Iran’s Nuclear Deal: The Benefits For India

The Indian equity markets witnessed a high amount of volatility in the preceding week. While on one hand the RBI’s announcement on the INR front helped the indices move up, the news of an early QE taper saw the markets take a sharp downmove on Thursday (November 21, 2013). The scenario was quite dull and tepid on even on the last day of the week.

On Monday, the markets rebounded sharply based on the biggest positive news of the week. This news was about the landmark nuclear deal between Iran and the P5+1 nations – USA, UK, Russia, France and Germany. As per the deal, Iran will limit its nuclear programme and has agreed to give better access to inspectors. The country has agreed to stop enriching uranium beyond 5% (the level at which it can be used for weapon research). The deal also suspends the restrictions imposed on Iran’s trade in petrochemicals, gold, cars and plane parts.

While this is a global development, it has many indirect Indian connections. First and the foremost are the Indian Oil Marketing Companies (OMCs). They were trading in the positive zone, with significant gains as supply fears on the crude front are expected easing.

Earlier, the European Union had imposed sanctions on insuring tankers carrying Iranian crude, making it a risky trade. As the sanctions on insurance are removed, Indian oil companies can import the contracted volumes going ahead. India imports around 5 lakh tonnes of crude from Iran.

Anand Sharma (Union Commerce Minister) has stated that “India has throughout had a special relation with Iran, and we have always consistently maintained that a negotiated resolution of this issue, particularly the nuclear programme of Iran, should be there”. He further added that “As far as economic engagement with Iran is concerned, it has huge potential to grow manifold and we will be taking all possible measures which can improve trade with Iran”.

What are the other advantages of this? More than any direct impact, the deal releases the psychological pressure as it has managed to break the ice that had settled in for more than three decades. It would ease geopolitical pressures of the Middle-Eastern region.

Though India does not get any direct advantages from this deal, there are certain long-term benefits. The fall in crude prices would help in reducing worries on the inflation front. The only direct benefit would come from the fact that the payment process will ease out. Currently, the Indian government pays 55% in USD and 45% in INR. We are of the opinion that the deal is big positive for the markets in general and for the OMCs in particular.