No other development in international law has been more significant for India’s corporate and business sectors than the Iran nuclear deal. India’s businesses typically take no interest in geo-political issues but this is once that they ought to sit up and move in to exploit an advantage they would have over businesses from the western world.
The agreement between the Islamic Republic of Iran and the “P5+1” group (the five permanent members of the United Nations Security Council plus Germany) can truly be a game-changer for Indian industry. The western powers have historically tried (and failed) to cripple Iran into a banana republic, and the latter has fought back valiantly (and successfully). Germany alone has maintained robust trade relations, despite deep inconvenience. To cut a long story short, the sanctions against Iran by the western powers has gone way beyond what the sanctions by the United Nations legitimately endorse.
Sanctions by the United Nations are only restricted to arms, ammunition and contraband, while the sanctions from the western nations went beyond that and attempted to cripple the nation’s financial systems and channels of funds. The idea was to be coercive with the republic and get them to wind down a nuclear programme, which was feared to be convertible into a weapons programme, that Iran kept insisting was never about making warheads.
The bargain to resolve the impasse and lift sanctions has been inevitable in more ways than one. Against the teeth of the sanctions, Iran has built a reasonable quality in its infrastructure, good public transport, decent public health indicia, and consequently bolstered Iran’s resilient national pride. Iran’s own internal politics is complicated and divisive – just the same type of divisiveness that one sees in other democracies such as India and the United States.
The Department of Financial Services in the State of New York extracted an expensive settlement of $340 million from Standard Chartered Bank for allegedly helping Iran’s trades – this was among the settlements that sparked international literature on the extortionate state of the United States’ law enforcement policy, since defending oneself is so expensive that one would rather settle fights with state agencies. This was a case of a local prosecutor enforcing federal law – somewhat like Kerala Police harming entire careers of India’s space scientists on charges of espionage against India. Even larger settlements ($9 billion against BNP Paribas for allegedly facilitating trade with Iran, Cuba and Sudan) have reflected even more poorly on the US. Indeed, Coca-Cola and Pepsi-Cola are widely available in Iran due to exceptions on “humanitarian” and “food supply” grounds.
In the United Kingdom, the Supreme Court came down heavily on the government for harassing and seriously harming the interests of Bank Mellat, an Irani bank’s operations in the United Kingdom.
The upholding of the rule of law by the UK legal system in fact is still in play – proceedings for payment of damages by the UK to the bank are under consideration by UK courts now.
Gradually, the lawless means of hurting Irani interests, all in the name of safeguarding the world from weapons of mass destruction – a hollow phrase one has heard of earlier in the context of Iraq – had to give way. What does this mean for India businesses? If Indians get out of their stereotypical thinking and realise that Iran is neither like Saudi Arabia in cultural conservatism nor like Egypt or Morocco in being a pushover for other world powers, they would see the opportunities that abound there.
First, Islamic capital markets entail sophisticated derivatives contracts (using put and call options to get around sharia limitations on payment of interest) and market players are highly sophisticated in appreciation of financial products. Second, the release of sanctions would pose immense opportunities for Indian players active in the banking and financial services back office industries, more particularly for the information technology industry.
Third, and most importantly, if the agreement is operationalised, the sheer inability of an Indian business to trade with Iran because just doing so would lead to others who trade with these Indian businesses violating US laws would go away. India could well be the regional headquarters for multinationals entering Iran if India strikes good bargains with good treaties on investment protection and tax avoidance.
Contrary to popular western and Indian middle-class perception, Farsi is far closer to Urdu than to Arabic. India is also physically closer to Iran than to China and the United States. And, for the record, in the Ease of Doing Business survey report of the World Bank, Iran ranks 130 out of 189 countries, while India ranks 142. In enforcing contracts, Iran ranks 66 while India ranks 186. This is an opportunity that Indian businesses can only ill-afford to lose.
(This piece was published in my Without Contempt column in Business Standard edition dated July 20, 2015)