Economy, Business And Markets

What Nuclear Deal Means for India

What Nuclear Deal Means for IndiaWhat Nuclear Deal Means for India

Earlier this month, the United States reached a historic nuclear agreement with Iran aimed at limiting Tehran’s nuclear program. The pact was welcomed in New Delhi, with one Indian official characterizing it as the “best deal available” considering the governing realities, wrote the American business magazine Forbes.

What does the landmark accord mean for India?

The most immediate impact of the deal reinforces India’s economic interests with Iran’s. Energy cooperation has long constituted the cornerstone of ties between Tehran and New Delhi, given India’s voracious energy demand but its limited indigenous supply.

Not long ago, Iran represented India’s second largest source of crude oil, providing nearly 17% of the country’s imports alone. Many of India’s largest oil refineries are designed to process Iranian crude exclusively. A western-led sanctions regime targeting Tehran’s lucrative oil sector, however, forced India to sharply curtail its purchases from Iran. By last year, crude imports from Iran comprised only 6% of India’s total. Iran tumbled from its perch as India’s second largest supplier of crude to its seventh.

This is poised to change. The Iran deal will likely prompt India to renew its energy trade with Iran, as sanctions against Tehran are gradually lifted. Although India has made significant progress in diversifying its energy sources in the wake of the sanctions, Iran will once again emerge as an important factor in India’s energy calculus. The resumption of oil sales to India will also bestow New Delhi with greater bargaining power when purchasing crude from other countries, including Saudi Arabia, Iraq, and states in Central and South America.

More broadly, the diplomatic space created by the accord will also prompt India to pursue other trade and investment opportunities with Iran that are now more politically and financially viable in the absence of sanctions.

In the weeks immediately preceding the deal, for example, officials in New Delhi and Tehran expressed renewed interest in having India develop Iran’s southern port of Chabahar. Talks over the project had been ongoing for the past 10 years, but stalled. But the prospect of an impending nuclear deal finally spurred New Delhi and Tehran to sign an agreement this past month that calls for India to invest more than $8 billion in the port.

Beyond its economic potential, India’s investment in the port carries with it important geostrategic implications. Development of Chabahar provides India with access deep into Central Asia and the ability to develop deeper trade and strategic links with the region. It will be able to do so  by circumventing neighboring Pakistan while challenging China’s own infrastructure development projects in Gwadar Port.

The Iran accord also confers India with a host of strategic benefits. India is one of the few countries that enjoys robust, multidimensional ties with each one of the primary stakeholders of the nuclear accord: the United States, Iran and the Persian Gulf Cooperation Council countries. New Delhi is well positioned to bolster its own strategic influence both regionally and globally, as each one of these states will seek New Delhi’s support for its respective position as the agreement is executed moving forward. Skilled Indian diplomacy will be required to navigate its various relationships and advance its diverse interests with respect to each of them.

Overall, the Iran deal is good news for New Delhi. India is one of the most significant, albeit unexpected, beneficiaries of the pact.