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Sumitha Narayanan Kutty is a Scholar at The Takshashila Institution.
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Iran Nuclear Framework: What’s the Big Deal?

Key features, sticking points and next steps

By Sumitha Narayanan Kutty

Iran and the P5+1 countries have negotiated a framework agreement and are now one step closer to a nuclear deal that will limit the former’s nuclear programme. This framework, announced after its original deadline of March 30, spells out key parameters that will now be carried forward to the final deal (to be negotiated by June 30).

Contrary to expectations of a vague statement or verbal understanding, the terms that were jointly announced by EU foreign policy chief Frederica Mogherini and Iranian foreign minister Javad Zarif were pretty detailed. These parameters have of course been extensively covered by the media and also accessible via a White House fact sheet. Most parameters last ten years, some longer.

Salient Features

  • Iran’s enrichment capacity (number of operating centrifuges) will be cut by half
  • Breakout timeline (currently at 2-3 months) will be increased to one year
  • Arak reactor will be reconfigured, Fordow facility will no longer enrich uranium
  • IAEA Additional Protocol will be implemented, providing greater access to facilities

The next three months focus on the more difficult part of the job – hashing out these technicalities.

Arms control experts seem to agree that the terms address proliferation concerns since the Iranians seem to have agreed to extensive monitoring and verification measures. In addition, the terms (surprising to many) actually favor the United States given the intrusive nature of these inspections.

It is however not surprising that Israel has voiced loud concerns over the ‘bad deal’ though it is interesting to note that the Arab nations, including Saudi Arabia, have remained cautiously silent. (US President Barack Obama has invited the latter group – the GCC countries – to Camp David to discuss the deal and assuage serious concerns on regional security.)

Sticking Point(s)

A major sticking point in this final round of talks was sanctions relief. This issue left the P5 delegates particularly divided, with France balking at the idea of quick reversal of UN Security Council Resolutions (sanctions) and Russia opposing the automatic “snapping back” of sanctions if Iran violated any condition.

After Thursday’s announcement, some confusion remains regarding the same. The press release put out by the Iranians seems to gloss over the conditions for reversal of UN sanctions while the White House fact sheet is quite specific on that Iran fulfill its commitments or face immediate penalties for non-compliance. Also, when and how these sanctions would be rolled back will need to be determined once all parties reconvene to hammer out the actual nuclear deal.

(It must be noted here that sanctions levied on Iran for human right violations and its support for international terrorism are not under consideration)

Next Steps

Obviously, the work does not stop here. The road ahead is tough for both the American and Iranian teams with each side now having to present the framework to political opponents and critics at home.

Tehran

The Majlis (parliament) is not required to vote on the agreement. The decision making chain is as follows –

Supreme Leader (SL)

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Supreme National Security Council

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Ministry of Foreign Affairs (Zarif and co)

Zarif has been in constant consultation with the SL and proceeded with the presser in Lausanne only after Khamenei’s thumb’s up. However, the possibility that Khamenei backs out as technicalities are further discussed cannot be ruled out.

Washington DC

Obama has already briefed the Congress leadership on the deal and his administration will continue to reach out to members through next week. Reports on this initial briefing seem to convey a sense of appreciation for the robustness of the framework, even from Republican members.

Obama has previously made it clear that he will veto any new sanctions (including most recent Corker legislation) that may damage the negotiations. Given the new framework, there is hope Congress will not undercut but give space for negotiations until June.

If Congressional oversight seems impossible, Obama will forge an executive agreement. Perhaps quite fitting.

It took an executive agreement for the United States to get out of Iran (the release of embassy hostages in 1981). It could take another (in a sense) to get back in.

Sumitha Narayanan Kutty is a Scholar at The Takshashila Institution.

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What’s driving India’s Iran crude oil rush?

Summary: The interim nuclear deal last year loosened the noose around Iran’s exports but concerns over a volatile Iraq are now spurring purchases back to pre-2013 levels

Reports earlier this month indicated that in comparison to last year, India took 46 percent more oil from Iran between the months of January and July. So far this year, India has received about 270,600 barrels per day (bpd) with the month of July registering an average of 210,300 bpd.

Today India is Iran’s second best customer of its crude oil after China. India was briefly #1 in 2012 after sanctions levied by the United States and the EU saw competitors China, Japan and South Korea race to cut back more ‘significantly’ than it. Despite the waiver from Washington, India drastically curbed imports the following year, cutting back even further than the targeted 15 percent reduction mark. This saw Iran plummet from second largest supplier of crude to seventh place.

A quick glance at where imports stood since 2011 shows that we are currently inching toward pre-2013 levels that existed before the ‘American squeeze’.

Source: Reuters (Thomson Reuters Oil Analytics)

Source: Reuters (Thomson Reuters Oil Analytics)

How did this come about?

1. Relief from Interim Nuclear Deal

The first reason of course being the breakthrough interim deal struck between Iran and the P5+1 (US, UK, Russia, France, China plus Germany) nations in November 2013 as they began trudging down the long road of negotiating a nuclear agreement. The interim agreement kicked into force in January and allows Iran to keep its oil export levels to 1 million bpd (less than half of pre-2012 levels). Today the country maintains levels at approximately 1.1 million bpd, a little more than the cap, but American officials aren’t exactly complaining.

Indian players, private refiner Essar Oil Ltd and state-owned Mangalore Refinery and Petrochemical Ltd (MRPL), are the only two regular importers of Iranian crude (other irregular importers include Indian Oil Corp, Hindustan Petroleum Corp and HPCL-Mittal Energy Ltd). Essar Oil, the biggest Indian buyer of Iranian crude, more than doubled shipments from January. They rose from 54, 200 bpd in December to 141,900 bpd in January and crossed 231,000 bpd by end of March this year. A wary MRPL, however, plans to keep its annual purchases from Iran around last year’s levels of about 80,000 bpd in spite of the interim relief. Because it fears that’s exactly what the relief is – “interim.”

The Iranian nuclear negotiations have not had a very smooth ride since January. The talks failed to meet the initial July deadline but with neither party (read US and Iran) willing to give up just yet, the negotiations have now been extended till November.

Despite this narrow window of opportunity and high degree of uncertainty, the mood on Iranian crude imports remains positive.

“This year, we plan to restart Iran oil purchases. We are already talking to the re-insurers for this, and we are getting positive responses so far.”

— S. Venkataramana, MD, Chennai Petroleum Corp. (MRL) to Bloomberg News

After a two-year gap, Chennai Petroleum Corp. (MRL) , a unit of India’s largest refiner Indian Oil Corp (IOCL), plans to resume crude imports from Iran (Naftiran Inter Trade Co., the Swiss-based subsidiary of National Iranian Oil Co., also holds a 15.4 percent stake). This change of heart has primarily come about because the European Union eased its sanctions on insuring cargoes after the interim deal and insurers are now returning to the market, albeit cautiously.

2. Urgent Need for Diversification: The Iraq Crisis

A second and increasingly concerning reason is the instability in parts of the Middle East, in particular Iraq. The country overtook Iran in 2012 to become India’s second largest supplier of crude oil. The Islamic State (IS) may not yet have taken southern Iraq where the Basra oilfields are located, but the instability spreading through the country has New Delhi already mulling over contingency plans.

In June, the government instructed public sector oil companies to draw up long and medium term plans with emphasis on diversifying India’s oil import basket. India ideally wants to reduce its dependence on a volatile Iraq and, at the same time, not increase its dependence on Saudi Arabia. Given these circumstances, both the government and refiners believe that Iran offers an immediate, proximal solution with lower transportation costs than say Latin America or Africa.

It is a tight window of opportunity till November after which the outcome of the Iran-P5+1 nuclear negotiations will decide if this upward trend for Iranian crude continues.

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