Indo-Iran trade

Now that the P5+1 countries have struck an interim nuclear deal with Iran which has limitedly eased off sanctions against it, India feels relieved from the frustrated pressure of Western sanctions that had disabled India and Iran to enhance their indispensable bilateral relations.

In addition to Iran-US relations being at their worst for the past 35 years and Iran’s ongoing influence in Iraq during US’s occupation of Iraq, the West had slapped heavy sanctions on Iran following its refusal to stop its uranium enrichment facilities since 2002. As a result of the western sanctions on Iran, India was forced to cut imports of crude oil from Iran.

Now, the ongoing shift in US-Iranian relations is finally allowing New Delhi to capitalize on this opportunity, slowly, but steadily.  The interim US- Iran accord that was concluded at Geneva in November last year increased optimism that Tehran was on its way to international rehabilitation. They have already begun talks to enhance ties in trade and the energy sector. Indeed, blooming bilateral ties between India and Iran can be a highly strategic game-changer not only for the region, but also for the broader strategic calculations with respect to USA, Pakistan and Afghanistan’s future.

Common links

India and Iran have shared historic ties for centuries, which make them natural friends. It started with the migration of Parsis to the India, following the Islamist invasion of Persia, modern day Iran. Thereafter, the Parsi community in India became one of the largest minority groups in India and this commonality enhanced further ties between the two nations.

India also houses the second largest number of Shia Muslims, second only after Iran.

Through centuries, their ties have been nurtured through cultural similarities, widespread trade in goods like spices and handicrafts, and people-to-people contact.

Both have particularly tense relations with Pakistan, which binds them closer as well. In fact, India and Iran also covertly conducted joint exercise to combat the rising threat from Taliban and Pakistan sponsored extremism during Afghanistan’s civil war. Tehran and New Delhi cooperated with Moscow, to expand influence in Afghanistan, along with the northern partner- Tajikistan.

On a bilateral level, India went on to becoming a major importer of Iranian crude oil. In fact, from the regularly emphasized historical and cultural ties, what now seems to be the major common ground and shared interest is energy, of which India is extremely hungry and Iran has plenty.

Iran also supplies Hydrocarbon to India, which is significant because apart from India, Iran only supplies this resource to Turkey, Russia and China.

Before the 2012 sanctions on Iran, India was the second largest importer of Iranian crude oil, importing between 3, 50,000- 4, 00,000 barrels a day. However, since 2012, India’s crude oil import from Iran dropped to around 2, 00,000 barrels a day in 2013.

The Western imposed sanctions, because Iran failed to end its uranium enrichment program, indeed spelled worry for Indo-Iranian ties. India had to succumb to international pressure and drastically minimize trade ties.

However, hope was revived when, in a diplomatic effort to ease tensions, US President Barack Obama and Iranian President Hassan Rowhani spoke directly to end 35 years of hostility.

The interim deal and possible rapprochement gave the Indian government a golden chance to pick up where it left off and begin talks of re-starting trade relations and other projects.

Following the Geneva interim deal and the partial ease of sanctions against Iran, India announced that it would pay the US$ 1.5 billion to Iran for its oil imports. India owes Iran approximately US$ 5.3 billion for its oil imports. Under the Geneva agreement, the P5+1 countries agreed to provide Iran some sanctions relief, including access to US$4.2 billion of its frozen oil revenue. India and Iran decided to pay the funds in eight transfers.

Also, India has already increased its oil imports from Iran. In January 2014, Iranian oil exports to India reached 412,000 barrels a day, a rise from 189,000 in December 2013. This indicates that Iran could easily revive its market in India once a further relaxation of sanctions allows. Conversely, the Indian energy market has the same to gain.

Energy quest

India and Iran jumped to the opportunity when Iran’s Foreign Minister Mohammad Javad Zarif paid a visit to India recently to renew efforts to get the strategic Chabahar Port project off the ground. Already, two of India’s largest state owned ports – the Jawaharlal Nehru Port and Kandla Port have helped develop loading facilities and dry bulk handling facilities at Iran’s Chabahar Port respectively.

The Chabahar Port is partially India’s answer to China’s stipulated ‘string of pearls’ all along the Indian Ocean basin, which India treats as a direct threat to its sphere of influence. In addition, China is developing the Pakistani port of Gwadar, which is only 72 kilometers away from Chabahar, a move India considers provocative.

While an easily accessible trade route to Central Asia and the Middle East is India’s primary interest behind investing in Chabahar Port, easy access to Afghanistan is another important consideration. India invested in building a strategic road in 2009 which connected Afghanistan’s south-eastern provinces with its main highway and ultimately to Iran, so that it had easy access to the region by by-passing Pakistan completely.

Iran has also been increasingly interested in developing its trade infrastructure because Iranians are interested in making their country a north-south trade conduit that connects Europe, Asia and Russia. In fact, they have called for a trade corridor between Chabahar and St. Petersburg in Russia.

This is because, post sanctions Iran will be more attractive than post NATO Afghanistan for such a geo-strategic route. This will hold strategic value for India as well. Even if the situation in Afghanistan and Pakistan remain manageable, India will still not be able to access the Afghanistan and Central Asia through Pakistan. Therefore, it has to thoroughly structure its policy and involvement in the region for the vital survival of its strategic interests.

However, in a broader sense, a rapprochement of relations between Iran and USA, something that India has been insisting would work in favor of all three, can have many strategic outcomes.

The reconciliation undoubtedly carries multiple benefits for India. Not only will it easy off India’s quest for energy by making it easier to get energy from Iran, its long time importer but it will also aid India’s efforts in Afghanistan to be carried out much more smoothly. In fact, if Iran and USA continue to show such diplomatic maturity, even the NATO troop withdrawal from Afghanistan later this year could be done in a smoother manner.

Not only will it make US drawn down from Afghanistan easier, it will also help US to reduce its dependence on Pakistan entirely. India and Iran could prove to be a formidable force to tackle the menace of Taliban.

USA must realize that India will take care of its vital interests, which is undoubtedly securing energy supply, with or without American understanding. In fact, USA’s unbending attitude towards India’s relationship with Iran could potentially threaten cordial relations with India and US.

The US must realize that it will not be wise to shun India’s interests with respect to the question of Iran, which makes it important for the US to consider the depth of the economic and domestic context in which India approaches Iran and vice-versa.

In addition, India is one of those few nations who have always maintained decent relations with USA, Iran, Israel and the gulf countries simultaneously, even if it has often had to do so by walking on a tightrope. Even so, with the kind of ongoing engagements India is undertaking in the region, it is showing a well-crafted balancing act for the purpose of its securing its national interests.

India is indeed looking at the region as strategically and creatively as it should be. Its economic and strategic outreach to the region could provide India with over US $180 billion of trade, 60% of its much needed energy supplies and security to what is home to approximately seven million of its nationals sending massive remittances.

India recently hosted the crown prince of Saudi Arabia, Prime Salman Bin Abdul-Aziz Al Saud, wherein the two sides completed negotiations on defense cooperation, covering military training and security cooperation. Interestingly, the Saudi crown prince’s visit overlapped the visit of Iranian foreign minister Mohammad Javad Zarif, which highlighted a delicate balancing act by India.

India also discussed the possibility of reviving a project for a deep sea pipeline connecting Oman and Iran to India.  External Affairs Minister Salman Khurshid discussed the possibility of this US $5 billion project with Oman’s Foreign Affairs Minister Yousuf Bin Alawi Bin Abdullah and Iranian foreign minister Mohammad Javad Zarif during their visits to Delhi.

The deep sea pipeline would be an alternative for India to the proposed Iran-Pakistan-India gas pipeline which ran into several complications after Pakistan failed to meet its obligations in a timely manner.

In December last year, External Affairs minister Salman Khurshid presided over a meeting of the heads of mission from the regions of Central Asia and the Persian Gulf, held in Manama.

Countries like China, Russia and India are emerging as alternate powers for these countries who have not shown much enthusiasm when it comes to a possible rapprochement between US and Iran, due to USA’s declining power posture and reduced energy dependence in the region.

Thus, India has seized the opportunity after considering these factors. Not only has India shown that it is willing to play a role in post NATO Afghanistan, it has also shown that it can go alone in the Central Asian/Middle Eastern region, which can alter the Indo-US strategic partnership in the region.

However, most importantly, on the issue of nuclear weaponization, the US and Iran still have a long way to go. Although the interim deal shows good signs for future prospects, it cannot be taken for granted that Iran will willingly succumb to Western pressure and abandon its nuclear program in entirety. India should, in this case, study its options in terms of securing energy from the region in the long term scenario.