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Tag Archives | Iran

West Asia Engagement with Chinese Characteristics

Four parameters that are likely to guide China’s engagement in West Asia

By Pranay Kotasthane (@pranaykotas)

My previous post Talking about the Asia beyond Pakistan was in light of the Indian External Affairs Minister’s visit to Israel and Palestine. Using The Economist’s Grid of Grievances, the post argued that:

if India were to be mapped on this graphic, it would perhaps be the only state that maintains a non-adversarial relationship with every West Asian state.

Apart from India, there is another state which is missing from the mosaic, and one that has been the quickest off the mark in dealing with the transformed power structure of West Asia: China. President Xi’s visits to Saudi Arabia and Iran, coming immediately after lifting of international sanctions against Iran, have garnered widespread attention in policy circles.

There is a broad consensus that China will be a force to reckon with in the new West Asia but there is little discussion on the direction that China is likely to follow in the process. This post tries to sketch out the parameters of a greater Chinese engagement in West Asia.

First, the Chinese government sees West Asia as an unsaturated market. West Asia in general and Iran in particular have the potential to boost demand for Chinese production. It is no surprise then, that Xi’s arrival was greeted with talks about the ancient Silk Road, reminiscent of a time when the supply chains between China and West Asia were robust.

Second, the Chinese government wants West Asian countries to bandwagon on its side in its efforts to create a new world order that challenges the West. On the geopolitical axis, this means China wants more West Asian participation in institutions like the Shanghai Co-operation Organisation. On the geoeconomic axis, China will look to get greater West Asian commitment to the Asian Investment Infrastructure Bank (AIIB).

Third, China will side with the incumbent political leaderships in West Asia. As a geopolitical actor, China has shown less inclination to regime change except in conditions when a state’s internal political situation directly affects China’s security adversely, as seen in Afghanistan. Going ahead, China will continue to engage the ruling dispensations of all important West Asian countries.

Fourth, China will let others do the fighting against IS. Apart from supporting the incumbent leaderships militarily and economically, China will not put any feet on the ground against the IS, as long as the IS threat remains away from its borders.

These four parameters are likely to guide China’s greater engagement in West Asia. While it remains to be seen what aims this engagement will accomplish, China faces the same challenge as India does on the issue of increasing proximity with West Asian countries: thus far, the two countries have maintained fairly good terms of engagement with West Asia by allowing them to settle at a low level equilibrium, with none of the engagements taking the form of a strategic partnership. As these two states tries to scale these local maxima, the geopolitical environment is bound to throw up new challenges and tough choices that can upset the delicate balance they lie in currently.

Pranay Kotasthane is a Research Fellow at The Takshashila Institution. He is on twitter @pranaykotas

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India’s West Asia policy — is it losing out to China?

India needs to inject fresh thinking into its West Asia policy to further its national interest and avoid being left out due to China’s foray

The Chinese president Xi Jinping’s recent visit from January 17-23 to Saudi Arabia, Iran and Egypt signal Beijing’s intentions to play a proactive role in this region. China’s ravenous appetite for energy notwithstanding, it has been very astute in dealing with the countries in West Asia. The visit was all the more significant because tensions had arisen between Iran and Saudi Arabia due to execution of a Shiite cleric, Sheikh Nimr al-Nimr by Saudi Arabia in early January 2016. This led to break in diplomatic relations between Saudi Arabia and Iran. Unfazed, China went ahead with the visit.

What is of interest is how once a staunch anti-communist nation like Saudi Arabia warmed up to China’s overtures.  Saudi Arabia established diplomatic ties with China in 1990.  This was preceded by China offering CSS-2 intermediate range ballistic missiles to the Saudis. In 2007, China sold Dong Feng(DF) 21 medium range ballistic missiles with the tacit approval of the US Central Intelligence Agency(CIA). Saudi Arabia is the largest supplier of crude to China. According to the International Monetary Fund(IMF), trade between the two countries increased from US $1.28 billion in 1990 to US $ 74 billion in 2012.   China’s demand for oil is expected to grow from 6 million barrels per day to 13 million barrels per day by 2035. In order to diversify its sources, China has naturally looked towards Iran.

China played an important role in lifting the UN sanctions against Iran. It was a key negotiator with US and other permanent members of the UN to persuade Iran in capping its nuclear program.  So it was not a surprise that Xi Jinpeng was the first world leader to visit Tehran after sanctions were lifted on January 17, 2016. China and Iran have agreed to enhance security cooperation through intelligence sharing, counter-terror measures, military exchanges and coordination.  Iran is a crucial link in the strategically ambitious China’s ‘One Belt One Road'(OBOR) project. According to a Chinese government report, OBOR aims to connect China with Central Asia, Russia and Europe (Baltic).  It will connect China with the Persian Gulf and Mediterranean Sea. With the US practically vacating the Middle East, China seeks to step in to fill the vaccuum.

As the US seeks to pivot to Asia-Pacific through Japan, allies in South East Asia and India, it is natural for China to enhance the contours of its relationships with countries in West Asia. China is in for the long haul. On the other hand, India has been trying to play catch up. It did not balance the relationships between the West and Iran during the economic sanctions. Suitably placed for negotiations role, it ceded space to China. With Chabahar project also getting delayed due to slow progress on India’s part, it shouldn’t surprise us if we lose it. Least of all to China.

 

Guru Aiyar is a research scholar with Takshashila Institution and tweets @guruaiyar

Featured Image: Khezr beach, Hormuz(Iran), licensed from creativecommons.org

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Why is India hesitant in its policy towards Iran?

 The slow progress on Iran policy can have long term strategic implications for India

With sweeping changes occurring in West Asia after the lifting of sanctions against Iran by the US on 16th January, Iran is all set to play a major role in the geopolitics of this region. But India’s Iran policy seems to stuck in stasis. In May 2015, the long standing Chabahar port deal was finalised with Iran. The port is slated to be operational by the end of 2016. This will link India with Afghanistan and Central Asia. Calling off the sanctions is a welcome opportunity to be seized.  All indications towards the end of 2015 pointed towards this development and India should have been ready. It seems the government did not think that sanctions would be lifted so soon.

In a speech delivered at the India International Centre, Delhi on 18th January, Mr Gholamreza Ansari, Iran’s ambassador to India said, “In the changed circumstances in West Asian region, India cannot follow a policy of patient waiting any more. I have often been advised to be patient on big India-Iran projects. Does India want to wait for centuries before capturing the right opportunities?” Iran had asked India to conclude the bilateral agreement quickly at the Joint Commission Meeting(JCM) on 28th December 2015.  The main hitch was amendment to ‘withholding tax’ with which India exempted crude payments to Iran, if it was done in Rupees. There was a sense of urgency for this to be done before lifting of the sanctions. With sanctions gone, the need no longer exists as payments will have to be done in dollars. During the sanctions regime, Iran could not trade in dollars. It is free to do so now. There are no barriers to trade. The Indian products like Basmati rice, soyameal, sugar, and pharmaceuticals will have to compete with other countries.

Lack of coordination between ministries is also affecting the important Chabahar project. Iran wanted a loan for developing the rail network from port. In spite of the ministry of external affairs stressing the urgency, the department of financial services and ministry of railways did not move with the desired speed for reasons unknown. As per the deal in May 2015, the contract was supposed to be signed by November last year. If the government does not have the money, could it not invite the private sector? If sufficient guarantees of security is given, then private players will be willing to get involved. After all, there are other projects in Iraq and Syria worth thousands of crores that would interest them. The government only needs to give a push to get this going. After all, Modi is known for his clinical efficiency to get things done.

 

Guru Aiyar is a Research Scholar at Takshashila Institution and tweets @guruaiyar

Featured image: Holy shrine of Abdulazim in Tehran by David Stanley, licensed by creativecommons.org

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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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