In the forthcoming week, the global markets will have to endure the implications of the contention of two historically “incompatible” nations – the United States of America and the Islamic Republic of Iran. It was USA’s diplomatically-orchestrated overthrow of Iran’s Prime Minister and his eventual replacement by the US-allied Mohammad Reza Shah in 1953, that initiated the beginning of an over six-decade-long conflict that plagued the two nations. Moreover, USA strengthened its grasp over diplomatic relations with Saudi Arabia – Iran’s arch-enemy – after the collapse of the Bretton Woods in 1971, which led to the advent of Petrodollars and establishment of America’s de facto dominance over the global markets.

However, by the end of the decade, Shah was forced in exile after the return of ultra-conservative Wahhabi Ayatollah Khomeini who invited a referendum which led to the formation of the Islamic Republic of Iran. His calculated exploitation of the Iranian people’s discontent over the growing dependence on the US led to the yearlong American Embassy hostage crisis, resolved by a great ‘cinematic’ extrication operation by the CIA (Hint: Argo).

The Deal The establishment of the conservative and polarized government marked the end of all diplomatic relations between the US and Iran, owing to the imposition of extensive sanctions on Iran by the US and its allies. 2015 saw the signing of the Joint Comprehensive Plan of Action (JCPOA) designed to peacefully end Iran’s nuclear program. The 10 year deal, signed between the P5+1 nations (Permanent members of the UN council plus Germany) and Iran, would have the International Atomic Energy Agency (IAEA) regulate and monitor the Iranian nuclear energy industries in exchange for a removal of the embargoes by the USA, EU and other allies who were not there in the P5+1.

It was considered a major success considering how Iran’s set of responsibilities clearly outweighed the reliefs it extracted from the deal. Restrictions like reduction in the number of centrifuges installed by over 75% and no enriched Uranium over 3.67% (as opposed to the weapon-grade 90% benchmark) limited Iran’s scope of action. IAEA, practically UN’s watchdog, was supposed to watch over the adherence to these restrictions. It could practically inspect all its nuclear facilities and their respect weapon-grade supply chains without hindrance from the government. Even the production capacity of the existing facility called Arak was proposed to be minimized.

The Call-off But when Trump stepped into the picture, he manipulated his conservative and prominently ignorant alt-right followers’ into validating their pre-existing Islamophobic biases by telling them that the deal had a ‘self-monitoring’ clause that was being violated. USA had no valid reason to pull out of the agreement, as is encapsulated by the US Secretary of State Mike Pompeo “But we know they’re cheating… we’re just not seeing it.” Not all P5 nations were satisfied with these profound justifications. British Secretary of State Boris Johnson vehemently opposed this withdrawal before his schedule was devoured by the Brexit mess. Floating speculation suggests that the US government had to succumb to Riyadh’s pressure to withdraw from the deal due to the conflict in interest that came with Saudi’s animosity with Iran. Although this can be refuted by the fact that Trump opposed the deal before he came into power and couldn’t have made a pact with Saudi back then, we cannot really say after the Mueller Report.

The Waiver Either way, the deal was called off, and the sanctions on Iran – and any nation that engaged in oil deals with it – were reinforced. But, some prominent nations (India, China, Japan, South Korea, Taiwan, Turkey, Italy and Greece) with whom the US could not hold back trade, were involved in bilateral trade with Iran. Meanwhile, a program called Significant Reduction Exceptions was introduced to their rescue. This six-month program ends on 2nd May 2019 and will, for certain, shake the world markets.

The Impact of Expiration Even though India, as per Indian Oil Corporation (IOC), has alternate sources like Kuwait, Mexico lined up, and Saudi Arabia has additionally pledged to ensure a smooth flow of supply, prices will certainly hike up. Iran supplied nearly 1.1 million barrels per day, and the markets are set to be short of nearly 800,000 barrels per day. Trump released a statement (on Twitter) saying that this need could be met by Saudi and UAE which can provide an additional 1.5 million barrels per day at a short notice. Although this seems unlikely, it will anyway increase global oil prices. The hike will push up India’s headline inflation ahead of the 2019 Parliamentary Elections of the nation which is already expected to raise the general price level. The local aviation sector, currently battling the major blow given by the Jet Airways crisis, will see hard times ahead. Even if the airlines had speculated their bets correctly, the stock will be impacted negatively because general market sentiment will go down. Evidently, the market going downhill will take its toll on the electoral psychology of the citizens.

Added to that is the impact this deal might have on India’s much anticipated Chabahar port project. Globally, it might induce a negative sentiment against the United States interfering with their profitable avenues since Iran has always been quite open to trading mechanism conditions being put forth by the nations, as verified by their agreement to deal in rupee last year. This trade obtrusion will give China another valid reason to lobby both – the Regional Comprehensive Economic Partnership (RCEP) and even the Belt and Road Initiative, which incidentally has its annual summit this week. Furthermore, the road potentially gets bumpy for the Middle East as well, if Iran decides to act upon its threats and utilise its Hormuz port as the choke point for blocking the Saudi oil supply for the world.

Now that there is no deal, Iran has no reason to hold back from developing its arsenal ammunition, which the deal had put off by at least a decade. Retrospecting all this global disruption and geopolitical havoc, without a single practical justification, boils down to only one reason – Donald Trump’s failure to keep his bigotry out of global relations.

By Riya Kaul