IRAN NUCLEAR DEAL -WHAT IT MEANS FOR INDIA?

By Ruma Dubey

The biggest news of this week, undoubtedly, notwithstanding Tarun Tejpal, snooping, Aasrushi murder, is the landmark nuclear deal with Iran.  Instead of being an ostrich, concentrating on only what is happening within India, we need to pay more attention to this deal because if it is indeed finalized, it will change the entire dynamics of world politics around the world.

Following this deal, Oil Marketing Companies (OMCs) are today ruling high after Brent crude fell more than $2 a barrel, with supply fears expected to ease due to this deal. Here, ‘supply fears’ means the sanctions which the European Union (EU) had placed on insured tankers carrying Iranian crude. This meant that oil tankers carrying Iranian oil will have an invalid insurance cover for any damage or accident. So once this deal is done, this restriction on insurance will be removed and Indian oil companies can import the contracted volume for this year.

So lets take a quick look at what this deal is all about:

• Representatives of the P5+1 group of nations - the US, the UK, Russia, China, France and Germany - reached an agreement with Iran in the early hours in Geneva.
• As per the deal, Iran will limit its nuclear program – has agreed to give better access to inspectors, will stop enriching uranium beyond 5%, the level at which it can be used for weapons research, and reduce its stockpile of uranium enriched beyond this point.
• In return, Iran will also get some benefits - there will be no new nuclear-related sanctions on Iran for six months.
• Iran will also receive sanctions relief worth about $7 billion on sectors including precious metals
• This is an initial, six-month deal - around $4.2 billion frozen oil assets in Iran will be released.  Deal suspends restrictions put on the Iran's trade in petrochemicals, gold, car and plane parts

So what this means is that sanctions on oil exports Iran will continue but the supply rule on insured tankers has been eased and this is what the crude markets and stock markets are celebrating. Iran oil exports will continue at existing levels – what this means is that at least imports by countries like India now need not be trimmed as was expected.

Thus what is the big advantage we will get from this deal? The first and foremost is psychological – a deal with Iran and that too with USA taking the lead is a big deal. It breaks the ice which has hardened for over 34 years now and if the 6-month deal gets extended, if Iran behaves as promised, it could change the entire geo-politics of the Middle Eastern region.

This has naturally caused a lot of unease in Saudi Arabia, Israel but at the same time, it could win US very good allies in Syria, where Hezbollah is backed by Iran and in Afghanistan, maybe US will be able to sign a post war deal with Taliban with the help of Iranians. Then there are voices of dissent with Obama’s Govt who support more sanctions and not this brokering of a deal. There is also the voice of North Korea, which struck a similar deal with George Bush but being interim, five years later, they went back to building nuclear weapons. And there is also the threat from Saudi Arabia that it will start building nuclear weapons, with purchases from Pakistan as it feels, USA has back stabbed it for being a loyal ally.

And does India get any direct benefit from this deal? No. The big benefit could be like today, the fall in crude price as supply worries ease but directly, there is none. This nuke deal will most certainly not give the Iran-Pakistan gas pipeline any new lease of life. On the other hand, the lift of ban on insuring tankers with Iranian crude oil will mean Indian refiners can import more volumes of Iranian oil easily. Currently India imports about 5 lakh tones very month and it is unlikely that any OMC will import more than the target this fiscal. Only if the deal gets extended and payment process is eased, where 55% payment is made through dollars and 45% through rupees, can we say that India will benefit.

For now, let us see how price of Brent crude remains in the days to come and if it remains low, hopefully, our fuel prices will also be eased.