India–Iran Camaraderie

Indian foreign diplomacy is leaving no stone unturned in the turbulent Middle East. The bilateral treaties forged and the visits by India to the Arab kingdoms (U.A.E, Saudi Arabia) were charting a novel picture about the increasing engagements with West Asia.


An upbeat Iran, fresh from the lifting of sanctions was waiting for the opportune moment. So was India.


The Indian attempt to boost its relations with Iran must be seen in the context of how energy and infrastructure dependents India and Iran are respectively. Post the complete lifting of sanctions, (the trade embargo persists) Iran will also be aiming to resuscitate its international prestige and its role in the region; akin to reviving the glory of the Persian empire.


Iran is already vying for expanded trade and connectivity with the rest of the world. Western powers will also be seeking to engage with Iran after the financial sanctions are fully lifted off. Other Asian countries such as China, South Korea, Japan and few Central Asian republics (Kazakhstan) have already engaged Iran diplomatically, with an emphasis on boosting trade and improving connectivity.


The changing geo-politics of Middle East has only made Iran more empowered. The power vacuum created by the removal of Saddam and U.S withdrawal from Iraq, reinstating a Shia led government in Iraq, the resilience of the Assad regime in continuing unabated in Syria and fragmented state of ISIS in the region only add up to Iranian regional hegemony staying strong against the Gulf sheikdoms.


Chabahar agreement: Who stands to benefit


Driven by civilizational and cultural linkages, Indo-Iranian ties have never been fraught with tensions even during the brief period of the sanctions regime. India had maintained a balanced approach and had cooperated with the U.S, during the UN sanctions and with Iran as well. The Pak factor and U.S pressure were crucial in India refraining in 2009 from the Indo-Iran gas pipeline project. Still there were deliberations to have an undersea pipeline. Though it resurfaced in 2010, owing to the financial constraints it was given up.


The Chabahar agreement signed with Iran is a breakthrough wherein India has pledged hard money on a substantial area of mutual benefit. For India, this is primarily a project to harness the connectivity with Central Asia and Afghanistan. Simultaneously, the deal would substantially aid Iran in fulfilling its domestic requirements for the supporting its economic developments by accelerating its exports into Asian markets. The contract would entail the development and operation for a ten year period of two terminals and five berths in the port. It is inclusive of credit worth $500 million pledged for the port and Rs.3,000 crores for importing steel rails and for implementation of the port respectively.


And the new deal inked is pitted to overcome many roadblocks. Firstly, the deal will partially, if not fully eliminate the hindrance posed by Pakistan to engage with the landlocked Afghanistan. The corridor pack inked between Iran, India and Afghanistan is touted to be the game changer as far as land connectivity to Afghanistan aka Central Asia. This is also a breather for the region, as Pakistan had been an irritant factor against its fruition. Secondly, the free flow of trade via Afghanistan and into Central Asia is expected to happen seamlessly. Though the International North-South Transport Corridor (INSTC) to Central Asia (which is yet to be developed) got slighted during the negotiations it is bound to take up in the successive stages of the deal.


The crucial port of Chabahar in the Gulf of Oman lies near the Chinese financed Gwadar port (worth $46 billion) of Pakistan. It is to be noted here that this deal comes after 17 long years deliberations (India and Iran had agreed to the same, way back in 2003). However with the Islamic Republic getting embroiled in a slugfest with the Western world after it refused to suspend its nuclear enrichment programme, the prospects seemed impossible for such initiatives.


Furthermore, the proposed pact is inclusive of a rail line connecting Chabahar with Zahedan in Iran to Zaranj in Afghanistan and further towards Delaram (Afghanistan). The deal further includes a MoU(Memorandum of Understanding) wherein the monetary support of $1.6 billion is earmarked for the railway line, besides other provision of services by the Indian Railways.


Afghanistan was one country that the Western powers failed to wrest control of even in their colonization bid, and India will be getting a closer integration with the region. Added to the trade and connectivity benefits, India will have a greater role in this extended neighbourhood with this trilateral deal. India will reap immensely on the trade and connectivity front once Afghanistan also joins the SAFTA(South Asia Free Trade Agreement) and then as a SAARC (South Asian Association for Regional Cooperation) full member. In the long run, such moves would expedite the fears of security vacuum after the U.S withdrawal and will ensure the stability of the Central and South Asian region in particular (by circumventing the scourge of Taliban and by evading Pak interferences) and India’s extended neighbourhood (including the West Asian region). These endeavors will stand to benefit the Indian engagement with the Central Asian republics too.


The process of reviving the erstwhile trade routes is reflected in the developments such as the Chinese ‘One Belt One Road’, combined with the China-Pakistan Economic Corridor to which Iran ceded in Afghanistan recently. Iran is also party to some other initiatives and it has offered to develop the INSTC, Turkmenistan-Afghanistan-Pakistan-India gas pipeline, and the CASA-1000 electricity project. Nevertheless, the U.S. support to the ‘New Silk Road Initiative’ linking Afghanistan to Central Asia, Turkish support to the ‘Modern Silk Road’ with Georgia and Azerbaijan, and its Silk Wind initiative remains crucial. The strategic spill overs of these developments will stand to benefit the whole region.


Harnessing Indo- Iranian Synergies


Blessed a with a political geography that can act as a centerpiece of engagements with Central and West Asia and into Eastern Europe (Caucasus mountains that separate Eastern Europe with Western Asia is the North west border of Iran), the former Persian heavyweight is making its moves. Iran will push hard to remove the anathema of not faring in the top 10 natural gas exporting nations, inspite of being the 4th largest natural gas producer and after possessing the 2nd largest swathes of the natural gas field. It is not to be forgotten here that the Iranian claims to scale up its production to a million barrels per day are at a time when the nation is only in the process of developing its LNG export facilities. Obviously, pipeline exports will the first option and the shrinking markets for natural gas exports world over will pose a tough ambition indeed for Iran.


On expected lines, Iran will be looking forward to expanding its customer base of its vast energy reserves and Asian powers will be the immediate options. India, figures prominently in this list, being the 5th largest energy consumer globally. Therefore securing bi-lateral energy partnerships will be high on Indian agenda- primarily acquisition and tradability of energy sources via gas contracts. Iran aware of this, will only accede to such efforts of a country whose oil and gas consumption constitutes 45% of total consumption. Trade between both the nations, currently pegged at $9 billion and is expected to increase substantially with the new trade and transit corridor.


As per the International Energy Agency estimates, India requires investments worth US$600 billion during the years 2011–2030, across varied segments in the hydrocarbon chain, to increase its energy supply. It opens the doors for companies in the infrastructure domain and across the hydrocarbon value chain to engage in capacity building, technology transfer activities in exploration & production and building & maintenance of strategic oil and gas reserves. India ought to capitalize here with investments to help build the Iranian energy infrastructure. Public Enterprises such as Indian Oil Corporation, Bharat Petroleum, Hindustan Petroleum, Mangalore Refineries & Petrochemicals have already expressed intent to buy 240,000 bpd (barrels per day) from Iran. Also in the race are private players like Essar Limited and Reliance Industries to cash in on maximum benefits. The fact that Indian firms (Rashtriya Chemicals and Fertilizers (RCF), Gujarat Narmada Valley Fertilizers and Chemicals (GNFC) and Gujarat State Fertilizers Corporation (GSFC) are already collaborating with Iranian Bank Pasargad for a fertilizer plant in Chabahar is a promising sign. As a lucrative trading commodity, oil and gas companies are still largest companies inspite of a severe slump in oil production and increased production. Entities such as Sinopec & Petrochina (China),Exxon Mobil(USA), Royal Dutch Shell (U.K) are minting money. Thus a prospective cooperation the National Oil Co. will only add up the profits margins for both state and private run oil and natural gas entities in India.


The present contract signed between Iranian firm Arya Banader and the India Ports Global Private Limited (IPGPL) was the outcome of a series of negotiations. The coordination of Transport, Finance, and Petroleum ministers with the MEA (Ministry of External Affairs) and the ministerial level visits to assess the levels of such an engagement is a testimony to this fact.


The Middle East to India Deepwater Pipeline (MEIDP) found a mention during the sidelines of the Heart Of Asia Conference in Islamabad ( December 2015) when the foreign ministers of India and Iran discussed briefly expanding energy cooperation. It was a diplomatic response when Turkmenistan began to construct a gas pipeline project to India. Presently talks are also underway for a proposed undersea pipeline with Iran wherein natural gas will be exported from Iran to India via Oman. In fact the Chabahar deal will further enable India to prepare for the fruition of this project. Expected to be completed in 2 years, the MIDP is a $ 4.5 billion undersea project that can export 32.5 million cubic litres per day from Chabahar port via the Omani coast (Ras- al -Jafan), across Indian ocean towards the Porbandar port of Gujarat(West Coast of India). This 1200-1300 Km long pipeline will keep India at a competitive advantage as it can save about $1.50 to $2 per million British thermal units when liquefied natural gas (LNG) imports are replaced by gas supplied via MEIDP. The fact that this pipeline bypasses Pakistan and Afghanistan further alleviates the security roadblocks.


As we can see the Indian efforts have been successful in garnering the trust of the Iranian side about the Indian intent towards an enhanced energy cooperation. India had in fact agreed to invest over $20 billion in the Iranian energy sector (during the visit of the Union Petroleum Minister Dharmendra Pradhan to Iran in April 2016) alongside the promises towards collaborating on joint petrochemical and fertilizer plants. Notably, the Chinese (Chinese Harbour Engineering Company) had in fact expressed substantial interest in the port as it sought to expand the operations from the 100 km away Gwadar port and had conducted feasibility studies for the same. All these developments run in parallel with the Iranian resolve to be open to the investment opportunities in Chabahar and of the Indian determination to clinch the deal.


Iran will be seeking to clinch back the position of becoming India’s second largest oil supplier, a position it lost to Iraq after the economic sanctions. It has also put an end to free shipping of oil to India (since 2013 to boost its exports in the onslaught of stringent Western sanctions Iran began free oil shipping) and for getting paid for half of the oil supplied in rupees. Iranian demands to be paid for future oil trade in Euros and to the state entities (IOC & MRPCL) to clear its $ 6 billion dues in Euros as well is indicative of its realist overtures in the conduct of foreign diplomacy.


The opening up other shipping lanes to transport oil holds potential for being the next game changer for Iran. Though India has withdrawn from the Iran-Pakistan gas pipeline project (Peace pipeline), it is expected to be completed soon. Iran has already completed its line and the finance crunched Pakistan after having got the support of China in 2015 (over $2 billion) will not find a difficulty anymore to fulfill its obligations to complete the line.


Amidst all these, Iran can be a prospective partner for India regarding diversifying its energy supplier list, as it will help India overcome its reliance on few suppliers. The ongoing skirmishes with Pakistan may pose as a hindrance in the steady access to natural gas imports to India through the TAPI(Turkmenistan- Afganistan-Pakistan-India) pipeline which is expected to be operational by 2019. In this self help world order India can ill afford to rely on one major supplier to satisfy its needs at a time when its demands for natural gas is increasingly becoming prominent. Rathermore, given securing the energy security and ensuring an adequate supply, such measures of diversification does weigh heavily. India must seize this opportunity to also work in tandem with the Ashgabat Agreement ( trade and transit corridor that connects Central Asia and the Persian Gulf – Turkmenistan, Oman, Iran Iran and Uzbekistan).


Therefore the proposed energy cooperation with Iran will expand the engagements to secure an energy route from the Caspian Sea to the Persian Gulf and across the Gulf of Oman to the ports in West Coast of India. These positive outcomes are indicative of a proactive and pragmatic approach taking root to enable the Iranian support across the domains of energy, trade & connectivity


Prospective cooperation in defense and security with Iran will be the next stage for a comprehensive partnership and it can allay the security fears in Central Asia, in the wake of growing insurgencies in Afghanistan and Pakistan. The recent Iranian consensus with Saudi Arabia in the Iran-Saudi Hajj deal is therefore welcoming inspite of the arch rivals creating more tensions for OPEC (Organisation of Petroleum Exporting Countries), with neither of them readying to scale down production in tune with the slump in oil prices. Maintenance of a neutral stand over the Saudi-Iran disputes will stand to benefit powers like India- a formidable partner to both Islamic powers, who cannot do away with neither of them (for civilizational, cultural, religious and economic reasons).


A lot seems to be happening in the diplomatic arena of late. Only time can tell whether the fruits of such pragmatism will be sustained to enable Indian foreign diplomacy to Act and Think West.


Source: Vinny Davis of the Centre for Public Policy Research. Image via Indian Express.


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*Any views expressed are unintentional, personal, and might not be representative of the IndoAmerican Center.