Iran - US Conflict and its impact on the world. - Seeker's Thoughts

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Friday, 28 June 2019

Iran - US Conflict and its impact on the world.

Iran's foreign minister- Zarif has dismissed US President Donald Trump's claim that a war between their countries would be short-lived, as Washington sought NATO's help to build an anti-Tehran coalition. During June 2019, the heat between these two nations has been growing. 
Hassan-Rouhani-Iran's-President
Picture Credit- Reuters



Iran said on 8th May 2019 that it had stopped respecting limits on its nuclear activities agreed under a 2015 deal with major powers until they find a way to bypass renewed U.S. sanctions.


The announcement came as Washington accused it of planning “imminent” attacks and deploying an aircraft carrier strike group with several nuclear-capable B-52 bombers to the region.

Sanctions on Iran by the US – The impact on the world.



United States of America and Iran has a long history of conflict. In April 2019, the US demanded all countries to put a full stop to oil imports from Iran or else face sanctions.



This certainly will impact on the country which have been importing oil from Iran. Most probably the impact will be on India which remains one among the biggest importer of oil from Iran.


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The oil market ferments once again with a great deal of uncertainty over supplies. The United States announced that it would not extend beyond May 1 the 180-day waiver it had granted to eight countries, including India, to purchase oil from Iran. 




The History of the United States and Iran’s Conflict





The Shah Pahlavi of Iran was a strong ally of the United States and fully supported by the U.S. but he was overthrown by supporters of a man called Ayatollah Khomeini in 1979. Shah Pahlavi fled into exile, still supported by the US whose president at the time was Jimmy Carter.


The-shah-of-Iran


In 1979, a group of Iranian demonstrators took over the US Embassy in Iran and took a number of embassy staff as hostages. The Iran government was then run by Ayatollah Khomeini and his theocrat supporters. They demanded ransom; the US refused. The US also attempted to rescue the hostages unsuccessfully.
Hostage-crisis-of-Iran
Picture Credit- Britannica 


This is what provoked the hostilities which we still see today between the US and Iran.  The United State and Iran have been having a series of conflict and the US has imposed various sanctions against Iran.
 
Since 1980 both countries have no diplomatic relations and all the contacts are carried out through the Iranian Interests Section of Pakistani Embassy in Washington, DC and the US interests’ section of the Swiss Embassy in Tehran. So, there are no direct talks with the United States in 2018.
Iran faced a huge economic crisis and signed a nuclear accord with World Powers. America withdrew from the accord and imposed sanctions.  Iran challenged those sanctions in the International Court of Justice in July 2018.

International Court of Justice Ruling was against the sanctions

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 America justified its sanction in International Court of Justice, however, The United Nation’s highest court ordered on 3rd October 2018 to the United States to lift sanctions on Iran that affect imports of humanitarian goods and products or services liked to the safety of civil aviation.  

This decision is legally binding; however, US administration may or may not comply with it as there are no forces to make America do so.


The court instructed Washington to remove sanctions as export of medicine, devices, food, agricultural commodities and spare parts to Iran was needed to ensure civil aviation.

The court said that the Trump administration must “ensure that licenses and necessary authorizations are granted” and payments not restricted if they are linked to the humanitarian and aviation goods.

The court also told both the United States and Iran to “refrain from any action which might aggravate or extend the dispute.”

Iranian state television trumpeted the court’s decision in a scrolling graphic at the bottom of TV screens: “The victory of Tehran over Washington by the Hague Court.”

However, after the court ruling, the US has canceled the treaty of 1955 at which the case was based, and this is not the solution for the conflict between both the nations. 
Moreover, this step could not stop sanctions. Instead, United States threatened other nations to follow sanctions as well.




The Impact on the world by Iran’s sanctions





When the United States in April 2019 threatened the world to put a full stop to oil import from Iran or face sanctions, the Indian government also indicated that it would have zero imports after May 2, 2019.


India has been a long term oil importing country from Iran. Previously even when there were sanctions, India continued to import as it has huge consumption of oil.  


India was importing about 10% of its oil needs from Iran, although it had considerably reduced its intake over the last few months as India wanted to focus on alternative and cleaner fuel as stated by an Indian minister.


The U.S. has made it clear that Indian companies that continue to import oil from Iran would face severe secondary sanctions, including being taken out of the SWIFT international banking system and a freeze on dollar transactions and U.S. assets.





In response, Indian importers, including the oil PSUs, have decided that sourcing oil from Iran is unviable at present. As a result, the government is seeking to explain the decision as a pragmatic one, taken in India’s best interests.





Officials point to the six-month reprieve, from November 2018 to May 2019, that they received from the U.S. in the form of sanctions waivers to import Iranian oil, and the exemption to continue developing the Chabahar port, as positive outcomes of the negotiations over the past year.


This caused the price of Brent crude oil to witnessing a sudden jump to more than $75, from last week’s close of $71.97, as traders expected the withdrawal of the waivers to adversely affect the supply of oil in the market.


The price of Brent crude has been rising steadily in the last few months and has increased by almost 50% since it hit a low of about $50 in December, as a result of the decision of the Organisation of the Petroleum Exporting Countries (OPEC) to restrict their output to boost prices.


India imports more than 10% of its crude oil from Iran, so the government faces the immediate challenge of having to find alternative suppliers to meet its huge energy needs.


Even more worrying is the likely negative impact higher oil prices will have on India’s current account deficit, fiscal deficit and inflation in the wider economy. The current account deficit, which narrowed to 2.5% of GDP in the December quarter thanks to lower oil prices, will likely worsen going forward.

The fiscal deficit, which has been widening in advance of the elections, is also likely to get increasingly out of control. While inflation is relatively benign at the moment, any further acceleration in price gains will tie the hands of.

 It may, however, be hard to say for sure that the jump in the price of oil this week, and over the last few months, marks a secular rise in the price of the commodity. The entry of U.S. shale producers into the oil market has put a lid on the price of oil as freely competing shale suppliers have been happy to increase their output whenever oil prices rise significantly.

The oil market has been torn between the news of the end to the waivers granted to oil imports from Iran and competing news of the increased supply of oil pouring into the market from the U.S. Higher oil prices also make it lucrative each time for members of OPEC to cheat on their commitments to restrict supply.

If India is to protect its interests in the ever-volatile global oil market, the government will need to take steps to diversify its supplier base and also work towards increasing domestic sources of energy supplies. Opening up the renewable energy sector for more investments will also help avoid over-dependence on oil from the global market to meet the country’s ever-increasing energy needs.



What happens to Iran after sanctions?

According to a report published in counterpunch.org, the U.S. sanctions hurt the economy of the country. The price of products go higher, and rents go up every month. People even struggle with savings and salaries don’t rise.

People even struggle to afford ‘normal’ objects of daily use like a refrigerator. The number of street children increases.

Sanctions even suffocate people’s choice.

A young woman who had been accepted to college in London with a full scholarship had to decline the offer because her family could no longer even afford her plane ticket due to sanctions.”

Due to sanctions shipping and insurance companies are unwilling to risk doing business with Iran. Even though medicines are exempted from sanctions but certain life-saving drugs become scarce like cancer and diabetes.

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A way ahead

Re-joining the Iran nuclear agreement, lifting sanctions, and developing normal trade and diplomatic relations with Iran would empower the reformists and engage Iran in solving the conflicts that continue to plague the region. It would also ease the hardships affecting the extraordinarily gracious people who welcomed us with such open arms.

United states should also realize that it is not the government but people who suffer. Meddling into friendly relations of the country does not make United states a leader but bully in international community.   


Time is running out for European signatories to the nuclear pact to address Iran’s concerns


Iran’s decision to reduce its commitments under the 2015 Joint Comprehensive Plan of Action, which sought to curtail its nuclear capabilities, is more of a warning than a move to break the nuclear deal.


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