Developing a Strategic Partner in West Asia- Importance of Iran for India

India-Iran relations

As we hear news about the renewed tensions between USA and Iran, the attacks on each other and the possible role that India can play in mediating the tensions, a basic question arises. Why is India so crucial in the USA-Iran tension? It is India’s good relations with Iran as well as USA that is making India’s role in resolving the conflict important and decisive. Let us take a look at the political, commercial and strategic history of India-Iran relations.

India and Iran have had good relations since last few decades. Although there was a brief gap in the relations post the Islamic Revolution in 1979 when Ayatollah Khomeini gained ascendance in Iran. But relations soon gained normalcy as Iran became a trusted partner in oil exports. The relations have become even stronger under Modi government.

Iranian Oil and Gas- Crucial for India’s Energy Security

India is Iran’s second biggest importer for crude oil after China. This trade was carefully nurtured over the decades. The rising tensions between USA and Iran over the latter’s nuclear tests put pressure on oil imports from Iran.

Payments of oil import to Iran used to happen through the Asian Clearing Union (ACU), a grouping of south Asian nations and Iran. Payments to Iran took place in select Asian currencies. UPA under PM Manmohan Singh was being pressurized by USA to withdraw from ACU and reduce oil import from Iran. UPA government buckled and in 2010, RBI stopped payments through ACU. Unsuccessful experiments like payments via German and Turkish banks to Iran were also carried out. Finally, in 2012, UCO Bank was roped in for payments

Modi government has done better in resisting US pressure on Iran, thus underlining the crucial role played by the Iran in India’s diplomacy. US-Iran had signed a deal in 2015 to reduce the nuclear arsenal of Iran. But tensions soon escalated in 2018 and USA once again imposed sanctions on Iran’s oil exports. India could negotiate its position very well under Narendra Modi led government. USA agreed to grant a waiver for India in importing oil from Iran that lasted till May 2019.

You may read our previous article India got Liberated from Bi-polar Geopolitics – What the Sanctions on Iran & S-400 Episodes Tell us

Moreover, the Chabahar port development in Iran is a crucial Indian project which holds the key to Afghanistan trade too. India has got assurances to go ahead with this project too.

Chabahar Agreement- India’s Outreach to Iran

India started talks with Iran in 2003 for building a port on Iranian coast. The inaction of UPA during 2004-2014 made China go ahead with Gwadar port in Pakistan, very close to Iran and direct challenge to India’s role in Indian Ocean region.

After 2014, India’s outreach to the West Asian nations and Afghanistan gained traction. India, Iran and Afghanistan signed a trilateral agreement in 2016 for developing the Chabahar port in Iran. India will operate two berths in Chabahar Port Phase-I with capital investment of USD 85.21 million and annual revenue expenditure of USD 22.95 million on a 10-year lease.

The first phase of Chabahar was inaugurated in 2017. India officially commenced the operations at Chabahar in early 2019. Later, Afghanistan began its trade via Chabahar by trading carpets, minerals, dry fruits and textiles.

There are three motives behind this port-

  • To smoothen the trade with Iran and increase India’s influence further in Central Asian region.
  • Connect Chabahar to the Garland Road (Zaranj-Delaram Road) in Afghanistan so that India can trade with Afghanistan by bypassing Pakistan.
  • Isolation of Pakistan in the region as Chabahar will negate the need for land contact with Afghanistan.

Ashgabat Agreement- North South Transportation Corridor

Connectivity with Central Asia and Eurasian nations via Iran is a goal set out by Modi government. Central Asia is crucial for its energy resources, trade prospects and security for India. India formally requested to join the Ashgabat Agreement in 2016 and was formally inducted in 2018

The agreement connects the North-South Transportation Corridor from Iran to Azerbaijan and Russia. India joined the corridor using the Chabahar port. The cargo will sail from Indian ports like Kandla and Mumbai and land at Chabahar and Bandra Abbas in Iran, from where it can be transported right into Eurasia.

The agreement opened up rail and road connectivity for India to Eurasia and Central Asia. With so much benefits through Iran, why will India want Iran-US tensions to escalate?

Persian Gulf and Indian Ocean

Persian Gulf is a major region for India as it is adjoining the Arabian Sea. It lies in the natural sphere of India’s influence and is crucial for relations with nations around the Persian Gulf like Iran, UAE, Oman, etc.

India has partnered with Iran in exploring oil and gas reserves in Persian Gulf. ONGC Videsh is in negotiation with Iran’s national oil company for extracting oil and gas from Farzad-B field in Persian Gulf.

Talks are also on for an Oman-Iran-India undersea pipeline for importing gas from Oman and Iran. This is crucial for India’s energy security.

On a broader scale, the Chabahar port is India’s show of strength in the Indian Ocean and a challenge to Gwadar port in Pakistan funded under China’s Belt and Road Initiative. Iran is also a member of Indian Ocean Rim Association (IORA), a grouping of all nations having coastal boundaries in the Indian Ocean. Iran has hosted summits of IORA and also headed the chair from 2007-2009.

India has legitimate reasons to mediate between USA and Iran to douse the tensions. India’s strategic and bilateral interests in Iran are quite strong and crucial for its geopolitical influence in West and Central Asian region. With the Iranian Ambassador welcoming any peace initiative from India, it is a golden chance for India to strike a balance between its long term friend USA and strategic partner Iran.