Indian Defence Review

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.