Despite tight sanction on Iran, India never ceased its bilateral links with Iran
The Indian Prime Minister Narendra Modi’s two-day visit to Iran from 22-23 May 2016 is the first bilateral visit to Tehran by an Indian prime minister in last 15 years.
It comes at a critical juncture in the rapid evolution of India’s engagement with the region.
Modi’s visit to Tehran follows trips to Saudi Arabia in April 2016 and to the United Arab Emirates in August 2015. It also comes soon after the Indian External Affairs Minister Sushma Swaraj’s visit to Tehran from 16 to 17 April which reflected an urgent move towards strengthening and reinforcing the ‘Think West’ policy.
Modi’s visit intends to build upon the previous meetings and commitments on pertinent issues like physical connectivity, energy, infrastructure, trade, and people to people contact. It is expected that he will push for the Chabahar Agreement, committing substantial Indian investment to develop the all-weather, deep-sea port for Iran.
This would mark a culmination point in a project that has long been envisioned and planned. Chabahar could become a gateway linking Eurasia to the Indian Ocean littoral. In this context, it would be worthwhile to explore the possible outcome of the visit and emerging dynamics of Indo-Iran relations.
India and Iran are close economic and strategic partners. Despite tight sanction due to Iran’s nuclear weapons programme, India never ceased its bilateral links with Iran and pursued discussions on transport networks. And, the withdrawal of the sanctions by the western community has only renewed the prospects of India-Iran relations.
Talks on building the Chabahar Port in Iran has been continuing for several years. High-level meetings discussed the various aspects for the fruition of this project, especially when the location of the port is the ‘Golden Gate’ between Afghanistan and Commonwealth of Independent States.
Last year, road and transport ministers from India and Iran signed a MoU that binds India and Iran for the development of the Chabahar Port. Indian government has already approved a credit line of $150 million.
Connectivity has also been built through an agreement on rail link between Iran and Russia with which the railroad will connect Chabahar to Zahedan and Mashhad. India is competing over the North-South Transport Corridor (NSTC) since the turn of the millennium.
In 2014, trail runs of the two containers were conducted to test its efficacy. In addition, trilateral agreement between Afghanistan, India and Iran was signed to construct the Zaranj-Delaram road and connect it with Iran. Afghanistan was most interested in this agreement as the transit opportunity open doors to land routes instead of sea route.
Trade and Commerce
The construction of the Chabahar Port holds greater significance from economic point of view. The trade of goods from Iran into South Asia would enhance with the Chabahar Free Trade Zone in place. And, India has committed an investment of over USD 20 billion in the Chabahar Special Economic Zone.
In relation to this, bilateral trade agreements are being finalized.
Negotiations on preferential trade agreement are going on with an emphasis on the issue of double taxation and investment promotion and protection.
Iran is an import source of oil and gas resource for India. The development of Chabahar Port enhances India’s access crude oil in Iran. Several Indian companies, public and private, are investing in crude oil exploration and looking for further investments.
Indian companies like Mangalore Refinery and Petrochemicals, Essar Oil, Hindustan Petroleum and HPCL Mittal Energy continued to procure crude oil from Iran when American and EU sanctions existed and significant restrictions on trade with Iran was levied.
Now when the penalties have been lifted, the pursuit of energy cooperation becomes vital and unhindered.
According to the MEA reports, Modi’s official visit will include the survey of the Farzad-B gas field in the Persian Gulf. In 2012, when the gas field was discovered, the pact between the Oil and Natural Gas Corporation (ONGC) and the Government of Iran witnessed a stalemate.
Considering the repatriation of the oil payments and other investments in Iran, proper banking channels is necessary. Therefore, another area of bilateral cooperation is banking.
It is being pursed with an understanding and with regard to the policy concerns of both the states. As of now, the Reserve Bank of India is in the process to activate the Iranian bank accounts in India under the Asian Clearance Union.
The commercial ties have been laid on the long-standing civilizational links between India and Iran. Both states share commonality in languages, food and liking for Bollywood movies.
Both the countries decided to establish a Hindi Chair in Tehran University and renew cultural exchange programme. The Indian community residing in Iran is given special reference and Iran assures their wellbeing.
In the absence of the unilateral and United Nations sanctions, the potential from India-Iran cooperation is immense. However, there are challenges in the path.
First, the connectivity projects have undoubtedly impacted India’s neighbours. It is no surprise that while the Chabahar Port was being negotiated and now built, the construction of the Gwadar port in Pakistan was also progressing.
China has not only invested in the infrastructure of Pakistan and building economic corridor, but is coaxing Iran on creating an industrial city.
Second, Modi is visiting Iran soon after his visit to Saudi Arabia. While the agenda to expand and revive India’s bilateral relationships is fitting, Modi’s ‘Think West policy’ does need careful adjustments.
Iran and Saudi Arabia are two hostile states and their hostility heightened at the recent OIC Summit in Istanbul where Saudi Arabia accused Iran of supporting terror attacks and interfering with Saudi mission in Iran.
The Shia-Sunni divide is entrenched in the Central Asian region. And therefore, it becomes critical for India to balance its relations.
Third, the penalties on Iran by the western community have not been fully lifted and there are several regulations pending for foreign investments in Iran. So India is compelled to work within the confines of the partial sanctions and pressures of the United States.
However, the Chabahar Port is an alternative route to trade with Afghanistan. The container and multipurpose cargo terminal provides access to the road system in Afghanistan which is an alternative to the usual sea port. And, the dependence on transit via Pakistan to enter Central Asian states was proving unprofitable for India.
Often Pakistan has been reluctant to grant access to its territory for trade between India and the Central Asian states.
On the other hand, Iran’s intentions cannot be dismissed. It is in Iran’s interest to negotiate the investments with China or encourage pipeline projects with India and Pakistan.
Iran and Pakistan share people belonging to the Baluch. But more importantly, due to Pakistan’s geo-strategic location, Pakistan attracts the attention of Iran, China, Russia and United States.
Therefore, not just economic, but it is strategically important.
Similarly, India owes USD 6.5 billion to Iran in lieu of oil imports. If India doesn’t deal with it, it might emerge as a thorny issue.
India is the second largest importer of Iranian crude after China. It has built up a backlog of payments over three years while Iran was under sanctions over its nuclear program. Prime Minister Modi must address this issue during his visit, if relations are to proceed on a warmer note.