GS Paper 2

Context

The United States, under President Donald Trump, invoked Section 232 of the Trade Expansion Act to impose a 100% ad valorem tariff on imported patented drugs and Active Pharmaceutical Ingredients (APIs). The U.S. administration cited national security concerns

arising from excessive dependence on foreign pharmaceutical supply chains.

Why has the U.S. imposed the tariff?

The U.S. government highlighted that nearly:

• 53% of patented drugs consumed in the U.S. are imported.
• 85% of APIs are sourced from foreign countries.

This dependence is viewed as a strategic vulnerability, especially during geopolitical tensions or global health emergencies. Therefore, the tariff seeks to encourage domestic pharmaceutical manufacturing and reduce supply-chain risks.

Key Features of the Tariff Policy

1. Compliance Timeline
   • Large pharmaceutical firms have 120 days (till July 31, 2026).
   • Smaller firms have 180 days to enter compliance agreements.
2. Pricing Safe-Harbour

Companies can avoid tariffs till 2029 if they:

• Adopt Most Favoured Nation (MFN) pricing mechanisms.
• Commit to shifting manufacturing to the U.S.

3. Exemptions

The U.S. excluded:

• Generic medicines
• Biosimilars
• Orphan drugs
• Cell and gene therapies

These exemptions aim to prevent shortages of affordable and specialised medicines.

Impact on India

India is one of the largest exporters of pharmaceuticals to the U.S. However, the immediate impact is expected to remain limited because:

• Around 90% of India’s exports to the U.S. are generic medicines, which are exempt from tariffs.
• India mainly supplies low-cost medicines rather than patented drugs.

Nevertheless, the move reflects growing protectionism in global trade and could indirectly affect Indian pharmaceutical companies in the future.

Concerns Associated with the Move

Economic Concerns

• Higher tariffs may increase medicine prices in the U.S.
• Pharmaceutical supply chains could become more fragmented.

Trade Concerns

• The move may trigger retaliatory trade measures.
• It reflects increasing use of “national security” exceptions in trade policy.

Global Health Concerns

• Reduced global cooperation in pharmaceuticals may affect affordability and accessibility of medicines.

Significance for India

The development highlights the need for India to:

• Strengthen domestic API manufacturing.
• Reduce dependence on Chinese imports.
• Expand pharmaceutical innovation and R&D.

Government initiatives such as the Production Linked Incentive (PLI) Scheme for bulk drugs can help India emerge as a stronger pharmaceutical manufacturing hub.

Conclusion

The U.S. tariff on patented drugs and APIs marks a shift towards strategic economic nationalism in critical sectors such as healthcare. While India remains relatively insulated due to the exemption for generic medicines, the policy underlines the importance of resilient supply chains and self-reliance in pharmaceuticals.

Context

United States initiated a blockade on Iranian ports following the breakdown of diplomatic negotiations with Iran. The move has intensified tensions in West Asia and raised concerns over global energy security and maritime trade.

The blockade has significant implications for international shipping routes, especially around the Strait of Hormuz, a critical global oil transit chokepoint.

About Blockade

Meaning

• A blockade is a military operation by a belligerent state to prevent vessels or aircraft from entering or leaving an enemy’s ports or coastline.

Types of Blockades

Close Blockade

• Naval forces are deployed near the enemy coast to directly restrict access.

Distant Blockade

• Naval forces operate farther away due to threats from enemy missiles, submarines, or air power.

Features of the US Blockade

Impartial Enforcement

• The United States Central Command is enforcing the blockade on all vessels entering or leaving Iranian ports in the Arabian Gulf and Gulf of Oman.

Freedom of Navigation

• The United States stated that navigation through the Strait of Hormuz for ships travelling to non-Iranian ports will remain open.

Legal Requirements for a Valid Blockade

Formal Declaration

• International law requires official notification regarding the commencement and termination of the blockade.

Continuous Enforcement

• The blockade must be effectively maintained and applied impartially.

Lawful Objective

• It should pursue a legitimate military purpose and must not intentionally target civilian survival.

Effective Control

• The blockade must be enforceable with sufficient military capability, avoiding symbolic “paper blockades.”

Implications for India

Trade Disruption

• India–Iran bilateral trade worth nearly $1.1–1.2 billion may face disruptions.

Export Risks

Key Indian exports affected may include:

• Basmati rice
• Pharmaceuticals
• Engineering goods

Rising Shipping Costs

• Insurance premiums and freight charges may increase due to security risks in the Strait of Hormuz.

Import Challenges

• Imports of bitumen and methanol from Iran could be disrupted, affecting India’s construction and energy sectors.

Broader Global Concerns

Energy Security

• Any escalation near Hormuz can impact global crude oil prices and supply chains.

Maritime Stability

• Increased naval confrontation could threaten freedom of navigation in international waters.

Geopolitical Tensions

• The blockade may deepen regional instability involving Gulf countries and global powers.

Way Forward

• Promote diplomatic negotiations and de-escalation measures.
• Ensure adherence to international maritime law.
• Diversify energy sources and trade routes to reduce vulnerability.

Introduction

The decision of the United Arab Emirates to exit Organization of the Petroleum Exporting Countries and the broader OPEC+ alliance marks a major shift in global energy politics. After more than five decades of membership, the UAE’s withdrawal reflects changing geopolitical realities, economic priorities, and evolving energy strategies. The move comes at a time when global oil markets are already facing instability due to the US-Iran conflict and disruptions in West Asian energy routes.

The development has important implications for oil prices, energy security, and the future cohesion of OPEC itself.

OPEC: Origin and Evolution

OPEC was established in 1960 at the Baghdad Conference by five founding members:

• Iran
• Iraq
• Kuwait
• Saudi Arabia
• Venezuela

The organisation emerged in response to the dominance of Western multinational oil companies, popularly called the “Seven Sisters,” which controlled global oil pricing and production.

The primary objectives of OPEC are:

• Coordinating petroleum policies among member states
• Ensuring stable oil prices
• Securing fair revenues for oil-producing countries
• Maintaining reliable oil supply to consumers

The UAE joined OPEC in 1967 through Abu Dhabi and became an important oil-producing member of the organisation.

Currently, OPEC consists of 12 member countries, including Algeria, Libya, Nigeria, Saudi Arabia, Iran, Iraq, Kuwait, and Venezuela.

Emergence of OPEC+

In 2016, OPEC expanded its influence by forming OPEC+, an alliance between OPEC and major non-OPEC producers such as:

• Russia
• Mexico
• Kazakhstan

OPEC+ coordinates production quotas to regulate global oil supply and stabilise crude prices. Today, OPEC+ accounts for:

• Nearly 40% of global crude oil production
• Around 60% of internationally traded petroleum

This gives the grouping enormous influence over global energy markets.

Role of OPEC in Global Oil Markets

OPEC functions similarly to a “central bank” for the global oil market.

Production Quotas

The organisation regulates oil output through production quotas allocated to member states.

Market Stabilisation

During periods of weak demand, OPEC reduces production to prevent oversupply and falling prices.

Supply Expansion

When supply shortages emerge, OPEC can increase production to prevent excessive price spikes.

Revenue Stability

Since many member countries depend heavily on oil exports, coordinated production policies help stabilise government revenues and domestic budgets.

Reasons Behind UAE’s Exit

1. Geopolitical and Security Concerns

The ongoing US-Iran conflict has increased tensions in the Gulf region, especially around the Strait of Hormuz, through which nearly one-fifth of global oil trade passes.

The UAE fears disruptions to oil exports and regional infrastructure due to escalating conflict.

2. Constraints Within OPEC

Since OPEC operates through consensus-based decision-making, the UAE believes its flexibility in responding to regional crises and adjusting production levels is restricted.

Exiting OPEC provides greater strategic autonomy in managing energy exports and foreign partnerships.

3. Economic Diversification Goals

The UAE is pursuing long-term economic diversification through investments in:

• Technology
• Education
• Tourism
• Financial services
• Renewable energy

However, achieving this transition requires substantial financial resources. The UAE seeks to maximise oil production in the short term to generate higher revenues for funding diversification initiatives.

4. Production Capacity Concerns

OPEC production quotas limited the UAE from fully utilising its oil production capacity. The country increasingly viewed these restrictions as economically disadvantageous.

Impact on Global Oil Markets

Weakening of OPEC’s Collective Power

The UAE’s exit may weaken OPEC’s ability to collectively control spare oil production capacity and influence global prices.

Increased Market Competition

As an independent producer, the UAE may increase production aggressively to capture larger market share. This could pressure other producers to raise output as well.

Downward Pressure on Oil Prices

Higher supply and increased competition are likely to reduce oil prices in the short term. However, reduced coordination could also increase price volatility.

Greater Market Uncertainty

The fragmentation of OPEC could make oil markets more unpredictable, particularly during geopolitical crises.

Risk of Further Fragmentation

The UAE’s move may encourage other members to reconsider quota commitments, potentially weakening the long-term unity of OPEC+.

Implications for India

India, being one of the world’s largest oil-importing countries, could benefit from lower global oil prices.

Positive Impacts

• Reduced import bill
• Lower inflationary pressures
• Improved energy security
• Better fiscal stability

Potential Risks

• Greater price volatility due to weakened market coordination
• Geopolitical instability in West Asia affecting supply routes

India must therefore continue diversifying its energy sources and strengthening strategic petroleum reserves.

Conclusion

The UAE’s exit from OPEC marks a turning point in global energy geopolitics. The decision reflects broader shifts in economic priorities, regional security dynamics, and changing approaches toward oil market management.

While the move could weaken OPEC’s collective influence and increase competition in global oil markets, it may also accelerate the transition toward more flexible and diversified energy partnerships. For oil-importing nations like India, lower prices may provide temporary economic relief, but long-term energy security will continue to depend on diversification, strategic reserves, and the transition toward sustainable energy sources.

Context

United States and Iran announced a two-week ceasefire after more than a month of direct military confrontation in West Asia. Formal peace negotiations are scheduled to begin on 11 April 2026 in Islamabad under the leadership of JD Vance.

The temporary truce is viewed as an attempt to prevent further regional escalation and secure stability in critical energy and maritime routes.

Key Features of the Ceasefire

Diplomatic Negotiations

• Formal peace talks are expected to address regional security, nuclear concerns, and sanctions relief.

Strait of Hormuz Reopened

• Iran agreed to reopen the Strait of Hormuz for two weeks under military traffic coordination.
• The Strait is a critical global energy chokepoint through which a major share of world oil trade passes.

Iranian Demands

Iran’s 10-point proposal includes:

• Removal of primary and secondary U.S. sanctions
• Recognition of uranium enrichment rights
• War reparations
• Termination of UNSC and IAEA restrictions
• Control over Hormuz security arrangements

U.S. Position

The United States demands:

• Complete dismantling of nuclear facilities at Natanz, Isfahan, and Fordow
• Permanent guarantees against nuclear weapon development
• Strict monitoring mechanisms

Fragility of the Ceasefire

Regional Disagreements

• Washington excluded Lebanon from the ceasefire framework.
• Tehran insists on a complete halt to all regional hostilities.

Maritime Tensions

• Iran threatened to re-close the Strait of Hormuz if military operations against Hezbollah continue.

Nuclear Redlines

• The U.S. opposes any uranium enrichment activity.
• Iran seeks international recognition of its civilian nuclear programme.

Military Preparedness

• U.S. forces remain on high combat readiness, indicating the ceasefire remains conditional and reversible.

Global Significance

Energy Security

• Stability in the Strait of Hormuz is vital for global oil supply and energy prices.

Regional Stability

• The ceasefire could reduce tensions across West Asia and lower risks of wider conflict.

Impact on Global Diplomacy

• Negotiations may influence future non-proliferation frameworks and regional security architecture.

Challenges

• Deep mistrust between both countries.
• Divergence on sanctions and nuclear enrichment rights.
• Possibility of proxy conflicts disrupting negotiations.

Way Forward

• Strengthen diplomatic engagement through multilateral mediation.
• Ensure phased confidence-building measures.
• Promote balanced regional security arrangements and nuclear verification mechanisms.

Context

The 2026 U.S.–Iran conflict has emerged as a critical geopolitical test for BRICS. While the crisis has accelerated efforts toward financial and strategic autonomy from Western systems, it has simultaneously exposed deep internal divisions and institutional weaknesses within the grouping.

Strategic Advantages for BRICS

1. Voice of the Global South

BRICS has projected itself as a major representative of the Global South by:

• Maintaining relative neutrality
• Advocating diplomatic and multipolar solutions
• Criticising unilateral sanctions and military escalation

2. Push for Alternative Payment Systems

Sanctions on Iran accelerated the development of:

• BRICS Pay
• Local-currency settlement mechanisms These initiatives aim to reduce dependence on:
• SWIFT payment systems
• U.S. dollar-dominated transactions

3. Strengthening Non-Western Supply Chains

The crisis encouraged greater coordination between:

• Energy producers (Russia, Iran, UAE)
• Energy consumers (India, China)

to create resilient and non-Western trade corridors.

4. Currency Sovereignty

Regional instability increased momentum toward:

• Local currency trade
• De-dollarisation of energy transactions
• Financial sovereignty within the bloc

5. Growing Global Appeal

Many developing countries increasingly view BRICS as a shield against:

• Unilateral sanctions
• Western economic pressure
• Dollar dependency

Strategic Disadvantages for BRICS

1. Internal Fragmentation

Military tensions involving members such as Iran and the UAE exposed sharp internal contradictions and weakened bloc cohesion.

2. Geopolitical Paralysis

Divergent national interests prevented BRICS from issuing:

• A unified condemnation
• A formal collective response

This highlighted the absence of a common foreign policy framework.

3. Credibility Deficit

The grouping’s inability to:

• Protect Iran diplomatically
• Mediate the conflict effectively

reduced confidence in BRICS as a credible geopolitical alternative.

4. Chair Dependency

The contrast between Brazil’s active 2025 presidency and India’s cautious 2026 approach demonstrated that BRICS outcomes depend heavily on the priorities of the chairing nation.

5. Infrastructure Vulnerability

The conflict threatened strategic connectivity projects such as:

• International North-South Transport Corridor
• Chabahar Port

raising concerns over long-term trade security.

Way Forward for India as BRICS Chair

Institutional Mediation

India can propose a formal Conflict Resolution Mechanism to manage disputes among member states.

Currency Coordination

A common pricing and settlement framework for oil and gas can reduce dependence on the petrodollar system.

Infrastructure Integration

India should accelerate:

• Digital customs harmonisation
• Connectivity through INSTC
• Regional logistics integration

Energy Security Cooperation

An intra-BRICS Energy Security Pact can ensure stable hydrocarbon access during geopolitical crises.

Conclusion

The U.S.–Iran conflict has simultaneously strengthened and weakened BRICS. While it accelerated de-dollarisation and strategic coordination, it also exposed serious institutional and geopolitical limitations. For BRICS to evolve into a credible multipolar platform, it must move beyond symbolic solidarity toward stronger institutional cohesion and conflict-management mechanisms.