India will be broadly pleased at the signing of a nuclear agreement between Iran and the West. It will bury the possibility of a US-Iran conflict and it will maintain pressures for low oil prices for several more years.
Geopolitical friction between the United States and Iran has long been a source of major concern for India. Hostilities between Washington and Tehran would have almost certainly led to a disruption in oil and gas supplies through the Straits of Hormuz, superspiking crude prices and crippling India’s economy. New Delhi had repeatedly, in its interactions at the highest levels in Iran, urged Tehran to come to terms with Washington.
This geopolitical nightmare is effectively over with this deal, even though the US and Iran are far from being friends.
The broader issue of West Asian stability remains. The struggle for Persian Gulf dominance between Iran and Shia Iraq on one side and the Sunni Arab states may intensify. Iran will now have billions of dollars more to spend to prop up its allies in the civil wars in Syria and Yemen. In five years, it will also be able to buy arms for them as well. That may not be to India’s liking but it is one New Delhi has little role to play.
Similarly, India will stay neutral in what is likely to be a deepening hostile relationship between Iran and Israel.
However, the US-Iran rapprochement will allow the two of them to more actively work together – and give Iran more resources – against the Islamic State. That is something India would be appreciative of.
India would also hope that Iran would be more willing to expend resources to build the North-South corridor from Chhabahar port to Afghanistan and Central Asia. New Delhi sees this as important to help buttress Kabul against the Pakistan-backed Taliban, but Tehran has not always been on the same page on this point.
Economically, India’s imports of Iranian oil had fallen so low under sanctions – from 486,000 barrels per day in June 2012 to 141,000 in June 2013 – that they will certainly increase. But the world is now awash with cheap oil and Iranian crude is expensive so it may not return to being India’s number one or two crude supplier – as it was before sanctions.
India’s greatest economic benefit may be that Iranian supply will only add to the present oil glut. It will also spur Saudi Arabia and Kuwait to continue to suppress oil prices to maintain a squeeze on Iran’s finances. India, already one of the world’s largest crude importers, is already a beneficiary and would be more than happy if global oil prices remain low for the rest of the decade and beyond.
Sometime in the future, Iran may be able to get its creaky gas infrastructure into reasonable shape – for example, building an LNG exporting terminal. Iran is a middling oil power, but it is a gas superpower. If Iranian gas comes into the market in really large quantities in a decade or so, the impact on prices and supplies could be a game-changer for an India which still finds gas imports to be too expensive.
India may actually see a drop in trade with Iran. Thanks to sanctions, India had doubled its trade with Iran to about five billion dollars a year. If Indian firms are able to hold on to some of their Iranian markets, the figure may fall by only a billion dollars.
India will try to hold onto its share of the Farzad B gasfield. Iran has tried to argue that this deal was not finalized at the time sanctions were imposed. India has tried to argue differently and it was reportedly on the agenda of Foreign Secretary S. Jaishankar when he visited Iran a few weeks ago. But Indian firms will find it difficult to compete against the better-financed Chinese firms that are sure to return to the market. Chinese officials often note that their purchases are strategic, not commercial like India’s, and they are prepared to pay a premium.