Wednesday, March 22, 2023
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With Trump’s Iran pullout, has the rule-maker of the world become the rule-breaker?

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The combination of China’s rapid reemergence as a global power and a US led by an unstable President is increasing geopolitical risks, but India is too immersed in fighting internecine battles.

Like the unexpected dust storms sweeping parts of North India that have left havoc in their wake, President Trump’s decision to pull out of the Iran deal also presages stormy weather. But when and where the storms will strike, and with what intensity, are ‘known unknowns’.

In this specific case, much depends on two key factors: How the US re-imposes sanctions and how Iran responds. For now, it appears the new sanctions apply with immediate effect on new foreign investments or trade with Iran, while existing contracts have been given three to six months to wind down after which they may face “severe consequences”. This clearly applies to investments in the Iranian oil industry as well as imports of Iranian oil — the lifeline of that country’s economy.

Iran is hardly likely to keel over. However, fears that the deal could now unravel and trigger an atomic arms race in West Asia might be overblown, at least in the short run. For the time being, Iran is likely to wait on restarting its nuclear weapons programme to avoid the risk of provoking an unstable US President, surrounded by trigger-happy advisers, into launching US air strikes on its nuclear and arms facilities. But Iran will undoubtedly seek other ways to hit back indirectly in Afghanistan, Iraq, and Syria. The US actions will also embolden Israel and Saudi Arabia in their confrontation with Iran, as well as Russia in its alliance with the Persian power, further destabilising an already unsettled region.

To some extent, the answers will depend on how the other signatories — the four other permanent members of the Security Council — China, France, Russia and the United Kingdom, plus Germany and the European Union, react to US unilateralism. The threat of “secondary sanctions” on their firms that do business with Iran will have an undoubted chilling effect, since most large companies also have business dealings in the US and with US banks. Many influential businessmen and investors in Europe are against the unravelling of the existing deal. Apart from the Europeans, Russia and China are not going to oblige easily either — not after their own growing confrontations with the US.

But what about India? What should — or can — India do?

India’s relationship with Iran has been lukewarm, as it has sought to juggle its relationship between Iran, Saudi Arabia and Israel on the one hand and, on the other, acquiesce to US pressures on curbing oil imports from Iran. These pressures led to Iran dropping from being the third to the eighth largest supplier of oil to India. After the sanctions were waived following the 2015 agreement, Iran reemerged as the third biggest oil supplier to India in 2017 (after Iraq and Saudi Arabia), accounting for around a tenth of India’s total oil imports. However, India’s oil imports from Iran have again been declining, partly the result of Tehran backing away from the award of development rights of a giant gas field (Farzad B), allegedly due to the tardy pace of investment by Indian oil majors. And the much ballyhooed investments by India in Chabahar port that would allow it to reach Afghanistan have also been fairly modest, paling in comparison to the rising trade with the Gulf monarchies of late.

But even if the renewal of US sanctions leads to lower oil imports from Iran and curbs opportunities for Indian companies to invest, whether in Chabahar or in oil fields, the direct effects on India will be modest. Yes, oil prices will creep up, adversely affecting India’s balance of payments, but, unless there’s a war, there are enough global sources of oil that India’s energy security will not be at risk. While the Indian tortoise may not win the race, the European and Chinese firms that were quick to rush in after the sanctions were lifted will have to pay for their stranded assets.

But there is a larger question stemming from US actions that India has to face. More than its direct effects on India, the US decision to withdraw from the Iran agreement raises difficult questions about the United States itself. Can it be a reliable partner on any important matter if — as with the decision to renege on the Iran agreement, the climate deal, the Trans Pacific Partnership (TPP), and possibly NAFTA — it can so easily walk out of international agreements that have been crafted with such difficulty? Is the rule-maker becoming the rule-breaker whose actions are increasingly putting the rule-based international order at risk?

There is little doubt that India has benefited to a degree from the actions of the United Sates under President Trump — from its pressure on Pakistan, to challenging a China that has begun to throw its weight around in the region. The former may be driving Pakistan closer to China but the latter may be leading to a slight thaw in China-India relations. Even the decision to withdraw from the TPP might have given India a breather from being shut out of new giant trading blocs.

On the other hand, the manner in which the US is handling migration and trade issues, strangely putting India on its watch-list of “currency manipulators”, threatens to undermine the goodwill and bonhomie that had been built up in the bilateral relationship.

India will also have to tread carefully in not being caught in the cross-fire in the escalating US-China tech wars. Recently, the US barred its agencies from using technology from Huawei and ZTE and banned domestic military contracting vendors that work with either. What should India do?

Huawei devices are powered by processors made by an affiliate (HiSilicon) and run on EMUI (Emotion UI) software adapted from Android. Could these have security trapdoors and, hence, should India follow suit? However, Huawei’s R&D centre in Bengaluru is its largest R&D facility outside China with over 4,000 engineers. It has publicly stated that it would be manufacturing 90 per cent of all its smartphones in India in the next couple of years. Should India risk losing these investments by following the US’ lead, or leverage US pressures to press Huawei to invest more rapidly in India?

Indeed, with Chinese companies such as Vivo, OPPO, Alibaba, ZTE, Huawei and Xiaomi gradually expanding their footprint in India, they have emerged as major equipment providers in the country. But if the world is dependent on China for telecom equipment, China, in turn, depends on the US for the critical technology that drives this equipment. Hence, a US ban on supplying crucial parts to these firms will impact network infrastructure and device ecosystems. US sanctions against ZTE could even prevent the company from providing operating system updates for its devices. Should India curb its sales until it can prove otherwise?

The combination of China’s rapid reemergence as a global power and a United States led by an unstable President is increasing geopolitical risks. An Indian polity that is so immersed in fighting internecine battles seems all too oblivious to the brewing ill-winds.

Devesh Kapur is Madan Lal Sobti professor for the study of contemporary India, and the director of the Center for the Advanced Study of India at the University of Pennsylvania.

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