India-Iran Relations and the U.S. Factor

Iran turns to China and India in the face of US sanctions | East ...

by Muneeb Yousuf and Tariq Ahmad Lone 14 May 2020

Introduction

In the wake of changing regional dynamics, India-Iran relations have occupied greater significance. The relations between India and Iran can be traced back to 1950 when both signed a Treaty of Friendship and Perpetual Peace. However, Iran’s joining of Baghdad pact in 1954 and the Cold War politics separated New Delhi and Tehran in converging their relations until 1990s. The Islamic revolution that swept through Iran in 1979, followed by hostage of U.S. diplomats, Iran-Iraq War and Tehran’s support for Hezbollah and Hamas among others increasingly led to a range of political and economic sanctions, thereby isolating Iran at the global level.

After the end of the Cold War which led to the breakdown of erstwhile Soviet Union a ‘new world order’ began to shape. The end of the Cold-War drastically transformed the bi-polarity of World Politics which had ensued for nearly four decades, setting the ground for a ‘new order’ that initially looked unipolar in character but with passage of time facilitated the rise of new global powers like China–– a multipolar one. After the end of the Cold War, Liberalization, Globalization and Privatization got momentum. India’s internal economic pressures and taking cue from the changing world, India also opened its economy. That does not signify that the new world only ushered benefits and opportunities, also new challenges that were exceedingly new to the modern states.

In the 1990s the interests of both India and Iran converged around energy, Central Asia and security mostly around Pakistan-Afghanistan region. The relations began to shape up in the early 1990s and India and Iran’s relations finally began its strides in post-2002 after both entered into a defense cooperation agreement. Those relations continued with fluctuations in between due to the recurrent hostile relations between the U.S. and Iran. Tehran’s strategic aim for developing nuclear weapons has come under strong criticism from the Trump regime leading to greater sanctions. Iran is also seen as a major regional threat by many Gulf neighbors including Israel. The larger political and economic sanctions that the Trump regime has imposed on Iran, has led pressure on New Delhi to curb diplomatic ties with Iran. While pressures from India’s allies hinder the cultivation of greater relations with Tehran, New Delhi has never completely curtailed engagement with the former.  As it could be argued that New Delhi is treading a fine path despite Tehran’s strong and persistent criticism from Washington. New Delhi’s policy of not parting ways with Tehran is guided in the rationale of geopolitical, geostrategic and geo-economic interests in the region for which Iran is an indispensable player.

Iran: The connecting Link for India’s Extended Neighborhood

Iran is not only geo-economically important for India per se but also places a connecting link between India and its extended neighborhood-gulf region and Central Asia. Iran’s Chabahar port is vital for India’s geopolitical interests not only in West Asia but also in Afghanistan and Central Asia that is part of India’s extended neighborhood. The importance of the port has significantly increased due to China’s bid to increase its influence in India’s immediate and extended neighbourhood through “Belt Road Initiative” and “cheque book” diplomacy and investment on ports like Gwadar. Keeping in view the significance of Chabahar port, New Delhi has invested huge money on the Chabahar port. In December 2018, in a concrete step towards India’s role in Chabahar Port expansion, India Ports Global Limited company opened its office in Chabahar and took over operations at the Shaheed Beheshti port at the Iranian city. The port will provide seal and connectivity to Afghanistan and Central Asia.

India and Iran have committed for the “prosperity through greater connectivity.” Moreover, the focus of the bilateral relations between Tehran and New Delhi is on bilateral cooperation in the fields of energy, trade, connectivity and promotion of people to people contacts. India and Iran along with Afghanistan have trilateral agreement on the development of Chabahar port. The trilateral agreement is motivated to promote connectivity and economic development of the region particularly Afghanistan. Iran has a critical role in India’s emergence as a great power. It is not crucial for securing India’s economic interests but also crucial to increase India’s influence in its extended neighbourhood in westwards which include gulf region and Central Asia. Iran is critical for India’s access to Central Asia and Afghanistan and can help in mitigating China’s growing influence among India’s neighbors.  In an endeavor to consolidate India’s presence in Afghanistan and Central Asia, Tehran plays a pivotal role.

Geo-economic Significance of Iran for India

Iran’s economy is considered as an economy with a large hydrocarbon sector. Iran’s has abundant energy resources with significant oil and natural gas reserves which are second in the world after Russia. India and Iran’s economic ties accelerated following the opening of India’s economy in the early 1990s. However, due to US sanctions on Iran in 2014, the trade has decreased dramatically to the lowest. As per the Exim Bank India Report, India’s imports from Iran are dominated by crude oil, accounting for 85.9 per cent of India’s total imports from Iran. In 2014, India was the second-largest market for Iran’s exports of crude oil…India has steadily cut imports from Iran as the sanctions from the US and other Western countries blocked payment channels and crippled shipping routes.India’s economic interests in Iran are mainly attached to energy and connectivity to Afghanistan and Central Asia.

The bilateral trade between India and Iran during 2017-18 was US Dollars 13.76 billion. The trade was in 2016-17 US dollars 12.89 billion. Bilateral trade has increased by 6.8% as compared to 2016-17. Indian exports increased by 11.4% and were US dollars 2.7 billion. The imports from Iran also increased by 5.8% and reached to US dollars 11.11 billion. As per Ministry of External Affairs Annual report 2019-20, the bilateral trade between the two reached to US dollars 17.3 billion as compared to US dollars 13.76 billion in 2017-18. This shows an increase of 23.8%. Moreover, Indian exports increased by 32.3% and accounted for US dollars 3.5 billion. Imports from Iran also increased by 21.8% and amounted to US dollars 13.5 billion.  India is one of the fastest growing economies in the world. There is a tremendous increase in the demand for energy in India. Energy is also vital input across all the sectors of the economy. India’s high growth in gross domestic product (GDP) results in a climb in the output of goods and services. As a result, the requirement of energy needs in the country is ever increasing. The energy consumption in India is fourth biggest after China, United States of America and Russia. India’s contribution is more than any other country to the estimated rise in worldwide energy demand. In 2040 demographic expansion makes India the world’s most populous state. As per the Global Investment & Business Center report 2015, “Oil demand increases by more than in any other country, approaching 10 million barrels per day (Mb/d) by 2040. India steps up its deployment of renewables, led by solar power, for which India becomes the world’s second-largest market. Three-quarters of Indian energy demand is met by fossil fuels, a share that has been rising as households gradually move away from the traditional use of solid biomass for cooking…India was the world’s third-largest importer of crude oil in 2014 but is also a major exporter of oil products.”

As per the India’s energy outlook report 2015, natural gas consumption triples to 175 cm (although, at 8% in 2040, it still plays a relatively limited role in the overall energy mix)…This mainstay of the rural energy economy is the primary cooking fuel for some 840 million people in India today; its use in traditional stoves is a major cause of indoor air pollution and premature death. Its gradual (albeit not complete) displacement by alternative fuels in our projections to 2040 is achieved thanks to rising incomes and supportive policies; these include one of the world’s largest cash transfer programs, which subsidizes the purchase of LPG cylinders via payments to individual bank accounts, rather than via an intervention affecting end-user prices…India’s urbanization is a key driver of energy trends: an additional 315 million people are expected to live in India’s cities by 2040. This transition has wide ranging effects on energy use, accelerating the switch to modern fuels, the rise in the appliance and vehicle ownership and pushing up demand for construction materials.

The challenge for India will be to set up long term supplies at reasonable prices as anchor gas customers-fertilizer and power industries- may not be able to pay market determined prices. Iran, the repository of huge gas reserves, can ensure increasing India’s LPG demand. To meet the growing demand for energy and sustain the growth rate of economy India needs to plan the sources of the energy supply. Iran is one of the countries that can meet India’s increasing demand for energy resources like crude oil and natural gas. Iran is not only in proximity with India, but India has geopolitical and geostrategic significance for India.

Geopolitical and Geostrategic Significance of Iran for India

India and China are emerging simultaneously as great powers. Consequently, their interests are conflicting at various levels in their immediate neighborhood and Indian Ocean region- strategically and geopolitically vital to global powers. Both want their influence in Iran and around the region. Both pursue the connectivity projects to gain a strong foothold in the immediate and extended neighborhood. China is focusing on the revival of the ancient silk route through its belt road initiative. India, on the other hand, is pursuing connectivity projects like Chabahar port and the International North-South Transport Corridor (INSTC). These efforts are motivated to connect Central Asia and Afghanistan. Both these regions are gaining significance since the 1991 development in the international order. The changing world order has led to the emergence of important geographical locations and Central Asia is one among them, that emerged after the collapse of the erstwhile Soviet Union 1991. On the other hand, Afghanistan, geo-strategically very vital, became the important country particularly after the 9/11 attacks in the USA. The region was the part of the “Great Game” between Russia and British empires in the 19th century. The region came into limelight again after the conspicuous withdrawal of the USA from Afghanistan. As it is expected to emerge as a power vacuum in Afghanistan for which already significant movements have begun on the part of great powers like China, Russia, Pakistan. India is more concerned about the post-US withdrawal from Afghanistan due to the larger national security attached to the region. India lacks direct connectivity with Afghanistan and Central Asia. Therefore, Iran becomes vital for India to secure its interests in Afghanistan and Central Asia. Moreover, to reduce Pakistan’s influence in Afghanistan, combat extremist groups and contain strategic encirclement by China, Iran can play a vital role. Despite India has all these vital interests attached to Iran, external pressures and internal challenges have constrained India’s relations with Tehran. New Delhi faces a challenge of chasing a side with USA or Iran in times of bitter hostility between the two.

Iran-India cooperation is critical for their mutual interests in a transitional world. However, their relations are sometimes shadowed by the Indo-US proximity. US-India proximity is motivated primarily to protect US interests in India and India’s neighbourhood.  The conspicuous USA withdrawal from Afghanistan after the Doha Deal between USA and Afghanistan Taliban, there is an apprehension of Civil war and instability in Afghanistan. The US wants India’s presence in Kabul to fight terrorism and to strengthen the civilian government. However, this is not possible without the proper access of India to Afghanistan. India has access to Afghanistan via Pakistan and Iran. The hostile relations with Pakistan will not allow it to reach Pakistan. But Iran is critical in India’s presence and influence in Afghanistan. That is why the USA waive sanctions on India’s investment on Chabahar. Moreover, waiver was obtained from the US which enabled the continued imports of Iranian oil and separate mechanisms were evolved for payments and marine insurance.”

India seems reluctant to work with Iran after the US withdrawal from the nuclear deal. India not only stopped purchasing Iranian oil in May 2019 but also reduced budget on the investment on Chabahar. Soltaninejad, Assistant professor in, the University of Tehran argues that “Tehran is convinced that India cannot be the partner it needs to counter US sanctions”. India owes its rising power status, in part, to its increasingly close relationship with the United States. No matter how valuable Iran is for India, New Delhi would not endanger its relations with Washington for the sake of preserving its friendship with Tehran.  Soltaninejad further argued that “although Iranians are well aware that Beijing would not sacrifice its relations with the United States for its partnership with Iran, they still believe that China will support Iran more strongly than India”. China’s continuing trade with Iran and the purchase of Iranian oil is proof of that. From an Iranian perspective, China’s rise is quite different from that of India’s. India’s economic and military development contributes more to preserving the pro-US international status quo, while China’s rise is seen to come at the cost of the United States’ global position and points towards a balanced global power distribution. However, Iran is well aware of the risks of its proximity to China and does not want to be over-dependent on China.  

Conclusion

Ever since Donald Trump has come to power in Washington, the so-called liberal international order has witnessed divergence from the key path. Some analysts have better called it a ‘fuzzy order’. As the New Delhi strives to increase its political influence in its immediate neighborhood and also shape up ‘the emerging regional structures’, it becomes essential for New Delhi to tread a fine path. A multilateral approach in its foreign policy will remain key for New Delhi’s road to major power. India has been caught in a quagmire of balancing the relations between both Washington and Tehran and it cannot afford to embrace one at the cost of others. And here, balancing its relations both with Washington and Tehran with due care for its interests will determine India’s political trajectory. In the level of analysis framework, good relations with Tehran will not only enfeeble Pakistan’s greater strategic depth in Afghanistan but will also provide leverage to New Delhi in deciding the things in Kabul–– a push for a say in the emerging regional situation. On the other hand, a good relationship with Washington will provide good incentives and a vital push for New Delhi to be an important player of the current order. The end of the “Cold War” has certainly ushered a new political order where states need to engage multilaterally and realizing this situation, New Delhi is sending the political message to both Washington and Tehran of cultivating better relations with both despite a greater tension between the two.

Muneeb Yousuf is a Doctoral Candidate at Academy of International Studies, New Delhi. He tweets at @MuneebYousuf6

Tariq Ahmad Lone is a Doctoral Candidate at Academy of International Studies, New Delhi.

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