Q) “The growing US-Iran confrontation, particularly the US sanctions on Iran, will continue to cast a shadow on India-Iran port and railway project.” Analyse?
Chabahar port agreement is a trilateral agreement between India, Iran and Afghanistan
This is to develop rail road connectivity linking Chabahar port of Iran to Zahedan, across afghan borders.
Impact of rising US-Iran conflict on India:-
Shock in oil supplies: India imports 84% of its oil requirements. Conflict in the Middle East is bound to create shocks in oil supplies.
However, with surplus in oil supply, boom in US Shale production, India diversifying its source, reducing dependency on Iranian crude oil can help India to manage continued flow of oil comfortably.
Trigger inflation: In India, retail inflation has increased in fuel prices can increase inflation by increasing the transportation costs.
Widen Current Account Deficit (CAD): With increasing oil price, it would lead to higher outflow of dollars; and this higher outflow will lead to depreciation of rupee.
This would make import costlier, thus widening CAD.
Lower India’s GDP growth rate: Any crisis in the Middle East region directly impacts India’s exports.
In addition to this, due to slowdown in the Middle East Region remittances received would also be impacted. Moreover, India’s economy being coupled economy slowdown in global growth rate due to conflict can potentially lower India’s GDP growth rate as well.
Connectivity challenges: Iran’s Chabahar port is of huge significance for India because of its strategic location, accessibility to Afghanistan and Central Asia. The shadow of US-Iran conflicts jeopardizes India’s strategic connectivity interests.
Spread of radicalization among Shia population:- India has the largest number of the world’s Shia population and this conflict can perhaps radicalize some of them.
Affect Afghan peace process: Instability in Iran, in addition to the US military withdrawal from Afghanistan, can derail Afghan peace process.
India’s relation with US: If India continues to buy Iranian oil, refusing US sanctions, it is likely to impact the strategic relationship with the US and can create strains in Indo-US defence deals.
India’s relation with Iran: If India stops sourcing oil from Iran, it will affect bilateral relations. This can draw Iran closer to China.
Moreover, Under US pressure and cutting off Iranian oil imports affects India’s pursuit of strategic autonomy.
- India must make serious efforts to make its economy immune from fuel shocks by diversifying India’s energy basket towards renewable energy sources.
- India must also augment its strategic reserves to at least 100 days capacity from present only 10days capacity.
- India can devise a Rupee payment mechanism to overcome the sanctions; or can adopt the INSTEX mechanism to continue bilateral trade.
- India can offer Iran to enhance its investments in the Chabahar Port development project as well as consider initiating other developmental and connectivity projects to strengthen linkages to Afghanistan and Central Asia.
- This will ensure that India’s relationship remains favorable.
- It can also strengthen India’s commitment towards strategic autonomy and will assert India’s role as a global power pursuing independent foreign policy.