These sanctions also warn non-US firms and financial entities of punitive action in the form of fines and threats of being cut off from the global financial system.
After the re-imposition of United States’ sanctions on Iran, Indian exporters trading with Iran are being forced to shut shop or shift their businesses to other countries.
Three months after saying that he was pulling out of the nuclear deal (Joint Comprehensive Plan of Action, JCPOA) with Iran, US President Donald Trump re-imposed a wide range of sanctions against Tehran on 6 August, while saying that those doing business with Iran would not be allowed to do business with his country. In particular, the Trump administration has been putting pressure on countries to cut their import of Iranian oil to zero, but that part of the sanctions comes into effect in November.
“The re-imposition of US sanctions on Iran has forced us to close our trade with that country. Initially, the two banks mandated by the Indian government to provide banking services to the country’s exporters to Iran—UCO Bank and IndusInd Bank—issued an advisory asking Indian exporters to close their business deals with Iran by 6 August. However, the two banks later withdrew their advisories, but uncertainty persists,” S.R. Srivastava, director of SysTel India, a Lucknow based company that manufactures geotechnical instruments, told The Sunday Guardian.
Srivastava further said, “We have already stopped the production of instruments so that we can avoid wastage. The situation is bad for exporters like us. If the uncertainty prevails for a long time, we will have to look at other countries to export our instruments.”
Almost 100% of Srivastava’s exports were to Iran, from which his annual turnover was Rs 30 cr. He has had to lay off around 40 workers and is now searching for new markets, both domestic and international, for his products.
The US sanctions re-imposed on 6-7 August prohibit Iran from purchasing US dollars and trading in gold and precious metals; target the industrial use of graphite, aluminium, steel, coal and software; trading in automotive parts, and are part of a larger move to cut off Tehran from the international financial system. These sanctions also warn non-US firms and financial entities of punitive action in the form of fines and threats of being cut off from the global financial system, if they do not comply with the sanctions.
US sanctions are largely targeting raw or semi-finished metals (aluminium, steel, coal), geotechnical products, and integrated industrial development processes, areas where Indian companies are investors. The sanctions are also posing a threat to the Chabahar port, which India is helping Iran develop.
Shyamji Gaur director of the Delhi based KM Automobiles, told The Sunday Guardian that they have already closed their trade ties with Iran. “The only available option, ‘rupee convertible trade’ is difficult as it invites lots of technicalities and restrictions in transaction. In the existing atmosphere no one wants to take any risk,” Gaur added. KM Automobiles exports accessories and automobile parts to Iran.
Speaking to The Sunday Guardian, Ajay Sahai, Director General and CEO of Federation of Indian Exporters Organisation (FIEO), an export promotion body of Government of India, said, “Exports with Iran are bound to go down because of the prevailing uncertainty. The future of India’s exports to Iran will depend on the ratio of oil import. If oil import from Iran grows and the Indian government uses the same pattern of paying in INR, then Indian exports will be stable. A lot will depend on how India decides to tackle the US sanctions and defines its business interest.”
“Trading in agricultural and pharmaceutical goods with Iran is not facing any difficulties so far as both these sectors are outside the purview of US sanctions,” Sahai added.
The second part of the re-imposed sanctions will be on Iran exporting oil and will come into effect from 5 November 2018. This means, according to Trump’s tweet on 7 August, the “most biting sanctions” will “ratchet up to yet another level. Anyone doing business with Iran will not be doing business with the United States.” The sanctions coming into effect in November will impact Iran’s petroleum products, transactions by foreign institutions with the Central Bank of Iran (CBI), dealings with Iran’s ports, its shipbuilding and energy sector operators.
India is seeking a waiver from US sanctions in order to import Iranian oil easily.
According to experts, nations like India, China and Spain boosted their import of crude oil from Iran ahead of the latest sanctions. The other nations went the opposite way and made large cuts.
Before the US sanctions were announced this month, India’s crude oil imports from Iran in June 2018 jumped up by 52% as compared to June 2017, as per the Directorate General of Commercial Intelligence and Statistics (DGCIS). But in July 2018, oil exports from Iran went down by 15% as compared to April 2018.
Even as the US pushes countries to cut Iranian oil exports to zero, India believes that such a stance is not feasible.
Speaking on the impact on Indian businesses because of the latest round of sanctions against Iran, Dr Ash Narain Roy, director of the New Delhi-based Institute of Social Sciences told The Sunday Guardian, “It is very obvious that it will destabilise not just India’s imports, but will also have a bearing on the country’s energy security because Iran has been a major player here. If I am correct it is the second largest supplier of oil. During the earlier sanctions, somehow it was possible to work in such a way that we managed to still get the oil at a reasonable price.”
He added that the Europeans too were finding it hard to accept the disruptive policies of the US government.
“It is indeed a major challenge, not just for the Indian government and energy security, but also for Indian businesses because the private sector cannot take the kind of risk the government sector possibly can if the Indian government backs it. Many investors are not sure if they will still be there facing sanctions because it will have an impact on their business elsewhere,” Roy stated.
He continued, “I think it is possible to negotiate with the American government just as it has happened in the case of the sanctions against Russia when India was able to obtain a waiver. I believe the Indian government is working through quiet channels and trying to convince the American government that India’s strategic interest with Iran is equally important for the US. But the element of uncertainty is there. That is one level. Another level is if at all this sanction happens then how one should go about it? I am sure that the Americans will eventually realise that India has genuine reasons as the latter believes in the UN system and an institutionalised system and does not go by individual countries taking such actions.”
Roy added that it is a dilemma and does create a difficulty, but with the time factor and understanding that both the nations require, it will work out.
“But, even if we resolve the issue of buying the oil from Iran there will be a disruption in terms of our investment and business. You cannot replace it easily as then it will have to be done all over again if you move someplace else,” he stated.
When asked, FIEO said they did not have the latest data on how much exports had declined. Any estimate of the impact on Indian exports after the re-imposed sanctions will be available in the next quarter.