India-Iran Ties: Economic and Strategic Significances
Photo Credit: Reuters
By Tridivesh Singh Maini

India-Iran Ties: Economic and Strategic Significances

May. 24, 2017  |     |  0 comments


India’s relationship with Iran is an important one, for a myriad of economic and strategic reasons. Firstly, India is amongst the largest importers of oil — second after China — from Iran. Last year, India imported over 5,00,000 bpd from Iran. This year however, it is likely to reduce the quantity of oil imported to 3,70,000 bpd since New Delhi had put forth a demand that an Indian Consortium led by ONGC Videsh Limited (the overseas investment arm of Oil and Natural Gas Corporation) be allowed to develop the Farzad B Oil field. In December 2015, Iran had agreed to a 3 billion USD contract for the same. Of late, there has been no forward movement, with Tehran stating that ONGC’s offer is not financially attractive. India in turn has warned Tehran, that it would be compelled to reduce its oil imports if Iran does not agree.


Officials from both sides met on May 17, 2017 in Tehran. Iranian Deputy Oil Minister Amirhossein Zamaninia met with an Indian delegation, led by Foreign Secretary Subrahmanyam Jaishankar. Both sides expressed their keenness to find a resolution to the problem and agreed that senior representatives of ONGC Videsh and National Iranian Oil Company should meet and resolve the impasse.


There are of course other reasons for reducing the quantity of oil imported, including other options. It would also be important to point out that while state-owned companies like Indian Oil Corp and Mangalore Refinery and Petrochemicals Ltd will slash their quantities of crude oil imported from Iran, private oil producers like Reliance will not be following suit.


Second, India is helping in the development of Chabahar Port. Last year, during his visit to Iran, Indian Prime Minister Narendra Modi signed an agreement committing to India’s development of the port which will give India access to Central Asia and Afghanistan. Commenting on the relevance of Chabahar Port, Modi stated that: “The bilateral agreement to develop the Chabahar port and related infrastructure, and availability of about $500 million from India is an important milestone.” From Iran’s point of view, the project could help increase the prosperity of the Sistan-Baluchestan province in eastern Iran, currently one of the least developed in the country.


India has also signed a trilateral agreement with Iran and Afghanistan for the development of a land transit and trade corridor. This corridor will seek to connect and provide India with strategically important access to Afghanistan. One important initiative is India’s participation in a rail project linking Chabahar with Zaranj in Afghanistan. This will give India access to important cities in Afghanistan: Kandahar, Kabul, Mazar-e-Sharif, and Herat. This agreement is especially important given that, due to its zero-sum approach in the region, Pakistan has kept India out of the APTTA (Afghanistan-Pakistan Transit Trade Agreement), which deprived India of land access to Afghanistan and Central Asia.


Economic and Strategic Differences


While there are numerous convergences, of late, there have been important differences between India and Iran, in addition to Farzad B Oil Field. Firstly, there have been delays over the release of funds for the Chabahar project. While Iran has accused the Indian bureaucracy of playing the spoilsport, New Delhi has said that Tehran has not completed the required paperwork for financial assistance, and as a result even the first tranche of USD 150 Million has not been released.


Secondly, New Delhi was not happy with the Iranian invitation to China to also participate in the Chabahar project. China on its part has pro-actively reached out to Iran. President Xi Jinping visited Iran in January 2016 — the first international leader to visit Tehran following the removal of sanctions. Amongst the 17 accords signed during Xi’s visit was deeper cooperation in energy sphere and China’s Belt and Road Initiative. Both sides also pledged to push Sino-Iranian bilateral trade to USD 600 billion. Iranian President Hassan Rouhani stated on the occasion of Xi’s visit that: “With the Chinese president’s visit to Tehran and our agreements, a new chapter has begun in Tehran-Beijing relations.” In addition, Iranian Supreme Leader Ali Khamenei commented on the Iran-China relationship that: “Iranians never trusted the West … That’s why Tehran seeks cooperation with more independent countries (like China).”


Increasing Complexity


It is not just bilateral issues — even the larger strategic equation is complex. There is a worry in New Delhi about the approach of the Trump Administration towards Iran. Secretary of State Rex Tillerson has spoken about the need for revising the Obama Administration’s Iran policy, even though Tehran has not violated any of the clauses of the Nuclear Agreement signed in 2015. Tillerson has accused Iran of promoting terrorism in the Middle East and harming the US’ security interests in the region. On May 17, 2017, the State Department made a statement signaling that for now the Trump Administration does not plan to scrap the agreement.


The statement did allude to US concerns about Iran’s role in the Middle East. It said: “This ongoing review does not diminish the United States’ resolve to continue countering Iran’s destabilising activity in the region, whether it be supporting the Assad regime [in Syria], backing terrorist organisations like Hezbollah [in Lebanon], or supporting violent militias that undermine governments in Iraq and Yemen.” The Trump Administration’s decision would have come as a big relief not just to moderate forces in Iran, but also countries, including India, which have developed close economic relations with Iran.



During Modi’s visit to Iran last year there was a strong emphasis on both sides for deeper counter-terrorism cooperation.



The strained relationship between Iran and Israel is also a major challenge for New Delhi.  New Delhi’s relationship with Israel is extremely significant, and India needs to walk a tight rope, and negotiate the above issues very cautiously. While it may seem far-fetched, India has strong ties with both Israel and Iran, and given its strategic interests it should also play a positive role in trying to get Iran and Israel to engage with each other, and reduce tensions.


In the case of Pakistan, New Delhi should carefully consider the remarks of the Iranian Army Chief Major-General Mohammed Baqeri on May 8, 2017: “We expect the Pakistani officials to control the borders, arrest the terrorists and shut down their bases … If the terrorist attacks continue, we will hit their safe havens and cells, wherever they are.” The Iranian Army Chiefs remarks were made in response to the killing of 10 Iranian Border Guards in April 2017. According to Iran, Jaish al Adl, a Sunni militant group was responsible for these killings. The group had shot the guards with long-range guns, fired from Pakistani territory. He also blamed Saudi Arabia, Pakistan, and the US for fomenting violence and instability in Iran.


Significantly, during Modi’s visit to Iran last year there was a strong emphasis on both sides for deeper counter-terrorism cooperation. The joint statement made explicit mention of terrorism: “They (the two leaders) stressed the need to eradicate all forms of terrorism … They urged an immediate end to support and sanctuaries enjoyed by terrorist groups and individuals and were of the view that states that aid, abet and directly or indirectly support terrorism should be condemned.” What India needs to watch closely is how the China and Pakistan react to this statement. While China has supported Pakistan on key strategic issues, it cannot afford to ignore Iran, with which it has strong economic ties and significant interests.


Apart from Iran, India should also seek to strengthen ties with Russia. Of late, after seeing the unpredictable nature of the Trump Presidency, New Delhi has sought to accelerate defense and strategic ties with Moscow. An important development in this context was India’s presence at a dialogue on Afghanistan in Moscow in April 2017, soon after the Trump Administration had dropped the Mother of All Bombs (MOAB) on Afghanistan. Earlier, in February 2017, India had participated in the six-nation talks on Afghanistan in Moscow. During Russian Deputy PM Dmitry Rozogin’s recent visit to India, he met with India’s External Affairs Minister and a statement issued referred to the importance of the India-Russia bilateral relationship: “The two leaders discussed wide-ranging issues regarding India-Russia economic relations. They agreed that the privileged strategic partnership between India and Russia is based on long standing and time tested ties, is very deep and extends to all spheres of mutual interest.” Modi will visit St. Petersburg from June 1-3, 2017 to attend the International Economic Forum.


There is dire need at this stage to give a boost to trilateral cooperation. A dry run of the International North-South Transport Corridor (INSTC) which connects India with Europe and Russia through Iran was carried out in April 2017. INSTC is a network spread over 7,200 kilometers, and consists of rail, road and water routes. This connectivity project will facilitate India-Russia-Iran cooperation, something which is being forcefully put forward by a number of analysts and research institutions. Given the common goals and strong relations between these three countries, it makes perfect sense. Such cooperation will also send a strong message to Washington that while New Delhi will do all it takes to strengthen the India-US relationship, this will not be at the cost of ties with other partners.


While there is no doubt that India faces numerous challenges in its neighborhood, there are also many opportunities, given the fact that New Delhi is not the lone victim of terrorism emanating from Pakistani soil. India’s increasing emphasis on enhancing economic linkages and connectivity with countries in South and Central Asia will further bolster its outreach. Apart from astute diplomatic maneuvers and balancing ties between Iran, the Gulf Cooperation Council, the US, and Russia, India also needs to give a further boost to domestic economic growth to deal with its diplomatic challenges.



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