Global Eye

Iran nuclear deal the good, the bad, the ugly

14 July, 2015 was a historic day in global diplomacy. The six major global powers and Iran finally reached an agreement, which will lift the long standing economic sanctions against Iran. The agreement has been hailed as historic and is expected to open a new chapter in Middle-East politics.
US President Barack Obama has taken the lead in negotiations, but has run into a fierce fight with the US Congress, which is opposed to the deal. Ever since the deal was struck, he has been constantly focusing on the fact that it has the potential to prevent Iran from developing a nuclear weapon.

As of now, the US Congress has a time period of 60 days of whether it wants to stop President Obama from going ahead and enact a legislation to impose new sanctions on Iran. However, Obama is sticking firmly to his stand and been firing a volley of statements to defend himself. He said: “I am confident that this deal will meet the national security needs of the United States and our allies, so I will veto any legislation that prevents the successful implementation of this deal”.

He also added: “If 99 per cent of the world community and the majority of nuclear experts look at 
this thing and they say this will prevent Iran from getting a nuclear bomb, and you are arguing either that it does not or that even if it does, it’s temporary then you should have some alternative.”

While the agreement seeks to remove sanctions linked to Iran’s nuclear development, other non-nuclear sanctions (For e.g. related to human rights violations) will continue. It is further expected to boost trade in the region. The various sanctions imposed by America, United Nations and other countries have severely affected Iran’s economy. Since 2012, estimate oil revenues of worth $160 billion have been lost. Furthermore, post the deal, Iran is supposed to receive more than $100 billion in frozen assets.

United States  and Iran relations
Iran and US had shared a cordial relationship since a long time. But the Islamic revolution in Iran in 1979 saw a major shift in bilateral relations, with US providing support to deposed leader Reza Shah, who had to leave the country as his government was overthrown and Ayatollah Khomeini became the leader. In retaliation to America’s support to Shah, a group of Iranian students attacked the American Embassy in Tehran and took hostages, to which the then US President Jimmy Carter responded sharply. Billions of Iranian assets, gold properties and bank deposits were frozen.

Further sanctions were imposed post Iraq’s invasion by Iran. Sanctions were imposed through the “Iran-Libya Sanctions Act (ILSA)” in 1996, but was renamed as “Iran Sanctions Act (ISA)” in 2006 as they no longer applied to Libya.

The act stipulated that all foreign companies which invest over $20 million for developing petroleum resources in Iran would be imposed with sanctions such as denial of export licenses for exports to the violating company, prohibition on designation as a primary dealer for U.S. government debt instruments, denial of export licences for exports to the violating company, etc.

Background of Iran’s Nuclear Programme
Iran’s nuclear programme was initiated by erstwhile leader Reza Shah on 5 March, 1957, who launched it along with support from US, with an objective for cooperation in peaceful uses of atomic energy. US even supplied a five Megawatt research reactor to the Tehran Nuclear Research Centre in 1967.

In 1968, Iran signed the Nuclear Non-Proliferation Treaty in 1968, which made International Atomic Energy Agency (IAEA) verification mandatory for Iran’s nuclear programme.

Post the 1979 revolution, Khomeini terminated the nuclear programme. But in 1984, the nuclear programme was renewed and international support was sought to continue building the 
Bushehr reactors.

In 1992, IAEA officials visited the nuclear facilities in Iran and reported that the activities were in compliance with the peaceful use of nuclear energy.

In 2011, an IAEA study reported that ran had been doing research and experiment aimed at designing a nuclear bomb until 2003. From 2006 to 2010, UN Security Council passed multiple resolutions which mandated halting of Uranium enriching activities by Iran. The negotiations to resolve the issue between Iran and the United States, Russia, France, the United Kingdom, China, and 

Germany (known as P5+1 group) have seen significant progress under President Hassan Rouhani, which finally culminated into the recent deal

Overview of the nuclear deal
As per the negotiated agreement, Iran is supposed to adhere to the following conditions:
l Iran’s long-term plan includes certain agreed limitations on all uranium enrichment and uranium enrichment-related activities including certain limitations on specific research and development (R&D) activities for the first eight years, to be followed by gradual evolution, at a reasonable pace, to the next stage of its enrichment activities for exclusively peaceful purposes.

l Iran will begin phasing out its IR-1 centrifuges in 10 years. During this period, Iran will keep its enrichment capacity at Natanz at up to a total installed uranium enrichment capacity of 5060 IR-1 centrifuges. Excess centrifuges and enrichment-related infrastructure at Natanz will be stored under IAEA continuous monitoring. Iran currently has about 19,000 IR-1 and advanced IR-2M centrifuges installed.

 For 15 years, Iran will keep its level of uranium enrichment at up to 3.67 per cent.

l Iran will refrain from any uranium enrichment and related R&D and keeping any nuclear material at Fordow (it is an underground uranium enrichment facility in Iran) for 15 years. Currently, Iran has 2700 IR-1 centrifuges installed at Fordow of which 700 are enriching Uranium.

 Iran will convert the Fordow facility into a nuclear, physics and technology centre. 

 During the 15 year period, Iran will keep its uranium stockpile under 300 kg of up to 3.67 per cent enriched UF6 or the equivalent in other chemical forms. Iran currently maintains a stockpile of about 10,000 kg of low enriched UF.

 All other centrifuges and enrichment-related infrastructure will be removed and stored under IAEA continuous monitoring.

Opposition by Israel and Saudi Arabia
The move hasn’t gone down well with two key US allies – Israel and Saudi Arabia. Israeli Prime Minister Benjamin Netanyahu criticised the deal vociferously and made his displeasure quite clear. He said: “We think this is not only a threat to us. We think this is a threat to you as well. Iran has killed more Americans than anyone other than al Qaeda. They’re going to get hundreds of billions of dollars to fuel their terror and military machine.”

In April 2015, Israel had even threatened to initiate military action to prevent Iran from developing a 
nuclear weapon and putting Israel’s security in danger.

For Saudi Arabia, Iran poses a threat for leadership in the Middle East Muslim world. While Iran 
supports President Bashar Al Assad, Saudi Arabia has been supporting rebels which aim to topple the Assad regime. There are also concerns that the new deal might increase the bonhomie between Iran-US, which could see Iran toppling Saudi Arabia as America’s chief ally in the Middle East.
Impact on the global oil market

With the lifting of sanctions, crude prices will have the major impact. Post the new deal, the global oil prices, which is already on a downtrend, are expected to go further down with Iran’s oil produce. According to the US Energy Information Administration, Iran has the world’s fourth largest oil reserves; therefore, oil firms will be extremely elated with this deal. After announcement of the deal, oil prices reported a dip. More oil from Iran in the market will mean that Organisation of petroleum exporting countries (OPEC) and oil producing countries will face a tough time to balance the oil prices. As the sanctions are lifted, Iran is likely to bombard the global crude oil market with its produce putting further pressure on the prices, which are already on a downtrend. 

Will India benefit from the deal?
The biggest advantage for India is going to come from lower crude prices according to Union Minister for Petroleum Minister Dharmendra Pradhan. India is Iran’s second biggest oil buyer (first being China) and imported around 11 million tonnes of crude oil in 2014-2015. It’s reduced oil imports from Iran under pressure from sanctions, is expected to increase.  

But manufacturing sector might have to face some tough times. “Indian exporters will have to compete with Eastern European manufacturers who produce low-end products like spanners, hand tools and auto parts. Since the value of the euro has depreciated in the last few years, we will be facing stiff competition from European manufacturers,” said Ajai Sahai, Director-General of the Federation of Indian Export Organisations, according to a report in BBC.

Further, lifting of sanctions against Iran will enable Indian firms to participate in the road and rail projects. The Kazakh-Turkmen-Iran rail link can be connected with Chabahar Port. New Delhi is keen to operationalise the International North South Transportation Corridor via Iran to connect Central Asia in a smooth fashion too. Besides, India wants to negotiate FTA with the Eurasian Economic Union comprising Russia and five other former Soviet republics and expanding footprints in Iran can support New Delhi’s expansion”, according to a report by Economic Times. 

Source: Official US government documents, research papers

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