In recent years India has gradually shifted its position from supporting the U.S. policy towards Iran to re-establishing long held relations with its neighbor. This has led India to develop economic relations that openly violate the current sanctions held against Iran.
India has emerged as a serious economic power on a global scale making them, along with Russia, powerful allies that severely curb the effectiveness of U.S. economic power as a tool of diplomacy dealing with Iran.
External Affairs Minister of India had, during her annual press conference in May, stated very categorically India’s consistent political position that India does not recognize unilateral sanctions. Foreign Minister Zarif had visited India in May. As far as Iran’s nuclear program is concerned, India maintains a long-standing position which is to recognize Iran’s right to nuclear energy as well as the interest of the international community to see that Iran’s nuclear program is entirely for peaceful purposes. India is not a party to the Joint Comprehensive Plan of Action [JCPOA].
We have seen the developments which have taken place regarding the JCPOA, and it is our hope and desire that these issues would be resolved in a constructive manner. The two countries have a historical relationship. One they have been working to expand their economic and trade ties. When Iran was subjected to sanctions last time, India continued their cooperation to the extent they could (www.tehrantimes.com).
In October it was announced the implementation of the Chabahar port project. Chabahar is a joint project between India, Afghanistan, and Iran to develop the port located on the energy-rich Southern Coast of Iran. The port is designated as a primary transit and transport hub for all three countries that would allow them means to expand trade with the rest of South Asia. The project came into being after Pakistan closed off access to its own ports to India. This made a needed partner for the latter two countries and would provide Iran with significant influence in the region (economictimes).
The initiative between India and Iran is the long-planned Indian investment in the expansion and development of the port of Chabahar on Iran’s Arabian Sea coast. The project is central to India’s hopes to open a new transport corridor for Indian exports into Central Asia and Afghanistan that would bypass its main rival, Pakistan. India committed $500 million to the project as soon as it was clear that UN sanctions on Iran would be lifted.
Many see the proposed project as India’s answer to China’s development of Pakistan’s Gwadar port, which lies barely 100 km east of Chabahar on the Pakistani coast. India has also proposed ambitious investment plans for Chabahar’s development, including financing to build railways, roads, and fertilizer plants that could eventually amount to $15 billion. The deal is of interest to landlocked Afghanistan because the TTA would provide it with an alternative route to the seas, and hence strengthen its bargaining power with Pakistan by reducing its current dependence on the Karachi port (speri.dept.shef.ac.uk/).
The other significant issue at stake is the concern for energy. In October and November, India placed orders for around 1.25 million metric tons of oil each month. This works out to roughly 300,000 barrels per day. There are some Indian companies, particularly in the private sector, which have exposure to the American financial system and have stopped buying Iranian crude; that is to be expected. The U.S. has also announced exemptions to eight jurisdictions/countries and India is one of them. Despite this, India expects to continue buying Iranian crude around the above figure. (www.tehrantimes.com/news/).
Another major project is India’s proposed International North-South Transportation Corridor (INSTC), which would develop a network of ship, rail, and road routes for moving goods over 7,000 km from India’s western ports up to the Iranian port of Bandar Abbas, run north through Iran to its Caspian seaport of Bandar Anzali, then across the Caspian Sea to the Russian port of Astrakhan and on to markets in Russia, Europe, and Central Asia.
The INSTC, which is also seen as an Indian response to China’s BRI, would greatly reduce costs over the current shipping route which runs through the Suez Canal, the Strait of Gibraltar, and around the top of northern Europe (speri.dept.shef.ac.uk).
Iran and India have a deep and intertwining relation that is often misunderstood by the West. Historically, Iran and India have shared social, political, and economic ties. Until the British colonization of India, the court language of India was Persian. During colonization, relations between India and the rest of the world were subject to drastic changes and, consequently, contact between Iran and India decreased. Postcolonial political and cultural ties between the Shah of Iran and India were strong (www.mei.edu).
The West tends to view India and Iran one at a time, each in isolation. Until the partition of the sub-continent and creation of Pakistan in 1947, India and Iran had long shared a common border as neighbours with cultural and linguistic ties between the two ancient civilizations going back thousands of years. Following the end of the Cold War in the 1990s, bilateral relations between India and Iran improved, and the two nations signed a defense cooperation agreement in 2002. In 2006, the U.S. led an effort at the UN to impose international economic sanctions against Iran after it refused to suspend its uranium enrichment programme.
Following this, India was pressured by the U.S. to curtail its purchases of Iranian crude oil, despite its dependence on such imports. At one point, in 2009, India was pressured by the U.S. to vote against Iran and support sanctions at the UN. Despite this, India got the U.S. to give it waivers to continue purchasing oil from Iran, which the Obama administration allowed for a certain period. Additionally, India was forced to deposit Iranian payments in a bank account in Kolkata while it waited for sanctions to ease before being allowed to transfer the payments. These difficulties sometimes reduced trade relations to simple bartering in which India traded its rice for Iranian oil.
Following the Joint Comprehensive Plan of Action, signed between Iran and the five permanent members of the UN Security Council and the European Union in 2016 which saw Iran agree to scale back its nuclear programme, the UN sanctions against Iran were finally eased and India began increasing its purchases of Iranian crude oil. India was also finally able to transfer nearly $6 billion in back payments for Iranian oil, and Indian Prime Minister Narendra Modi held a bilateral summit with Iranian President Hassan Rouhani in Tehran in May 2016 in an effort to renew relations. However, because separate unilateral U.S. sanctions remain in place, Indian banks with exposure in the U.S. remain reluctant to finance new Indian trade and investments in Iran (speri.dept.shef.ac.uk).
Several key issues shape the Iran-India relationship. Iran and India have the largest and the fourth largest Shi`i Muslim populations in the world, respectively. Therefore, they share a mutual concern over Sunni-Shi`i conflicts, especially in Pakistan. Through emphasizing these conflicts, New Delhi sees an opportunity to limit Pakistan's influence in international Islamic forums. In addition, Iran’s geopolitical position is significant for India, as it can counteract China's increasing presence throughout Asia and boost India's regional influence.
New Delhi is working with Tehran to open the Iranian port of Chabahar. The development of this port as well as Indian investment in infrastructure along Iran's border with Afghanistan not only helps India to counter the massive Chinese investment in Pakistan's Gwadar port but also boosts India's influence in Afghanistan which counters Pakistan's influence there. Lastly, Iran is rich in oil and gas reserves and thus can help meet India’s domestic energy needs and aid it in avoiding an overreliance on Saudi Arabia, which has had traditionally close ties with Pakistan.
Iran considers India significant for a number of reasons. First, India, like Iran, is an Asian country, and the two share historic, cultural, and ethnic links. India's foreign policy is also congruent with that of Iran; they are both opposed to U.S. unilateralism and a unipolar world. Following the New Delhi Declaration of 2003, Iran and India referred to each other as “strategic partners” and embarked on joint military exercises (www.mei.edu).
Between 2011-2012 both countries held several rounds of negotiations to discuss joint cooperation. During the meetings, views were exchanged on combating global terrorism, energy security, North South Transport Corridor, developments in Afghanistan and regional security and stability. During the visit, both sides exchanged the Instrument of Ratification for the Agreement on Transfer of Sentenced Prisoners signed in July 2010 thereby operationalizing the Agreement (mea.gov.in).
It is not solely economics that is driving India’s current policies with Iran. Beyond these distortions caused by the India-US-Iran triangle, there is a range of important proposed infrastructure projects on the horizon, all of which provide a window into other shifting geostrategic relationships across Asia.
All of them are a response to the super-ambitious China-led infrastructure plan to develop an expansive set of roads and railways that would cut across the Central Asian heartland and link China’s eastern seaboard with Russia and Europe as well as all of South Asia, known as the One Belt One Road (OBOR) initiative, or now called the Belt and Road Initiative (BRI). As the biggest infrastructure project ever proposed, the plan is historic, carries tremendous geostrategic implications, and could ultimately include over 60 countries.
However, the Indian government has refused to join the China-led endeavour. India is particularly angry that one small portion of the BRI, the China-Pakistan Economic Corridor, cuts across the Pakistan-controlled side of Kashmir, which India claims is legally part of its state of Jammu and Kashmir. Japan, which shares India’s concerns about the growing economic and military strength of China, is likely to partner with India on the development of the Chabahar port in Iran, as well as an adjoining special economic zone. In fact, as part of their response to China’s BRI, India and Japan are partnering in what they call the Freedom Corridor, which would create a new road, rail, and shipping routes that would stretch from South East Asia to Sri Lanka, Iran, and Africa (speri.dept.shef.ac.uk).
India is facing a complicated geopolitical situation that is forcing a relationship with Iran despite the objections of the U.S. The fear of an encroaching Chinese power in the region coupled with Pakistan’s hostility, cutting India off from their seaports makes it essential for India to make power plays for their own security and economic protection that go against U.S. interests.
This does not necessarily indicate that the power of U.S. economic sanctions are eroding. However, it does signify that the geopolitics India is dealing with in the region are taking precedence. And this does suggest that economic sanctions are becoming more problematic for the U.S. to use in situations dealing with Iran.
Inevitably, the U.S. must reevaluate its strategy to embrace the economic and strategic needs of allied countries. Otherwise, the long-term ramifications are that India may be driven further into an alliance with Iran. Given that Russia has been quick to capitalize on U.S. economic sanctions by offering itself as a seller and trading partner to sanctioned countries. The dangers of India being driven into such arrangements has the potential to undermine the U.S. strategy by giving rouge countries alternatives to conduct business. It could also undermine the U.S.’s own interest by narrowing the markets American companies have access to.