NEW DELHI – The unilateral US sanctions on Iran has made the situationworse for India, as oil imports from Tehran are going to become morecomplicated and difficult. United States, which alleged nuclear weaponsprogramme by Tehran, pulled out unilaterally recently from the Iran nucleardeal, which is a Joint Comprehensive Plan of Action (JCPOA) between Iranand five UN permanent members and Germany. The five permanent UN membersare US, Russia, Britain, France and China.

Though these sanctions have opened up a small window of opportunity forIndia to step up bilateral trade as Iran being traditionally friendlycountry and an Asian neighbour, one would be “too naïve” to think New Delhicould step up exports, HDFC chief economist Abheek Barua told DNA money.”Unlike last time, it (the sanction) is very complicated this time,” Baruasaid, emphasizing it has come at a time when there is a full-blown tradewar between US and China.

This trade war could trigger mutually assured economic destruction, whichis not good for global growth, now on a revival mode after years of globalrecession. The United States has already threatened to impose sanctions onIndia, and any stepping up of trade with Iran will make the situation worsefor New Delhi. Retaliatory action by the US president could be severe, eventhough Indo-US relations have been improving, analysts said.

This is the first time such a US sanction has been imposed on Iran. Theprevious one a few years ago was UN imposed sanctions on the same nuclearweapons issue. Oil prices are already rising because of Trump’s dismantlingof the Iran nuclear deal. The United States too witnessed an increase infuel prices, which could backfire in his domestic constituency as well.

India imports a large quantity of oil from Iran, perhaps nearly 10% of itscrude oil requirement. India imports a little over $100 billion worth ofcrude oil accounting for nearly 80% of its oil needs. So, any sanction onany of the oil importing countries will be disruptive for the Indianeconomy. The volatility in the exchange rate of rupee is an indication thatall is not well with the global economic situation with trade war worsening.

Hardly a few weeks old, US Sanctions on Iran have started hurting India asfreight for Iranian oil has started increasing because many of the foreignshippers are reluctant to carry Iranian oil. But this has also thrown a newopportunity to get into shipping services in a big way that will facilitateIranian oil imports but also trade from elsewhere.

A former senior economist in the finance ministry, H A C Prasad, who haspublished papers on how to step up merchandise and services exports, saidthat shipping is one of the services, which had huge potential to expand.Indian shipping liners carried hardly 10% of its total trade. Though Indianshipping was opened to foreign direct investment (FDI) as early as 2002,not much investment has poured for want of shipping reforms, includingchanges in archaic shipping laws.

Lately, shipping has become one of the focus areas of reforms of PrimeMinister Narendra Modi. This is however not a short-term opportunity. Indiais already looking at seeking exemptions from Washington to buy Iranian oilapart from working out alternative payment mechanism to protect India-Irantrade which is $12-13 billion annually.

The terms of trade are heavily loaded in favour of Iran. India importsclose to $9 billion worth of oil from Iran. India exports around $3 billionworth of goods to Iran, which is mostly basmati rice, drugs, chemicals andengineering goods.

During the previous sanctions on Iran, India was allowed to make partpayment to Iran in rupees under a sort of barter deal. Indian refiners usedto route all their oil payments through SBI and a German-based bank. Indiawas allowed to make up to 45% of its trade in euro and 55% in rupees.

Recently, Iranian foreign minister Javad Zarif visited New Delhi recentlyin this connection. He had a fruitful meeting with external affairsminister Sushma Swaraj. There are already indications that US PresidentDonald Trump may look at the possibility of the US Congress legislatingmore sanctions on Iran. Oil, expectedly, is going to be one of the mostheavily affected commodities for buyers and sellers dealing with Tehran.

Sushma Swaraj has already indicated India will continue trading with Iranand Venezuela despite US sanctions against the two countries, assertingthat it only recognises UN restrictions and not country-specific sanctions.This does not make the situation any better for India with the trade warbecoming nearly full blown.

Ajay Sahai, director-general of Federation of Indian Export Organisations(FIEO), a trade promotion organisation in India, told DNA Money the impactof the US sanctions will be known only after August 5, the time provided towork out details. “It all depended on what sort of formula is worked out,”Sahai said. Both Iran and India would be happy if the same formula isworked out.