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President Trump once referred to the accord as the “worst deal ever negotiated” and argues that the reinstated sanctions are necessary to bring Iran back to the negotiating table. According to the US Department of State, exactly why Iran needs to be forced to negotiate is clear: it argues that through state-sponsored terrorism “Iran’s regime has brought suffering and death to the world and its own people [and has] scarred countless lives.”1 US Secretary of State, Mike Pompeo, has argued that “The Iranian regime has a choice: it can either do a 180° turn from its outlaw course of action and act like a normal country, or it can see its economy crumble.”2
Perhaps unsurprisingly, news of the reinstated sanctions has been met with a measure of scorn (to put it mildly) in Iran; President Rouhani has vowed to “proudly break the sanctions” and “continue selling oil”.3 Indeed, exactly how effective the sanctions will be isn’t quite as clear cut as one might hope – without the support of the EU (which has stuck to the terms of the accord) and exceptions being made for eight major Iranian oil importers, including India and China, there remain some (albeit diminished) legal routes for Iran to do business with the world. Despite these concerns, Mike Pompeo claims that US pressure has already cost Iran US$2.5 billion in lost oil revenues since May this year.4
The fact that India and China (amongst others) have been granted temporary waivers is testament to their growing importance to the global oil market. President Trump himself stated that whilst he “could get the Iran oil down to zero immediately […] it would cause a shock to the market and [he] didn’t want to lift oil prices.”5
India’s continued economic growth is set to drive a surge in oil and natural gas consumption over the coming years, likely offsetting declining demand growth from more developed markets. According to the Financial Times, government figures show that there are roughly 230 million vehicles on India’s roads, but this market is still actually underdeveloped. Estimates show US$345 billion of investment will be needed to meet fuel demand by 2030.6 To meet this staggering demand, India has been pulling out all the stops to attract investors, including holding roadshows in London and emphasising attractive fiscal terms for exploration and production contracts. The CEO and Managing Director of Indian Strategic Petroleum Reserves, HPS Ahuja, was quoted as saying “India is a bright spot in the world economic order, where demand for petroleum products is on the rise. The primary energy demand of the country will almost double in the next 12 years.”7
The last decade was shaped by the growth of China – it looks like the next will be shaped by the growth of India.
1. ‘Select Iran-Sponsored Operational Activity in Europe, 1979 - 2018’ – https://www.state.gov/j/ct/rls/other/283789.htm
2. ‘Iran sanctions: US vows ‘relentless’ pressure as sanctions resume’ – https://www.bbc.co.uk/news/world-middle-east-46101703
3. ‘Iran sanctions: Rouhani defiant as US re-imposes measures’ – https://www.bbc.co.uk/news/world-middle-east-46094489
4. ‘India, China among eight countries exempt from US sanctions on Iran oil’ – https://economictimes.indiatimes.com/industry/energy/oil-gas/india-china-among-eight-countries-exempt-from-us-sanctions-on-iran-oil/articleshow/66520204.cms
5. Ibid. at 2.
6. Raval, A., ‘FT BIG READ. INDIA’, Financial Times, p. 11, (5 November, 2018).
7. ‘India stages roadshow in UK to attract investors for oil, gas sector’ – https://energy.economictimes.indiatimes.com/news/oil-and-gas/india-stages-roadshow-in-uk-to-attract-investors-for-oil-gas-sector/66438959