With the US reimposing economic sanctions against Iran, there is mounting concern in Tehran over the fate of joint projects and agreements worked out in recent years with Bangladesh and India.
Iran faces an uphill task considering the massive relief it secured from the US and EU countries in 2016 when the sanctions were lifted. This followed in the wake of progress made in dialogue between Iran and the international community over the nuclear deal that was worked out, to stop Iran from weaponizing its nuclear development program.
One estimate at the time indicated that after the lifting of sanctions, Iran could immediately access blocked funds of over $100 billion, as the deadlock in project implementation, collaborations, and economic transactions finally ended. Thanks to the US, the relief Iran experienced was all too brief to matter.
In terms of volume, the extent of Bangladesh-Iran bilateral trade or the India-Iran trade is not significant.
But this does not mean that its financial dealings with the two large, emerging South Asian economies, both reporting a steady annual economic growth rate between six and eight percent, is not important to Tehran.
Iran enjoys a hefty balance of trade advantage vis-à-vis both Bangladesh and India. Maintaining a positive trade balance with as many countries in the world as possible is top priority for Iran in the medium term.
At present, bilateral trade between India and Iran stands at nearly $13 billion. Iran exports items – mainly oil – worth nearly $9 billion to India, while India exports around a third of the amount, leaving Teheran with a healthy surplus. Indian exports are mostly restricted to agricultural items – in value terms, Basmati rice accounts for nearly 30% of its export earnings from Iran.
Therefore, a surplus of $6 billion annually in bilateral trade is certainly a major help to any economy, including Iran’s, especially because it was strapped for cash until recently. In case US sanctions also target strongly Indian parties and investors participating in bilateral ventures now, the going will get grim for Iran.
The bilateral Bangladesh-Iran trade is much smaller. Here too, the balance is overwhelmingly in favour of Iran. If Western sanctions make things difficult for Bangladesh to involve itself more deeply with Iran, the latter would suffer more.
Between 2005 and 2013, Bangladesh managed to increase its exports from $38.9 million to $75 million. Its imports were worth much more. Now that Bangladesh’s economy has grown stronger with an annual GDP of around $250 billion, with a rising annual growth rate, Iran would have found it easier to export more items in the normal circumstances. The two countries also have a free trade agreement.
Iran has helped Bangladesh develop its energy sector in recent years, helping with building the Eastern refinery. It was considering especially favourable rates for Bangladesh for its prized light crude. It is keen to buy both jute and jute goods in larger quantities from Bangladesh.
India has chosen to react cautiously to the re-imposition of US sanctions, by taking up the matter at a diplomatic level. Foreign office spokespersons have told the media they are “monitoring further developments.”
There is concern over the prospects of the trilateral Chabahar port project where Iran partners with Afghanistan and India. If progress is stalled in this project, China and Pakistan would get a major boost in their ongoing joint CPEC project, which ironically will not please the US.
During Prime Minister Narendra Modi’s last visit to Iran, 12 trade and business agreements were signed. When Iranian President Hassan Rouhani visited India earlier this year, the two countries finalized nine more agreements which included specific projects. Free of sanctions in 2016, India bought more oil from Iran, making Teheran Delhi’s third largest supplier.
To evade the sanction-imposed restrictions, Iran and India may resort to their old proposal to replace the US dollar as a medium of exchange and do much of their oil and other trade using the rupee and the rial. There is also a provision for using wheat, rice and medicines, among others, as items for exchange.
Similarly, with strong support against the US sanctions from Germany, France, and the UK and Russia, Iran may use the euro instead of the dollar in their dealings. This plays well with the more ambitious and long-term plan of China and Russia, and, by extension, of the BRICS and SCO member countries, to marginalize and weaken the US dollar by using their own currencies like yuan, ruble, and rupee more widely.
For now, suffice to say that increasingly the US/EU are learning the hard way that economic sanctions used mindlessly or too often, harm the economies of the sponsoring nations in the long term and the progress of the world economic order generally.