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Price of oil: India is the world’s third-largest oil consumer with Iran being its third-largest oil supplier after Iraq and Saudi Arabia. Fresh US sanctions on Iran could well lead to oil prices skyrocketing, which will hit India – which was already feeling the price pressure before the US scrapped the deal – badly. As it is, even before the US action, the World Bank had projected a 20% jump in global prices of energy commodities, that is crude oil, gas and coal, this year. All of this will in turn pressure the rupee, push inflation higher and send GDP lower.
India’s relations with US, Israel, Saudi Arabia: Even as it has sought to enhance ties with Iran post the Obama nuclear deal, India has forged closer relationships with the US, Israel and Saudi Arabia. The latter two have hailed Trump for scrapping the nuclear deal with Iran and this puts India in a very sticky position. Does it follow the US’s lead and in turn keep Israel and Saudi Arabia happy or can it strike a delicate balance to maintain all four relationships.
Chabahar port development project: India has committed more than $500 million to develop the strategically located Iranian port of Chabahar, This project, which is already facing delays, could become a sticking point against India for the US, if New Delhi furthers investments in it. The port, located on the Gulf of Oman, only 85km from China’s Gwadar port in Pakistan, is important for India as it will allow it to bypass Pakistan in accessing Afghanistan and Central Asia. The Chabahar port will cut transport costs/time for Indian goods by a third. The port is likely to ramp up trade among India, Afghanistan and Iran in the wake of Pakistan denying transit access to New Delhi for trade with the two countries. The first phase of the Chabahar port was inaugurated in December last year. In February, India and Iran signed a pact that gives New Delhi operational control of a part of port for 18 months.
Regional influence: Whatever India decides to do vis-à-vis Iran it will be caught between a rock and a hard place. If it follows the US lead and draws away from Iran, it will leave a hole will give China, and by association Pakistan, will be only happy to step in. Already feeling encircled by China’s growing influence in the region – especially with Nepal, Sri Lanka and the Maldives – India will not want to lose what little edge it has in maintaining some sort of geopolitical balance. Already, anticipating Trump pulling out of the nuclear deal, Iran shocked India by inviting Pakistan and China to participate in developing the Chabahar port.
Shanghai Cooperation Organisation (SCO) membership: China has made noises about admitting Iran to the SCO. China’s ‘all-weather friend’. If that happens, the SCO will count China Pakistan, Iran and India among its members – a grouping that might seem like an anti-US axis. India won’t want to be viewed in that light.