The use of military power to influence hostile countries and attain foreign policy objectives is not a practical option anymore. This is especially true for powerful, developed countries like the US. Given the severe financial repercussions and weakening domestic support for such costly endeavours, the US is increasingly making a case for the use of economic sanctions as a policy tool.
Economic sanctions are not new, but under the Trump administration, it seems to be the preferred alternative to deal with both friends and foes. The US Department of Treasury has an increasingly long list of individuals, corporations and countries on whom restrictions are being imposed. The measures can range from a simple set of tariffs to a full-blown economic blockade. These measures can sometimes be unfair.
Last year, the US had a change of mind and decided to ignore the 2015 Iran nuclear accord that it signed with its longtime foe after much deliberation. The historic pact sealed during Obama’s tenure ensured that in exchange for lifting the crippling economic sanctions, Tehran would give up a bulk of its nuclear programme and would also submit itself to extremely invasive inspections from time to time.
US President Donald Trump signs a proclamation declaring his intention to withdraw from the JCPOA Iran nuclear agreement in the Diplomatic Room at the White House in Washington, US, May 8, 2018. Credit: Reuters/Jonathan Ernst
It was signed by the US along with other members of the UNSC, Germany and the EU. The US now wants to renegotiate the deal and has reimposed sanctions on Iran. To increase pressure on Tehran, a few days ago, secretary of state Mike Pompeo announced the cancellation of sanctions waivers. This was done to bring Iranian exports down to ‘zero’.
Also read: The US-Iran Conflict Is Heading Towards a Point of No Return
Eight countries, including India, that were allowed to buy Iranian oil have also now been barred from doing so and will face secondary sanctions if they refuse to comply. The deadline to stop the imports from Iran is May 2. And although India has indicated acceptance, the question remains – should it comply with the US’s directive?
India is the world’s third largest oil importer, and a large share of that comes from Iran (23.5 million tonnes in 2018-9). Not only is Iran India’s third largest supplier (vs just 3% of oil imports from the US), it does so on very sweet terms – with 60-day credit, free insurance, free on board (FOB) basis and a barter-of-goods arrangement.
India and Iran have a deeply historical and cultural relationship, especially important in the fractious Middle East. Stopping imports will hurt. International crude prices have already jumped – oil is over $74 a barrel. As consumers, we have been lucky so far, as it has not been reflected in the domestic prices of fuel, because of the Lok Sabha elections. But chances are that after May 19, the oil marketing companies will swing into action, resulting in a spurt of petrol and diesel prices.
There is a temptation for political leaders to announce high profile actions that popular attention immediately. “Anyone doing business with Iran will not be doing business with the United States,” tweeted the US president. This is not a statement that suggests diplomacy or tact; it sounds like a blatant threat.
But the fact is that despite all the sound and fury, it will not be easy for the Trump administration to implement the same. Europe has refused to fall in line and is looking at options. A defiant Iran, in retaliation, has threatened to block oil tankers plying on the strategic Strait of Hormuz, which in turn will flare up prices.
Also read: As China, Turkey Slam End of US Waiver, India Indicates It Will Stop Iranian Oil Imports
Saudi Arabia and UAE will have to make up for the loss of Iran’s two million barrels of oil a day, and they might not want to sustain higher production levels for very long. The world would need an adequate replacement of energy supplies to compensate for the shortfall.
There are studies that suggest that the excessive use of sanctions will lead to a sanctions fatigue and international compliance will be inclined to fall. America must realise that a unilateral decision on sanctions will be difficult to execute. Multilateral cooperation is the route to diplomatic success – a fact that Washington is choosing to ignore.
In this scenario, we need to ask if India has a choice. It has always been tricky to navigate international relations, balance power dynamics and institutional agreements when it comes to oil. And this time too, there can be no easy solution.
For so long India has taken for granted that the US is a global superpower. It takes time to change mindsets, but it is becoming obvious that the world order is gradually shifting. The US is beginning to lose its hegemonic position and it is not so easy for it to dictate terms to allies or bully foes.
Opinion polls suggest that confidence in the US is falling across the world. Countries are beginning to question its actions and are also collaborating to develop alternate plans. Just recently, despite grave warnings from the US, Britain decided to allow the Chinese firm Huawei, the world’s biggest telecom equipment supplier, to participate in the rollout of its 5G plans. Huawei is a part of the larger stand-off between China and the US.
Presidents Tayyip Erdogan of Turkey, Vladimir Putin of Russia and Hassan Rouhani of Iran meet in Sochi, Russia, November 22, 2017. Credit: Reuters
Turkey, another trusted NATO ally, is going ahead with a Russian defence deal despite US objections, risking potential sanctions under CAATSA (Countering America’s Adversaries Through Sanctions Act). Washington is also threatening to punish Egypt over a Russian arms deal, but negotiations continue.
Also read: Trump Must Avoid Trade Wars to Make America Great Again
The EU is one of the US’s most trusted partners, and yet it publicly disagrees with the country’s stances on many issues. It has condemned Trump’s policy to sanction Cuba and outlook towards Iran.
The opposition isn’t just limited to being critical of American actions. There is also a concerted effort to break American hegemony. Aware that most of the US’s clout lies with its dominance in the financial markets, France, Germany and the UK are setting up a financial system designed to avoid US sanctions, especially against Iran.
Power equations are changing. We were used to thinking and treating the US as a superpower, a dominant force that maintains world order – perhaps it is time to think differently.
Ekta Kumar is a chartered accountant and holds an MBA from IIM Calcutta.