The deal – what it means to India and South Asia

At last

Twenty months of negotiations, threats and diplomacy has led to a deal, which will stop Iran from acquiring weapon grade Uranium. The details of the deal are still trickling in. According to this CNN report, “The deal reduces the number of Iranian centrifuges by two-thirds. It places bans on enrichment at key facilities, and limits uranium research and development to the Natanz facility. The deal caps uranium enrichment at 3.67 percent and limits the stockpile to 300 kg, all for 15 years. Iran will be required to ship spent fuel out of the country forever, as well as allow inspectors from the IAEA inspectors certain access in perpetuity. Heightened inspections, including tracking uranium mining and monitoring the production and storage of centrifuges, will last for up to 20 years. The U.S. estimates that the new measures take Iran from being able to assemble its first bomb within 2-3 months, to at least one year from now”.

 

Three decades of animosity between Iran and the US, due to political intervention of the latter and an unprecedented hostage crisis during the revolution, seems to be thawing. The deal of course means a lot to Iranian economy (the full impact of the deal will only be felt once the sanctions are lifted next year), it also has the potential to influence much of South Asian geo-politics and economy. Iran has the fourth largest proven oil reserves in the world but exported only 2.3 million barrels a day, against 6.2 million barrels a day (2014 data; US EIA) by Saudi Arabia. The sanctions significantly reduced the exports and forced Iran to store millions of barrels of crude in floating tankers in the Persian Gulf.

 

The future – India

Once the sanctions are lifted, Iran will increase production and export. The oil prices already under pressure from a weak demand and oversupply might see a further decrease in prices. Assuming the diplomatic relations between US and Iran will improve progressively and the deal will hold, it is possible that Iran will provide US access to its ports in the Persian Gulf. It may also offer surface connectivity, enabling the NATO to supply its forces in Afghanistan. These two possibilities have the potential to change things for better, for India.

 

With over 80% of its energy needs being imported, India will stand to benefit immensely by cheaper crude prices. India ran a bill of USD 112.7 billion on oil imports in 2014-15 A price drop of even a single dollar per barrel translates into a billion dollars saved. A substantial drop will provide India with a windfall gain, making precious financial resources available for development work.

 

Indian business also stands to benefit from a sanctions free Iran. ONGC Videsh Ltd. discovered a gas filed in the Persian Gulf (Farzad-B) with an estimated reserves of 21.7 trillion cubic feet. The operating contract (with ONGC Videsh owning 60% stake) was never signed due to international sanctions. The situation will change once the sanctions are gradually lifted next year.

 

The future – Pakistan

On the other hand a friendlier Iran may also mean access to US and NATO supplies to Afghanistan. In the past a hostile Iran made Pakistan the sole point of transit for almost all NATO supplies. The heavy dependence on Pakistan lead to billions of dollars being paid to the army and civil administration by America. The money thus paid found its way to funding various terror groups. The fact that Pakistani establishment sponsored terrorism has long been established by both international governments and strategic research scholars. Professor Christine Fair of Georgetown University in her book, fighting to the end gives a well-researched account of Pakistani army, the ISI and past dictators who indulged in funding Jihad.

 

The dependence on Pakistan to serve its goals in Afghanistan, remains a major reason why the US funds Pakistan. Possibility of an alternate route from Iran puts Pakistan in a situation where the American aid dollars might dry up sooner than expected. While cheaper crude will help India fund its poverty elevation programme, a fund crunch in Pakistan might force it to scale down its terror funding.

 

The hope

What really happens is a question that will get answered only in the future, as and when sanctions are removed and how US engages Iran. But there is a clear opportunity for India to scale up its civilizational ties with Iran and turn them into mutually beneficial business relations. A rejuvenated foreign policy and a business friendly government have the potential to make the transition. Hassan Rouhani as a chief guest at Rajpath, for next Republic Day might do India a lot of favour.

India and dawn of a multipolar world

Once upon a time

Throughout the post war period and until the fall of Soviet Union, the world order was bipolar. At one end was the capitalist United States with its European allies and on other was a socialist Soviet Union with its European members behind the “iron curtain”. There was a third but insignificant pole, the nonaligned group of mainly poor countries. The third pole or the third world eventually became synonymous to poverty and to this date, the term “poor countries” and “third world countries” are used interchangeably.

The world order changed in the post-Soviet era. The cold war came to an end and Russia descended into an economic nightmare. The “shock therapy” Boris Yeltsin administered to the markets resulted in crony capitalism and hyperinflation, wiping out savings of common citizens. The world ceased to be bipolar and America more or less dominated the global landscape. Meanwhile elsewhere in the world, new equations were being written. China had started to show signs of tremendous economic potential and India opened up for investment.

The dragon, the elephant and the pivot to Asia

The fall of Soviet Union seemed to have perfectly timed with events elsewhere. The next two decades proved that the world was no longer unipolar (as America would like to believe) or even bipolar. The rise of third world has created a multipolar world. The first world saw a decline, both in economic and military power. America ended up being entangled in a bloody mess in West Asia while its European allies struggled with recession and plummeting defence spending (most of the NATO members fall short of the 2% targets on defence spending). China rose to prominence, both in economic and military terms. India, despite its bureaucracy and lethargy turned out to be of immense interest to western world. President Obama shifted his interest to “pivot to Asia”. President Putin safely installed himself as a long term ruler of Russia and opened up another power centre with his plans to counter the European Union. The mess in Ukraine is a fine example of EU – Russia power game.

With a multipolar world inevitable, where does India stand in the scheme of things? In his just concluded visit, the Australian Prime Minister Tony Abbott said, “India is an emerging democratic superpower”. It is hard to say whether he was referring to India’s vibrant democracy or referring to India as an emerging superpower in literal terms. Whatever the case be, India is attracting more attention than ever. The biggest advantage (or disadvantage) is India’s proximity to China. It assures, no one should feel threatened with the “peaceful rise” of China. But the territorial disputes with almost all its neighbours and a claim to almost all of South China Sea has always betrayed the assurance China gives on its peaceful rise.

Will the Buddha smile?

From Myanmar to Japan, countries are deeply suspicious of China’s expansionist threat. India comes as a natural counterbalance due to its economic potential and to some extent military deterrence. Since a few years Asian countries have tried to cosy up to India in an attempt to send a message to China. It is unlikely that India will play a role of a military superpower, the way America has played in the past or the way China intends to. The situation however provides for a very good opportunity where India can secure its national interest and open up new opportunities for its businesses abroad and invite businesses to India and create employment.

Are you thinking what I am thinking?

Singapore, Vietnam, Japan, Myanmar, all at some point have shown keen interest in doing business with India. Most of the time the reason behind such warmth is a mix of business interest and a rising China. Under the previous administration of Prime Minister Manmohan Singh, India did not seize the opportunity. The incumbent has shown a clear departure in foreign policy from his predecessor. In the first one hundred days in office the Prime Minister has travelled to Bhutan, Nepal and Japan. He sent his minister for foreign affairs, Sushma Swaraj to at least half a dozen countries in the same period. His Australian counterpart recently concluded his two day visit, which also saw an agreement on civil nuclear partnership.

All this will prove useful only if the visits are turned into concrete business opportunities. The equation of supply and demand will dictate the market, as usual. The world needs India as a counter balance to rising China. India needs the world to set manufacturing base in India and new markets for Indian businesses. The equation is perfect.

If one were to put a red flag on power centres of the world today, there would be one too close to another. America, the EU, Russia, India, China and Japan are all trying to make space for their ambitious plans or are struggling to hold on to what they fear losing.

Territorial expansion died in twentieth century (still thriving in Russia). Today the struggle is about control over resources and markets. The fear of a not so peaceful China rising will bring countries together. India has as much to watch out for as far away Japan. The big question is, “will India stand up to the occasion”?