On Tuesday, Iran made a decade long-awaited nuclear deal with US and other major nations . We had mentioned this in one of the previous blogs as to how it will affect the oil prices to reduce in case the nuclear pact comes through. Here’s a reference to that blog for a recap on the part of its effect on oil prices and its effects on Indian Economy :
In this article, we will focus on Iran Nuclear Pact and how it will have a positive effect on the Indian economy in the long-term.
To start with, let’s get a brief idea about why the deal came in existence in the first place. Iran in its early 2000s had started creating huge reserves and stockpiles of high enrichment uranium which can be used to create nuclear weapons. This was noticed by the world in its early stages because of Iran’s buying patterns as a country. With a good intent of avoiding the probably nuclear war, six countries started probing in the matter and asked Iran to stop fueling such deadly weapons. Despite warnings from various countries, Iran decided to keep fueling their nuclear weapons with uranium and also started importing additional gasoline. Finally, the countries together decided to stop this domination by creating an anti-trade situation with Iran in 2011, so that the economic conditions of the country is depressed and might bring a halt to the nuclear weapon creation. They were cut off from International Banking, International Finance, International Trade etc. The entire situation compelled Iran to stop its crude oil production in the year 2011, due to subdued demand from its top importers including the top two which were China and India. Iran thus had to reduce its oil production by almost 1.5 million bpd (barrels per day) from 2.5 M bpd to 1 M bpd a day, putting downward pressure on their exports. Since then, the deal talks have been going on which were finalized this week. The deal is expected to facilitate Iran’s economic revival in exchange of reduced uranium usage for nuclear weapons with immensely diplomatic norms.
Following are the aspects which were the key restrictions on Iran’s Uranium fueling:
- Stockpiles: Iran will have to give up almost 97% of its stockpile, which will bring their stockpiles down to 300Kgs from whopping levels of 10000Kgs and maintain such levels at all times.
- Enrichment: There are various levels of enrichment in Uranium, which range from 0 to 100%. Iran will be allowed to maintain only 3.67% enriched uranium. To explain how severe that is with relativity, a nuclear weapon uranium is enriched 97% while medical grade uranium is enriched by 20%. 3.67% enrichment will take them years to make a single weapon.
- Centrifuges: Iran will be giving up most of its centrifuges. It will cut down its centrifuge numbers from 20000 to 6000 only. Out of which 1000 will be used only for research and rest would facilitate their fissile.
- Inspections: There would be regular and stringent inspections on a timely basis to make sure that Iran does not by-pass the above mentioned norms.
In return, Iran will have their international trade sanctions lifted, which will help them revive their depressed economy. To be precise, what the six countries have done is they have put restrictions in a diplomatic way such that Iran can still make a nuclear bomb but the time they might take will almost be infinite. In technical terms, they have increased the “Breakout Time” for Iran. Breakout time is the time which is required to produce 1 nuclear bomb which was very low in case of Iran. Here’s a crisp image of the deal outcome:
The deal seems to be a win-win situation for both the parties only until Iran decides to by-pass the entire deal and keep producing the nuclear weapons. For now, it all looks fine. Looking at the past trends, this is how the deal looks like at the moment:
With all the diplomacy around, we (India) seems to be in its most comfortable zone. With Iran sanctions being lifted up, the crude oil supply might head north reducing the existing low levels of crude oil prices further. India, being the second biggest importer of crude oil from Iran is expected to be benefited from the conditions in terms of reduction in the CAD deficit. On the other hand, India and Iran had bilateral trade agreements which will again be revamped and reintroduced for better facilitation, especially with Iran being the biggest imported of Indian Basmati Rice. The NDA govt is also planning to complete long pending projects of setting up oil pipelines for crude oil import in the near future. To conclude, India is looking at its golden days up ahead in the coming years with CAD narrowing, Trade deficit narrowing and with almost predicted high levels of growth rates. Although the geopolitical scenario seems to be shaky globally, India is most definitely one of the most attractive emerging market economies.
Thank you. 🙂