon the nerves to take on the US.
China does have an independent system, but the question is whether it would seek to use it because of its already strained ties with the US. Actually, what the US is taking advantage of is the preeminence of the dollar in the interdependent world’s trade and financial flows, and the losses that would accrue if they were to be rewired in a hurry.
Europe has pledged to keep its efforts to maintain the JCPOA and trade with Iran, though its companies and banks have cut off ties with their Iranian interlocutors.
Germany, France and the UK have created INSTEX mechanism to get around the sanctions. The idea is to use it as a clearing house in Europe where buyers and sellers in Iran and Europe can get their money without any cross-border money flow. So far INSTEX is only dealing with humanitarian essentials, medicine and food. But the EU wants to expand its scope by combining it with regulations that make it an offense for EU businesses to comply with US extraterritorial sanctions. However, INSTEX remains a work in progress and it will be some time before it can effectively address the Iranian issue.
This brings us to the question of India. The Comprehensive Iran Sanctions, Accountability and Divestment Act (CISADA) does provide for waiver of sanctions, if it is in the national interest of the US. But there is no indication that Indian diplomats have sought to press Washington on this issue.
Have we meekly accepted the US directive merely because we are in the midst of elections? Unlikely. The Indian response, or non-response probably represents a significant shift in India’s foreign policy posture. For 70 years, New Delhi has desired to achieve preeminence in our part of Eurasia and the Indian Ocean. In line with this, we did not hesitate to challenge the US, whether it was on account of the military alliances it created, or when it sought to browbeat India on account of Vietnam or Bangladesh, or its very presence in the Indian Ocean.
Our policy towards Iran reflected this position. Teheran offers us a means of bypassing the Pakistani blockade and developing overland linkages to Central Asia and Europe. In addition, the exportable oil and gas resources ties with Iran itself are intrinsically important.
What New Delhi is signalling now is that it is willing to forgo the Iranian advantage in exchange for closer alignment with the US, whose payoff also comes through good relations with Israel, Saudi Arabia and the UAE, and in our ability to balance China’s growing power.
These are uncharted waters ahead of us. Hopefully, someone has thought through the implications of this changed course. Else we may find ourselves adrift in the rough seas that can be seen ahead.
The Tribune May 14, 2019