UPSC Express

Headline : U.S. ends waiver for India on Iran oil

Details :

The News

• Recently, the United States has decided not to issue any additional Significant Reduction Exceptions (SREs) to existing importers of Iranian oil.

 

Background

• Joint Comprehensive Plan of Action (JCPOA) was signed between Iran and the P5, plus Germany and the EU in 2015, which aimed at curbing Iran’s nuclear programme.
• Under the deal:
  • most of Iran’s enriched uranium was shipped out of the country
  • a heavy water facility was rendered inoperable
  • operational nuclear facilities were brought under international inspection
• In return, the deal involved lifting of international sanctions on Iran.
• In May 2018, the United States pulled out of the Iran nuclear deal, citing the below reasons:
  • The deal did not target Iran’s ballistic missile programme.
  • It does not focus on Iran’s nuclear activities beyond 2025.
  • It also leaves Iran’s role in conflicts in Yemen and Syria.
  • According to US, the ‘one-sided deal’ did not bring calm and peace to the region.
• Later in June 2018, Iran notified IAEA of it’s nuclear enrichment plans.
• In reaction to this, US announced sanctions on Iran again in November 2018.

Significant Reduction Exceptions (SREs)

• In November 2018, Eight countries (India, China, Japan, South Korea, Turkey, Italy, Greece and Taiwan) were given exemptions from US sanctions for importing oil from Iran for a 180-day period, which is due to expire on May 2.
• Now, the U.S. has clarified that it will not renew exemptions from its sanctions for importing oil from Iran.

 

Impact of non-renewal of waiver

• Oil exports from Iran hit a low of 1.0 million bpd in March 2019, down from 2.5 million bpd in April 2018 and is expected to further reduce after the end of waiver.
• India, China, Japan, South Korea and Turkey will be the most impacted by the non-renewal of waivers.
• However, the other three currently exempted countries Italy, Greece and Taiwan have already reduced their imports from Iran to zero.
• Also, the sanctions have provided the U.S. an opportunity to put more of its own crude on the market.

 

Impact on India

• The re-imposition of sanctions will impact India’s oil imports and may also surge oil prices in India.
• It may also impact the development of the Chabahar port (Iran), which has a strategic value for India allowing access to Afghanistan and Central Asia.

 

Way ahead for India and Iran:

• Options like the Rupee-Rial trading mechanism can be explored.
• Opening of Iranian banks in India and Indian banks in Iran could also be considered. This would facilitate movement of money and income between the two countries.