Indian Defence Review

The US exit from the deal and intensification of economic pressure, confronts both Iran and the US with an uncertain end-game, complicated by the appearance, at least of divisions within the political establishments in both nations. By demanding a blanket severance of its oil exports and all other trade as quickly as possible, President Trump is seeking to apply maximum pressure on Iran with a sense of urgency that suggests impatience for a quick result. But what is it that President Trump wants, precisely?

President Obama has many quotes credited to him. One of the many, addressed to his country’s foes, was a simple message to Iran, “We will extend a hand if you are willing to unclench your fist.” Iran did just that and on July 14, 2015, Iran and the six major world powers announced a deal after 18 days of hectic parleys, intense, and at times even fractious, negotiations. The group came to be known as “P5+1”, with Britain, France, Germany, Russia and China as the other members, and the deal was termed as the Joint Comprehensive Plan of Action (JCPOA). The US President was required to certify every 90 days that continued sanctions relief pursuant to the JCPOA was in the national security interests of the US and that Iran was implementing the terms and conditions imposed under the JCPOA and was not in material breach of it. President Trump had previously twice certified after taking over as President – in April and July 2017, albeit with reluctance. He has always been calling the deal as ‘biased and unfair’ and Iran as ‘a liar’. On May 08, 2018, President Trump finally announced the US withdrawal from the deal and re-imposition of sanctions on Iran and anyone dealing with it.

The Charges Against Iran

In his policy statement, President Trump has charged that Iran was not complying with all the provisions of the deal and highlighted two occasions when Iran produced more heavy water than permitted under the JCPOA. Iran had briefly exceeded the limits on heavy water production twice in 2016 (February and November) and on both occasions, the issue was amicably resolved fairly quickly. These two violations in 2016, did not, however, prevent President Trump from certifying Iran’s compliance, twice in 2017!

President Trump has also alleged that Iran was placing restrictions on the work of the inspectors of the International Atomic Energy Agency (IAEA), the sole inspection agency authorised to ensure compliance with the terms of the JCPOA. Contrary to the allegations, however, Iran has allowed over 400 IAEA inspections and over 80 short-notice inspections. The IAEA moreover, has daily access to Natanz, the only location where Iran is permitted to enrich uranium for nearly 15 years, apart from several other significant transparency measures.

President Trump, on the other hand, insists that Iran has been reluctant to give IAEA inspectors access to military installations which are part of Iran’s “clandestine nuclear weapons programme”. While Iran has said it will not permit IAEA access to ‘sensitive’ military sites, the JCPOA has provisions to seek such access, with the P5+1 having to provide reasons for seeking such access. The JCPOA also contains provisions to resolve any controversies relating to such access issues, via the mechanism of the Joint Commission. Without invoking these provisions and no information regarding such access requests being available in the public domain, Iran has been charged with “multiple violations of the agreement” by President Trump. The most significant charge laid at Iran’s doorstep is that it “is not living up to the spirit of the deal”; Iran’s activities from Syria to Yemen are viewed as destabilising factors in the region and directly opposing the terms of the JCPOA, which, in his view, was supposed to contribute to “regional and international peace and security”.

For all Iran’s penchant for troublemaking, its regional influence is often overstated. Iran is not the sole author of the region’s instability; the other Arab powers of the Middle East, most of them American allies, bear significant responsibility too for fuelling the extremism, sectarianism and lack of accountability that feed the region’s conflicts.

Reactions and Results

On July 14, 2015, even before the ink had dried on the accord, reactions and results had begun. Iranians poured onto the streets in jubilation to celebrate the nuclear deal that many hoped would end the isolation, which had led to years of sanctions and hardship. Even the Supreme Leader, Ayatollah Ali Khamenei, had made clear his support for the deal, wasting no time in praising the negotiators. Iran’s reaction now to the US withdrawal from the agreement has been on predicted lines. Its Supreme Leader has warned of making President Trump “worm food” before Iran bowed to his threats! Iranian President Hassan Rouhani’s reactions however, were subdued and spoke of negotiations with the other participants of the deal, to recover the agreement. On the other hand, President Rouhani, while propagating negotiations, has also instructed the country’s atomic agency to be ready to enhance its enrichment programme, should the efforts fail to retrieve the deal.

The three EU nations that signed the deal – Britain, France and Germany – seemed to have their responses ready, with a declaration of continued support to the pact, anticipating the US walkout, which was announced despite their advice to President Trump. This was on expected lines since a range of UN and other independent observers, including Tamir Pardo, a former intelligence chief of Israel, had confirmed that Iran’s nuclear ambitions had been severely curbed and that Iran had, by and large, kept its part of the accord. Russia and China, the other two members of the P5, also declared their continued support to the accord.

Notwithstanding the assertion of support to the pact by the other signatories, Israel, which had opposed the agreement from its very conception, welcomed the announcement by USA. Many in Israel’s defence and intelligence establishment, however, continue to feel that the deal was beneficial and had controlled Iran in the region. Across Middle-East too, ripples of the US action have been felt. Hostility between the two regional powers and rivals, Saudi Arabia and Iran, respective supporters of Sunni and Shia Islam, have increased throughout the region. The two nations, through their proxies, have enhanced confrontation against each other in Yemen and Syria.

Internally, Iran has been facing turmoil with localised protests in response to the country’s growing economic crisis and ever-increasing demands from hardliners. There have been protests at malls, traders closing their shops to protest against the declining currency, with demonstrators marching to the parliament building in Tehran. On June 27, 2018, nearly two-thirds of the parliament members demanded a joint approach by the three branches of the government to deal with the protests and the struggling economy. As USA increases the pressure on nations to stop importing Iranian oil – the embargo becomes effective in November 2018 – the Iranian government is hoping to deflect some of the criticism directed towards it to curtail the protests. The demonstrations so far, appear to be by the suburban middle-class, a group that typically supports moderates of the likes of President Rouhani. Government stability could be threatened if the upper class, which has stayed aloof from the protests, joins in. Such a move could then bring the poorer, rural citizens also into the fray. While the government attempts to control the developing protests and tackle the hardliners, the parliamentarians have recently voted to impeach the Economy and Finance Minister of Iran for failing to effectively manage the country’s economic challenge.

India needs Iran, not only for its gas and oil, but also because of its geo-strategic location. It provides the link for India to tap the vast iron ore reserves in Afghanistan and the connectivity to the hydrocarbon reserves of Central Asia. A strain in relations between the two nations could be an open invitation to China to step into the void created. The Indian foreign policy mandarins have achieved success by walking a tightrope between the real-politik and ideological policy options. India has been in talks with USA to seek a waiver for oil imports for itself. While there has been no denial from President Trump, the request has not yet been accepted.

The oil market is in a quandary. The success of sanctions will depend on how much they affect Iran’s oil exports. With Iran exporting roughly 2.5 million barrels per day (bpd) subsequent to the easing of sanctions post-2016, a drop of about only 500,000 bpd would be seen if the forthcoming sanctions are highly effective. This would be far less than the one million bpd that Iran’s exports declined by in 2012 due to sanctions. However, with the EU not putting in place a full embargo on Iran’s imports that alone can lead to a 600,000 bpd drop, a decline of 1 million bpd is unlikely if Iran stays a party to the deal and does not ramp up its nuclear program. A shortfall, in any case, can be met by the GCC nations and Russia, which have plenty of spare capacity.

What Does President Trump Want of a Defiant Iran?

The US exit from the deal and intensification of economic pressure confront both Iran and the US with an uncertain end game, complicated by the appearance, at least, of divisions within the political establishments in both nations. By demanding total severance of its oil exports and all other trade as quickly as possible, President Trump is seeking to apply maximum pressure on Iran with a sense of urgency that suggests impatience for a quick result. But what is it that President Trump wants, precisely?

For President Trump himself, the temptation of a bigger, better deal with Iran or at least a photo-op summit that has the appearance of a breakthrough, as with North Korea, seems to appear attractive. Since he first announced his intentions for the presidency, he has emphasised his unique capabilities to renegotiate “a new and lasting deal”. The barrage of threats and appeals that he has directed at Iran in recent weeks, to negotiate “any time they want” and with “no preconditions”, betray his exasperation that Iranian leaders have yet to take him up on the offer. There is a growing likelihood that President Trump may make an offer to meet his Iranian counterpart, President Rouhani, at the annual UN General Assembly meetings in New York. Speculations are high, as he had done this earlier in 2017.

The American foreign policy team which can have a turnover by the day, appears to understand Iran’s particular blend of antagonism and boldness that has historically discouraged bilateral diplomacy. While the US National Security Advisor, John Bolton and the Secretary of State, Mike Pompeo, have not been pursuing their earlier statements of supporting a regime change in Iran, their current public pronouncements with about a dozen demands, do sound like preconditions, contrary to the offer of talks by their President. Iran’s aversion to a direct dialogue with USA may be bolstered with such announcements.

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In their public statements, Iranian leaders have insisted that no dialogue is possible with the US until President Trump reverses his abrogation of the nuclear deal and ceases the application of what they describe as psychological and economic warfare against Iran. However, the mood on the streets of Iran appears volatile. Iranian leaders appreciate from their previous ordeals that muddling through sanction waivers does not offer a sustainable formula for securing the nation through a period of anticipated transition, especially with a succession process for an ageing Supreme Leader, is not far beyond the horizon. Waiting out the pressure is a possibility as many EU nations have advised with an eye on the American political calendar or even the investigation into Russian election interference. Iran’s appetite for tactical escalation remains, if only to highlight to USA that its pressure comes at a cost. On multiple occasions including the diplomacy that produced the 1988 ceasefire with Iraq, an overture to the US in 2003, apparently endorsed by Iran’s Foreign Ministry for a ‘grand bargain’ and the 2013 interim nuclear agreement with US and its allies, the Iranian leadership has used negotiations to manoeuvre itself out of dire predicaments.

It so appears that aggressive US policies have provoked at least the rudiments of a debate among the Iranian political establishment and, perhaps equally importantly, within the public, about whether and how to take up President Trump on his intermittent appeals for talks. President Rouhani too, has been indicating his acceptance for talks with USA, while at times being dismissive of the public rhetoric raised by Iran’s political clerics and others.

The world should not, however, be surprised if the Iranians decide to exploit President Trump’s obvious eagerness for a high-profile summit and test his vaunted negotiating skills. Such an acceptance by Iran would possibly deflate another false presumption peddled by President Trump and other opponents of the nuclear deal who continue to remain convinced that a vastly better bargain can be struck with Iran. Negotiating a genuine ‘grand bargain’, as in 2003, to resolve the core differences between the two countries, would entail a massive investment of diplomatic effort and political will that neither side appears ready to proffer!

Can Iran Hit Back?

Iran is intent on defending its sphere of influence in the Middle East, which it has expanded steadily for the past 15 years, despite the sanctions. But the US and its regional allies, especially Israel and Saudi Arabia, are determined to contain and limit its influence. Iran of late, has been beset with a growing list of challenges, to name a few – the withdrawal of the US from the nuclear deal, the looming imposition of more sanctions and Israel’s determination to attack it inside Syria to prevent its entrenchment there. Like any country intent on defending itself, Iran feels compelled to retaliate against these two stronger military powers.

The Iranian President belongs to a more pragmatic faction and has a proven record of engaging with the West and pushing back against his conservative opponents, but as it appears that by design, the current US administration’s Iran policy does not leave much space for negotiations. The US move to remanufacture a confrontation with Iran has weakened the President’s position while favouring his hardline rivals. President Rouhani is facing heavy pressure in Parliament over the deteriorating state of the economy. As his political capital continues to decline, he could thus be forced to rebalance his Cabinet, sooner than later, with members of the conservative camp. Notwithstanding Rouhani’s threats to block oil exports through the Strait of Hormuz, a move hailed by the conservatives and the hawks, the probability of Iran attempting to shut the Strait remains low for now due to the risk of inviting a US military response. However, potential moves to harass naval vessels in the area, target Gulf energy infrastructure and ramp up parts of its nuclear programme are very much on the horizon.

Iran, therefore, finds itself in a bind. While trying to defend itself from the economic damage of the new potent US sanctions, part of which kicked-in in early August, Iran also must respond to Israeli and American action against it. At the same time, Iran is intent on retaining as many of the economic benefits as it can from the existing framework of the JCPOA, by being reserved in its responses, rather than rapidly escalate some of its retaliatory moves, which could alienate the EU nations continuing in the deal. This constraint leaves Iran with not many options as it seeks to preserve its diplomatic relationships to insulate its economy, while hitting back at its rivals.

Subsequent to its strike in early May, inside Israel’s Golan Heights and the counter-strike by Israel on Iran’s positions inside Syria, Iran has realised that while it may possess the means to retaliate, it faces two militarily, technologically and economically superior opponents. In recalculating its response to protect itself from sanctions, it seems to have opted for a limited set of low-risk options. In the near term at least, Iran has begun to focus on cyber-warfare against state assets and companies in Israel, the US and the GCC states, combined with proxy warfare in Gaza, Yemen and Afghanistan, both methods being difficult to trace back to Iran. However, the greater the pressure Israel and the US bring to bear on Iran, either alone or together, the more Iran could lean toward extreme means of retaliation.

Collateral Impact on India

Apart from triggering a new crisis in the Middle East, the US President’s decision to walkout from the Iran Nuclear deal of 2015, has had a ripple effect around the world with India no exception to the collateral effects. India has a huge stake in Iran with investments in the development of Chabahar port and Farzad B gas oil fields. India is the third largest importer of crude from Iran, which provides 15 per cent of India’s domestic oil requirement. Indian companies were also allowed to invest in various projects in Iran with a rupee-rial arrangement. India stands to lose all this and even more.

The November 2018 deadline leaves India in a tough spot with the future course of diplomatic policy and trade altercations to be watched out for. The US postponed the ‘2+2 bilateral talks’ scheduled for early July highlighting the pressure tactics on India from the US in the backdrop of growing disagreements over the Iran nuclear deal and the brewing global tariff war. This and other threats or actions by the US have instigated the rise in the oil market as secondary sanctions would reduce the supply of crude by Iran.

India will definitely face difficulties dealing with President Trump’s decision to walk out of the nuclear deal, but Indian diplomacy, with previous experience in handling US sanctions, could be expected to handle the situation with some deft moves. Nevertheless, it would be wise to remember that the earlier sanctions were under President Obama and not the unpredictable President Trump! India is already in touch with Russia, EU and Iran to gauge the impact of impending US sanctions. The one real downside of this action by the US would be on India’s involvement in the Chabahar port where work had picked up after 2016. There is some talk of granting waivers, but it is too early to predict. India needs to work around the US policy of withdrawal from the Iran agreement to prevent Chabahar becoming a victim of geopolitical factors.

Beyond Chabahar, India has been a founder of the International North South Transport Corridor (INSTC) since it was ratified in 2002. It starts from Iran and aims to cut right across Central Asia to Russia over a 7,200 km multi-mode network, cutting down transportation and time taken by trade by about 30 per cent. Plans for INSTC were accelerated after the JCPOA was signed in 2015, and sanctions on Iran were lifted. The freshly imposed US sanctions however, will affect these plans immediately, especially if any of the countries along the route or banking and insurance companies dealing with the INSTC plan, succumb to arm-twisting by the US.

On the diplomatic front, India will have to use skills of innovative realpolitik. India has long been a proponent of a ‘rules-based order’ that depends on multi-lateral consensus and an adherence to commitments by countries on the international stage. By walking out of the JCPOA, the US has overturned the precept that such international agreements are made by ‘States’ not just with prevailing governments or regimes. Such a controversial stand could have an impact on all agreements that India is negotiating both bilaterally and multilaterally, with the US, especially after President Trump withdrew from the Paris Accord on Climate Change and the Trans-Pacific Partnership (TPP) with East Asian trading partners. India will have to consider a new understanding of its ties with the US in this context.

The Bottom Line

As long as the Trump administration can neutralise the military crisis over North Korea, it will have more room to escalate military pressure on Iran. However, after the ‘historic’ meet with the North Korean leader in Singapore, President Trump is not finding the expected denuclearisation of that country and is back to combative narratives. Now, in walking away from the Iran nuclear deal and reinstating hard-hitting sanctions, the US is hoping against all odds to foment enough economic frustration in Iran to set a regime change in motion. While regime change remains a long shot, Iran is facing a higher risk of confrontation with the US as it comes under growing internal pressure from increasing protests and hardliners, to walk back on its commitments on the nuclear deal.

Iran has been cautious so far in maintaining its enrichment capacity within the bounds of the JCPOA to sustain its economic connections with Europe. But as European options remain limited in the face of US secondary sanctions, Iran could take formal steps to withdraw from the nuclear deal as well as the Additional Protocol to the Nuclear Non-Proliferation Treaty, while ramping up parts of its nuclear programme. The risk associated with all options is that they could invite a credible military response at a time when the US is in collaboration with both Israel and Saudi Arabia and all are bent on applying maximum pressure on Iran.

While the US has the ability to deploy military assets into the Persian Gulf and convincingly threaten a hostile reaction to aggressive acts by Iran, the main restriction to a US military response in dealing with Iran in the coming months stems from its troubled negotiating track with North Korea. While the current mess does not foretell a collapse of the negotiating track just yet, it does expose just how raw North Korea remains on the Trump foreign policy agenda while the administration attempts to ramp up its confrontation with Iran.

The US administration is exerting pressure to influence India to revise its relations with Iran. In a spate of visits by high ranking officials that include US envoy to UN, Nikki Haley and Assistant Secretary for Terrorist Financing, Marshall Billingslea, with other senior diplomats, statements such as, “India tells us fighting cross-border terror is a priority. Then it must also take US concerns about Iran as a state-sponsor of terror and a major cause of Middle East instability into account,” have been made. For India, it is a tight-rope walk, at least till the second set of sanctions kick-in on November 04, 2018. The end to the US-Iran imbroglio does not yet appear to be in sight!

Postscript

Even as this piece was being written, the International Atomic Energy Agency (IAEA), the agency responsible to periodically examine Iran’s nuclear programme, has reported, as recently as Aug 31, 2018, that Iran has not deviated from the terms of the JCPOA.