Spearhead Analysis – 05.03.2018
By Shirin Naseer
Senior Research Analyst, Spearhead Research
On February 19, 2018, Iranian President Hassan Rouhani completed his three-day tour of India. Rouhani’s visit was a reciprocal visit which took place in response to the Indian Prime Minister Narendra Modi’s 2016 visit to Tehran—a visit which laid the foundations for a trilateral agreement on transit and transport between India, Iran and Afghanistan. As bilateral talks between India and Iran concluded on February 17, the Indian Ministry of External Affairs released a joint statement and a list of nine Memorandums of Understanding (MoU) signed by the two countries.
India for Iran has been a major buyer of its oil and gas reserves. The two are known to have had continued trade ties even at a time when Tehran was otherwise globally isolated, owing to sanctions over its nuclear program through 2012 and 2016. With the relaxation of Western sanctions, Iran has become the third largest supplier of crude oil to India after Iraq and Saudi Arabia. Rouhani’s visit last month had Iran focusing on India more specifically as an ‘economic partner’.
Notably, Rouhani’s visit to India took place amid Iran’s struggle with its own set of challenges at home and from abroad.
Domestically, Iran has been facing protests across several of its cities and towns due to the locals’ growing frustration with the economic and political state of the country. Even though the protest movement itself did not develop into an uprising, it did bring to light existing tensions.
Moreover, US President Donald Trump has threatened to impose sanctions on Iran. He has also made his sentiments on the Joint Comprehensive Plan of Action (JCPOA) exceedingly clear. President Trump has been threatening to undo the Iran nuclear deal for months now. While Tehran has managed to stand firm against US threats, looking to Europe for support against any attempts at destabilizing the nuclear pact, it is becoming obvious that economically Tehran is much more vulnerable. The Iranian rial, for instance, has fallen significantly in the last six months—losing a quarter of its value.
In October of last year, the first consignment of Indian wheat arrived in Zaranj, Afghanistan, through the Chabahar port in Iran. According to some observers this was mainly to announce the port’s status as a now ‘functioning port’ to the rest of the world. Ever since this consignment, India has exported five other consignments of wheat to Afghanistan. However, for Iran there are several concerns regarding the pace of the Chabahar project. Trump’s approach towards Iran has Western banks hesitant to support projects located in the country. Iran has also alluded to inviting Pakistan and China to the Chabahar project—an idea that has India visibly irritated.
Moreover, India and Iran have been debating over ways to resolve the delays in finalizing the contract for the Farzad B gas field located in the Persian Gulf. The gas field was discovered by an Indian consortium led by the state-run Oil and Natural Gas Corp. Iran has objected to the development of the project, saying Indian terms are not as profitable for Iran. Differences between the two countries are also exacerbating on the Afghan conflict; Iran has signaled that it wants Russia and China to coordinate their actions with Pakistan in facilitating the peace process in the Afghan region.
Furthermore, in February 2018, it was reported that India may allow Indian rupees to be used for investment in Iran. The recently released India-Iran joint statement says, “It was also agreed to set up a Joint Committee of officials to examine feasible options, including Rupee-Rial Arrangement, Asian Clearing Union mechanism to establish functional payment channels.”
The multi-modal transport centric Ashgabat Agreement was also referenced to in the India-Iran Joint Statement, pointing to increased investment in further improving connectivity.
It is important to note that India has managed to use its ties with Iran to extend relations with Afghanistan by providing Afghanistan with an alternative to Pakistan when it comes to conducting trade. Nonetheless, in furthering relations with Iran it is important for India to recognize that unlike the case of Kabul where New Delhi has managed to garner support for its views on Islamabad, Iran cannot be approached with the same Pakistan-based foreign policy angle. In engaging with Iran India may have to consider looking beyond its issues with Pakistan.