28 February 2014
JTW Op-Ed, Adith Charlie
India is unsure about the drift of its bilateral relations with Iran even as the latter prepares to play a larger role in the geopolitics of West Asia.
In the backdrop of the epoch-breaking nuclear accord, the big question is whether Iran will open up to the West at the expense of its ties with India. On one hand, the removal of sanctions would provide India, once Iran’s second largest oil purchaser, with better access. Yet, another viewpoint suggests that Iran’s need for allies and commercial partners may change as the country unshackles from over three decades of international isolation. India’s inability to take a clear-cut stance on Iran’s nuclear activities, even as the six world powers were locked in negotiations with the Islamic Republic, did not help the cause. New Delhi-Tehran relations have definitely reached an interesting juncture and the onus is on India to ensure that its privileged ties with Iran are maintained. By being on the same page, both countries can help stabilize Asia and emerge as de-facto leaders in a continent that has a chequered history of foreign influence.
On the commercial side, the Indo-Iranian bonhomie has been primed around the areas of energy & hydrocarbons, trade and infrastructure access. At a political level, the two countries share concerns over inequities in the current global order. When it comes to regional security, both are willing to play a larger role in the rehabilitation of Afghanistan once the NATO forces start pulling out of the war-torn country.
Every year thousands of Iranian students enrol themselves in Indian universities while Iran receives a high number of religious tourists from India.
Speaking in Tehran in 1958, India's first Prime Minister Jawaharlal Nehru had said that India and Iran are among the few countries in the world that have had long, close and warm historical contacts. The affinities cannot be missed when one looks at monuments, culture, language, cuisine and the literature that defines the two countries. India and Iran shared a common border till 1947. India has enjoyed healthy relations with the Persian nation both before and after the Islamic Revolution of 1979.
In strategic terms, Iran is an integral part of what has been defined as India’s “proximate neighbourhood.” Secondly, it has a strategic position along the Persian Gulf, which includes the narrow entrance to the Gulf at the Straits of Hormuz, is within the security parameter of India.
According to the US Energy Information Administration, every day about 14 tankers pass out of the Persian Gulf through the Straits carrying 17 million barrels of crude oil daily. This accounts for 35% of the world's seaborne crude shipments and 20% of oil traded globally.
Currently, India is the world’s fourth largest importer of fossil fuels and West Asia accounts for two-thirds of India’s oil trade. For long, Iran was one of India’s largest oil suppliers, second only to Saudi Arabia. However, India had to cut down Iranian imports last May after insurers refused to provide cover to refining plants, bowing to pressure from the US and Europe. In fact, two of India’s state refiners- Mangalore Refinery and Petrochemicals and Hindustan Petroleum Corp- halted purchases from Iran last year. As a result, India imported 5.82 million tons of Iranian crude during the first eight months of the year started April 1, down 55.7 per cent from 13.14 million tons that were imported the previous year. To replace lost Iranian volumes, India was compelled to import about 14 percent more oil from Latin America in the April-January period.
The nuclear rapprochement would address the problems with re-insurance of Iran Oil in the immediate term. By one estimate, this could boost Iran's exports to India by 200,000 to 400,000 barrels daily.
The new export numbers are significant as India’s external dependence on oil is set to continue into the next decade. The South Asian giant intends to extend economic development to its hinterland and access to oil is a key deciding factor.
In an ideal scenario, India would prefer doing more of its oil business with Iran. Crude from Iran comes in favourable terms and India gets 60-days of credit for making payments. Moreover, Iranian crude comes at discounted rates in comparison to oil procured from Saudi Arabia and Iraq. Forty-five per cent of the India’s trade with Iran is settled in Indian rupees. India has been pushing Iran to accept 100 per cent payments in rupees so that its trade deficit, which has been spiralling because of oil import costs, could be controlled.
However, Iran’s new reality would diminish India’s attraction as a customer. Initial indications are that 100 per cent rupee payment may be put on the back burner, at least for the time being. Since India’s exports to Iran are much lower than its oil imports, Iran has structural limitations in fully utilizing the rupees accumulating in its account with the Kolkata-headquartered UCO Bank. Following the easing of sanctions, India is now being offered the option of making euro-denominated payments through central banks of Germany and Switzerland following easing of the sanctions.
Already, the European oil companies are making a beeline to re-establish the suspended trade links with
Tehran. France’s Total, Spain’s Repsol and Italy’s Eni among others have expressed willingness to resume work in Iran. European shipping companies have started talks with the Islamic Republic of Iran Shipping Lines (IRISL) to restart operations at Iran’s ports. While these factors may not directly hinder India’s commercial interests, there is a high probability of India loosing its leverage position with Iran.
India’s proximity and dependence on Saudi Arabia further complicates the equation. Saudi Arabia is home to 2.5 million Indians, making it one of the largest bastions for Indian Diaspora. Unfortunately for India, both Iran and Saudi Arabia have diametrically opposite views on the current global order. This is clearly evident from their individual visions on the future of Syria. The beleaguered president of Syria, Bashar al-Assad has the backing of the Shia regime in Iran while the Sunni rulers of Saudi Arabia and Qatar are said to be working behind the scenes, along with Western allies, to script a change. India does not approve of the conundrum as it has a sizable population of both Sunni and Shia Muslims. The two sects have had a history of violent clashes especially in the North Indian states of Jammu & Kashmir and Uttar Pradesh. Hence, India refrains from publicly siding with the Shia and Allawite-backed Syrian regime or adhering to the views of the Sunni dominated Saudi Arabia.
India hopes to perform an astute balancing act this week by hosting head of states of Iran and Saudi Arabia at the same time. Saudi Crown Prince Salman bin Abdulaziz Al Saud and Iranian foreign minister Javad Zarif are in New Delhi this week, giving India the golden opportunity of jointly addressing and appeasing both its West Asian allies.
Amidst all the uncertainty, the unfolding security situation in Afghanistan presents is a good opportunity for India to strengthen relations with Iran. Both countries realise that state failure in Afghanistan, especially after NATO forces call it a day, could push religious extremism deeper into the region. A stable Afghanistan is paramount for cohesiveness in the continent.
Speaking in Tehran last year, India’s former Foreign Secretary Nirupama Rao said: “We are both neighbours of Afghanistan and Pakistan and have both long suffered from the threat of transnational terrorism emanating from beyond our borders. India, like Iran, is supportive of the efforts of the Afghan Government and people to build a democratic, pluralistic and peaceful Afghanistan.”
The US and its European allies have been pressurizing Afghan president Hamid Karzai to authorize foreign troops on his country’s territory after 2014, by signing the bilateral security arrangement. However, Afghan President Hamid Karzai is not keen to allow outsider presence in Afghanistan. Hence, he is looking at both India and Iran to provide a critical lifeline during a period of transition and uncertainty for the Afghani people.
At a bilateral level, India has been proactively assisting the Afghani establishment in building defence capabilities. In his December 13 visit to India, Afghan president Karzai had placed requests for lethal and non-lethal military equipment from India. Yet, Tehran will have to be an integral part of New Delhi’s Afghanistan strategy. Tehran and Kabul recently agreed to sign a “pact of friendship and cooperation,” which could include aspects of political, security cooperation and economic development
Intelligence sharing and joint counter-terrorism efforts, although a bit premature to predict, can help both India and Iran to counter the common adversary, the Taliban. The timing of such as joint initiative is appropriate with Iran-Pakistan relations hitting turbulence, as evidenced by the recent firing of rockets by Iranian forces into Pakistani territory.
In this context, India’s move to further develop Iran’s Chabahar port and establish direct shipping routes with the country, is a timely one. Not only will it bring down the transit costs between the trading partners, but also reduce landlocked Afghanistan’s dependence on Pakistani ports for unhindered access to sea trade.
The trilateral arrangement would also help India is standing up to China’s growing circle of influence in the Indian Ocean. In February, Pakistan said China would operate its Gwadar port, which is just 76 km from Chabahar.
Thus, Iran and India have more complimentary strengths in today’s global order than ever before. The two countries can form a strong beachhead of influence in Asia and help counter the Western and Chinese influence in the region, if they play their cards right.
The devil, however, lies in execution of this grand vision.