Importers don’t wish to risk the U.S. sanctions that are going into effect early in November, which will be imposed on any business transactions made with Iranian companies using the the SWIFT payment system.
At a time when fuel prices for consumers are already at multiyear highs, India will be cut off from the source of about one-seventh of its oil imports.
However, the European Union’s foreign affairs chief, Federica Mogherini, has presented a solution to this problem. On Tuesday, at the United Nations General Assembly on Tuesday, with her Iranian counterpart by her side, she announced plans to set up a Special-Purpose Vehicle (SPV) enabling EU states, China and Russia to continue trading with Iran under the scope of the 2015 deal, without being caught up by U.S. secondary sanctions. She added that in time, the mechanism could be extended to other countries.
However, according to the International Trade Center, India had a bilateral deficit of about $8.5 billion with Iran in 2017. Therefore, Tehran would need to sell its oil on credit, even if an EU-style Special-Purpose Vehicle was set up.
The EU’s SPV is essentially short-term issue. Iran gets paid back when it receives goods from the other direction. But with India, switching the existing relationship into a different currency would necessitate economically strapped Iran extending ever-increasing amounts of credit.
While there may well be ways around this, obeying the sanctions should be encouraged as the price needed to stop the Iranian Regime.
As well, for years New Delhi and Tehran have been stumbling over plans to develop a new port at Chabahar close to Iran’s border with Pakistan. As China has shown with its own investments in Pakistan, giant infrastructure projects can be a good way of spending billions.
Bloomberg reported on Tuesday, that Iran’s oil tankers also are switching off their transponders and disappearing from satellite tracking systems, perhaps as way to continue shipping under the radar.
Fuel prices may continue to rise. This is an issued that has weakened prospects for Prime Minister Narendra Modi in elections due next year.
While India wants to promote the its services-led development model, they are dependent on importing crude from a sanctions-threatened country. Still, doing business with Iran not only risks sanctions by the US, but fuels Iran’s export of terrorism.