Iranian President Hassan Rouhani inspects a guard of honor during a ceremonial reception at the Indian Presidential palace in New Delhi on February 17, 2018. Photo: Money Sharma/AFP

Earlier this month, authorities in New Delhi were rattled by reports from Iran that India had been expelled from a key investment project in favor of rival China.

The prospect that India could lose its role in a rail line project meant to connect Iran’s Indian Ocean port of Chabahar to the Afghan border city of Zahedan due to an apparent failure to invest raised questions in India about the foreign priorities of the government. Spurred to action, diplomats rushed to safeguard the country’s interests in the Iranian southern port, which is considered crucial for India’s regional ambitions.

With India fully complying, and some may say over-complying with US sanctions on Iran, above all by suspending its energy imports from Iran while putting only a minimal effort in Chabahar projects, it is hardly surprising that Iran has now openly contemplated a drastic cut in India’s rights and privileges in Iran. While Tehran subsequently denied the “rumors”, they were seen as a warning.

The timing of this development, coinciding with rising India-China border tensions on the one hand, and news of an impending 25-year strategic agreement between Tehran and Beijing on the other, is very important. India can ill-afford losing ground to China, which may well happen in Chabahar if Iran decides it can get a much better deal from Beijing. China could conceivably extend its ambitious Belt and Road Initiative to Chabahar once the current ten-year agreement between Tehran and New Delhi expires in 2026.

Already, Iran’s ambassador to Pakistan has raised the issue of connectivity between the “sister” ports of Gwadar, built by China, and Iran’s Chabahar, considered by New Delhi as a counterpoint to China’s regional influence.

Play both sides

A big question is if Iran can indeed play both sides and somehow accommodate the interests of both China and India simultaneously, particularly if India continues to closely align its foreign policy with Iran’s chief rivals, the US and Israel, and is embroiled in an intractable competition with China.

For the moment, the dominant thinking in Iran is that the Islamic Republic can navigate a safe passage through treacherous waters and reap the benefits of simultaneous trade with both China and India. There is also, however, a minority opinion which sees India as drifting away from Iran, and which argues that Tehran should not pin much hope on any drastic improvement in relations with New Delhi. The Indian government, led by Narendra Modi, has been notably criticized by the Iranian leadership for mistreating its Muslim population.

Inside Iran, the pros and cons of a geostrategic shift toward China, potentially alienating India — a proximate regional superpower — loom large.

According to a Tehran political science professor who wishes to remain anonymous, Iran’s jolt to India “has had the desired effect of prompting the government of India to address Iran’s complaints.

Actions speak louder than words, however, and what Iran really wishes to see is New Delhi’s ability to demonstrate independence by insulating its Iran policy from the negative influence of Iran’s regional and extra-regional rivals.

It also seeks concrete evidence that India, despite its present preoccupations with the pandemic, is still fully committed to the Chabahar projects. Those include a free trade zone geared to the landlocked Central Asian states.

India’s Parliamentary Speaker is due to visit Iran soon as yet another sign of New Delhi’s sustained interest in Iran as a regional partner.

US sanctions waiver

From Tehran’s perspective, the Trump administration’s exemption for India’s activities in Chabahar presents a unique window of opportunity for outside investment in Iran, which has been hit by the double whammy of sanctions and the Covid-19 pandemic.

What is clear is that the Chabahar project, reflecting India’s power projection as a counterpoint to China’s role in the Pakistani port of Gwadar, suffers from a cloud of uncertainty and ambivalence. That uncertainty stems from the complexities of China-India rivalry and India’s closeness to Washington, which is leading a “maximum pressure” charge against Iran, albeit with narrow exceptions, such as with respect to Iraq’s energy trade with Iran and India’s investment in Chabahar.

Iran “under no circumstance wants to see the end of those exemptions, which could happen if India is asked to leave Chabahar,” according to the Tehran professor.

“But the alternative of allowing India’s exclusive rights in southern Iran without gaining much benefit is equally unattractive,” the professor added.

Few Iranians are willing to hide their disappointments with India and its obedient implementation of US sanctions on Iran, resulting in a sharp decline of Iran-India trade.

It is well-known that Iran’s top general Ghasem Soleimani, who was assassinated by US forces on Iraqi territory in January, was a strong supporter of close Iran-India relations, also encompassing Afghanistan. Soleimani is gone but the legacy of his policy preferences within the powerful Revolutionary Guards still remains.

Maintaining healthy ties with India against a backdrop of growing Iran-China interdependence in both energy and trade, marked by the new agreement in-the-making also serves Iran’s legitimacy purposes by insulating it from the propaganda that it is turning into a China satellite.

In addition, India is a potential source for cutting-edge military hardware for Iran, in case the current US efforts to extend the UN arms restrictions on Iran, due to expire in October, fail. Whether or not New Delhi is willing to defy the US objections and sell arms to Iran after October is another story.

It is a safe bet that the Indian government, jolted by Iran’s latest maneuver, will be displaying more and more signs of a new balancing act by reiterating, and reinforcing, its Chabahar commitments. Modi may even contemplate acting as mediator between Tehran and Washington, following in the footsteps of Japanese Prime Minister Shinzo Abe, particularly if Donald Trump is re-elected.

Absent such a balancing act, however, the gradual evaporation of India’s interests inside Iran, to China’s benefit, is almost guaranteed.