Story Of The Week

THE IRAN NUCLEAR DEAL

On 14th of July 2015, after months of arduous efforts, meetings and many negotiations, a breakthrough deal was finally struck between the P5+1 (the U.S., the U.K., Russia, France, China and Germany), the EU and Iran concerning the Iranian Nuclear Program. It was a day that was awaited by the entire world since the talks first started in 2006 and that is the reason why it is all the more important to understand the history of how all of this began.

A brief history of Iran’s nuclear program

The nuclear program of Iran started in the 1950s with the help of the United States of America as a part of the Atoms for Peace program. This program focussed on the adoption of the peaceful use of atomic energy rather than using the technology for destructive means. Therefore, the U.S. distributed various equipment and information, relating to nuclear technology, to countries with less advanced research in this field. In fact, Iran was amongst the first countries to benefit under this program as the U.S. built the first nuclear reactor for them. However, with the dissemination of nuclear technology information, it also became possible for some countries to develop nuclear weapons. The “Atoms for Peace” program also had a bearing on the formation of the International Atomic Energy Agency and the Treaty on the Non-Proliferation of Nuclear Weapons.

Iran had developed very close relations with the U.S. after the 1950s under the rule of the Pahlavi Dynasty. Mohammad Reza Shah Pahlavi was a pro-western monarch and he tried his best to westernize Iran.

However, this did not go down well with the conservative population of Iran and it resulted in mass protests against the Shah leading to the Iranian Revolution in 1979. Following the revolution, Iran declared itself an Islamic Republic and relations with the U.S. and many other superpowers worsened.

Post 1979, most of the nuclear powers had stopped providing support to Iran and thus, the Bushehr nuclear project was halted with one reactor being 50% complete while the other being 85% complete.

The U.S. cut off supply of highly enriched uranium fuel for the Tehran Nuclear Research Center, which left the reactor in an inactive state for many years. During the Iran-Iraq war, the Bushehr reactors incurred damage because of Iraqi air strikes, which further impaired the nuclear program of Iran. However, Iran was still focussed on pursuing its ambitious nuclear program.

It was in April 1984 that the news of Iran building a nuclear bomb first surfaced, courtesy, West German intelligence. Further investigation by the U.S. asserted that Iran was 7 years away from being able to build its own nuclear weapon. Iran invited IAEA officials in 1992 to inspect its nuclear facilities. The IAEA concluded that all activities observed were in accord with peaceful nuclear use norms.

However, in 2002, Alireza Jafarzadeh, a spokesperson for the National Council of Resistance of Iran, publicly revealed the existence of two nuclear sites under construction- a uranium enrichment facility in Natanz and a heavy water facility in Arak. These sites were not declared to the IAEA as required by the rules. This led to various negotiations between Iran and the world superpowers. Iran was directed to suspend its uranium enrichment facility or face sanctions because it could not be concluded whether or not Iran’s nuclear program was peaceful. Therefore, in December 2006, the United Nations Security Council imposed a series of sanctions on Iran. The sanctions weakened Iran’s capabilities of acquiring additional nuclear capabilities and weakened Iran’s economic activity, as it was isolated from the rest of the world. It was due to these harsh measures that Iran lost about $100 billion in oil revenues and foreign direct investment as of 2015.

The Agreement

After numerous negotiation meetings, Iran and the P5+1 came up with an interim agreement in 2013 in Geneva, officially titled, the Joint Plan of Action. The agreement constituted of a short-term freeze of some parts of Iran’s nuclear program in exchange for reduced sanctions. It was the first formal agreement between Iran and the U.S. in 34 years. This agreement led to the formation of the April 2015 framework agreement between the P5+1 and the European Union. The framework contained the agreement details related to enrichment, reprocessing, monitoring, and sanctions. The final agreement termed as the Joint Comprehensive Plan of Action (JCPOA) was finally signed on the 14th of July 2015 between the P5+1, European Union and Iran.

Highlights of the Deal:

Nuclear

  • The low-enriched uranium stockpile of Iran would be reduced from 10000 kg to 300 kg.
  • Iran would be limiting the enrichment of uranium to 3.67%.
  • The number of centrifuges with Iran will be reduced from 19000 to 6104, with only 5060 allowed to enrich uranium in the next 10 years.
  • All enrichment capabilities will be limited to the Natanz plant.
  • Iran will be allowed to use the IR-1 centrifuge but not the advanced IR-2M type.
  • The Fordow facility will not be used for any uranium enrichment for at least 15 years.
  • Iran will not build any new uranium enrichment facility for the next 15 years.
  • Iran will allow IAEA access to all nuclear facilities.
  • The number of IAEA inspectors assigned to Iran will triple from 50 to 150.

Sanctions

  • The U.S. and the E.U. would lift their nuclear related sanctions against Iran once the IAEA verifies that key steps have been taken.
  • Sanctions related to ballistic missile technologies and conventional weapons would remain for 10 and 5 years respectively.
  • Sanction against exports of Iranian oil to be removed.
  • Allow foreign firms to invest in Iran’s oil and gas, automobiles, hotels and other sectors.
  • Release of Iran’s frozen funds abroad, estimated at over $100 billion as of 2015.
  • All S.sanctions against Iran related to human rights abuses, missiles, and support for terrorism will not be affected by the agreement and will remain in place.
  • An automatic “snap back” provision will take effect if Iran violates the agreement.

The JCPOA is a detailed document and consists of 109 pages, including five annexes. The above details are a summary of the major points of the deal.

How the deal will affect India?

  • Oil imports from Iran would be much easier now because the sanctions have been lifted. However, India was paying Iran in Indian Rupees prior to the deal, which it would now have to pay for in US Dollars. In addition, the price of oil is expected to fall in the future, which would benefit a net oil-importing nation like India.
  • India has been exporting automobile components, tools, motors, and chemicals to Iran. However, with the sanctions lifted, there would be more competition in the market and Indian businesspersons are wary of this. They will now have to compete with Eastern European manufacturers who produce low-end products like spanners and auto parts.
  • India will also face stiff competition in infrastructure projects from foreign players.

References:

1) Everything you want to know about the Iranian nuclear deal:

http://www.economist.com/blogs/economist-explains/2015/04/economist-explains-3

2) Iranian Revolution:

https://en.wikipedia.org/wiki/Iranian_Revolution#Rise_of_Ayatollah_Khomeini

3) How Iran’s nuclear deal affects India:

http://www.bbc.com/news/world-asia-india-33547061

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4 replies »

  1. Very good write up overall !!
    It is a good signal for stability (less volatility) of world economy, especially for emerging economies like India and China where most of the industrial productions are based on fuels that are generated from crude oil and their cost of production was always vulnerable due fluctuation in crude oil price. Once the sanctions on Iranian oil are removed the supply of crude will not only increases but also stabilized and becomes more predictable thereby reducing the unnecessary hoarding and price of crude. As a result most of the developing countries including emerging economies will be benefited from relatively low cost of production, mild inflation as well as predictable doing business environment.

  2. Very Well written.. most people are aware about the recent developments but the fact that article contains the history very crisply is commendable.
    Applause to the junior batch.. continue the good work 🙂

  3. Well Written Article.:)

    Another impact of this deal would be on Power dynamics in middle east..Stronger and more acceptable Iran can tilt the stability in both ways..Israel called it a “Stunning historic Mistake” and Saudi Arabia is equally unhappy with it.This can increase the acrimony even more in sect divided Arabian countries.

    On the other hand, ending of cold war between US and Iran can work wonders in the region. Never ending war with ISIS and Bashar Hafez al-Assad ‘s Syria can be handled better and effectively if Iran and USA find their old friendship back in due time. Iran can be a strategic partner when it comes to Afghanistan also.

    Time will only tell that how the opening the West and Iran got via nuclear deal can be viewed as a bigger picture by both parties. Socially and political
    middle east is in best interest of the world and economic relationships can only be extended where stability precedes.

  4. Good write up!! Other notable benefits for India will be the new found accessibility to landlocked Eurasian countries and Afghanistan via Iran. There will be a galore of investment opportunities which India cannot afford to miss out. Afghanistan has a huge source of untapped gas and mineral resources which can be utilized by an energy hungry India to sustain its high growth aspirations.