India-Iran Relations: Balancing Trade and Politics

India-Iran relationship in the last three weeks has been topsy turvy due to alleged reports from the Iranian side that it had dropped India from the Chabahar-Zahedan railway project citing funding issues. The comment was taken back saying there were “vested interests’’ behind the reports stating Iran has excluded India from the project. The railway project would help facilitate smoother and faster movement of Indian goods to Afghanistan through Iran. China’s financial support and sanction by America on Iran remains a strategic challenge for India-Iran relationship. This piece would be a brief analysis on the role of two major superpowers  and their impact on India’s dealing with Iran.

Beijing’s support to Iran

Apart from the proposed $400 billion Sino-Iranian strategic partnership agreement, China has already invested $26 billion between 2006-2020 in energy, infrastructure and rare metals etc. Not just Iran, even in the surrounding Middle East and North African region, the red dragon has spread its wings shelling around $196 billion (in critical areas like technology, infrastructure, health, security and so on) from 2006-2020. As the west shifted their policy towards offending China- Middle East and African markets would become a haven for Chinese financial ventures. For India, this would not be favourable because of two reasons:

  1. Being unable to garner  support from the countries in the Middle-East and African region to move against China
  2. Increased strategic Chinese investments in the future would mean to develop more seaport capabilities, which can ultimately be militarised if China wants to assert dominance and control (ex: Gwadar Port in Pakistan). 

China’s move to bolster its allies surrounding Iran is not only to enhance its strategic presence in the region but also to silence the Islamic voice for their treatment of Uighur Muslims, which the US has now been raking up the issue against China. 

American Involvement: A Test for India’s Strategic Autonomy?

America’s aggressive stance towards Iran in the last two years has caused practical problems between Iran and India. Potential financial and logistic partners for India in the Chabahar-Zahedan railway project fear American sanctions. They fear any associations with a sanctioned entity in a business project might attract the wrath of the US.  Tehran’s insistence to go with the IRGC’s (Islamic Revolutionary Guard Corps- a branch of the Iranian armed forces which is under US sanctions list)  construction arm, Khatam-Al-Anbiya for the railway project has caused a deadlock in moving ahead with the venture. Even though the Trump administration has waived off sanctions on the project, it is still crucial for India to find a suitable construction partner who is not under American sanctions. These existing issues have caused a  delay and eventually impaired the relationship between the two countries. In fact, it has soured over the years and the current geopolitical and economic situation will force India to re-align more with the US.

Trade Relations between India and Iran

From procuring 23.8 million tonnes (mt) of oil from Iran in 2018  to absolutely nothing from May 2019 (as the US ended waivers), India’s energy imports are largely met by Iraq (46.61 mt), Saudi (40.33 mt), UAE (17.5 mt) and the USA. America, in particular, which started supplying oil to India at 1.4mt in 2017-18 jumped to 6.4 mt in 2018-19. On August 21 2019, Iran raised concerns over the treatment of Muslims in Kashmir and asked for just treatment- commenting on India’s internal affairs amid these events

Bilateral trade in the year 2018-19 stood at $17.03 billion, of which $12.3 billion accounted for purchase of fuel and mineral oil. The following year, trade slumped by 79% to $3.52 billion (bringing the imports and exports down to $1.29 billion and $2.23 billion). Even though Iran’s sense of dissatisfaction stems from the failing trade relation, it should account India’s current contributions amidst US sanctions. While other countries are slowly joining hands to bypass US sanctions on Iran and facilitate trade, India is already running the Shahid-Beheshti complex-one of the two-port complexes in Chabahar port acting as a major hub for trade since 2017. The other complex, Shahid Kalantari is owned by Iran. Trade through this port has picked up already-  4500 containers with half a million tonne moved from the Indian side through Chabahar (bypassing Gwadar port in Pakistan) since December 2018. 

Undoubtedly, there is an element of strategic convergence and both the countries should move forward without prioritizing on India’s internal matters. Moreover, India’s nexus with the Arab world has grown economically and politically and is only looking to go up from here

Knowing all this, Iran will look to maintain a win-win relationship with both China and India. It will be cautious in dealing with China’s economic proposals and will make sure that power and control do not shift from the ruling elites. To prevent putting all eggs in one basket, the Indian connection is vital for Iran. 

For India on the other hand, Chabahar port is critical to establish trade ties with Afghanistan and at the same time expand its presence in Central Asia and Eurasia. Interestingly, the port is also used as leverage to improve economic stability in Afghanistan against the US which has recently removed its troops from the region. India would want to maintain this position and having Iran’s support is of paramount importance.

The US involvement does play a role in shaping the foreign policy of both India and Iran towards each other. The Trump administration has been severe towards Iran and India has played it safe and smart by aligning with the US for now in possibly all fronts. The reasons are justified too, stakes are higher with the US than Iran. But, circumstances might change as the US elections are around the corner and opinion polls paint a favourable picture towards election candidate Joe Biden. The latter holds a different approach to Iran which might be flexible for India to regain its economic ties. Even during Obama’s administration, a similar line of thought was followed which was beneficial for India in facilitating trade with Iran.

Swaminathan S
Masters in Defence and Strategic Studies. His interests lie in International Relations, Diplomacy and Technology.