India’s multi-layered relationship with Iran faces its litmus test amid US’ sanctions and China’s advances.
India’s ties with Iran are viewed from the prism of India’s oil imports (in 2018-2019, India was one of the top importers of Iranian oil), and the Chabahar Port project, located in the Sistan and Baluchestan Province of the middle-eastern country. The project is strategically important, since it is India’s gateway to Afghanistan and was perceived not only as a means of bolstering trilateral connectivity between India, Afghanistan and Iran but also as a counter to the Gwadar Port, Balochistan, Pakistan, which is only 70 kilometers away.
It would be pertinent to point out, that while President Trump-led US has been sticky about India winding down economic ties with Iran, it has exempted the Chabahar Project from sanctions, citing its strategic relevance.
While US has been sticky about India winding down economic ties with Iran, it has exempted the Chabahar Project from sanctions, citing its strategic relevance.
Fall in bilateral trade between India-Iran
In the aftermath of the withdrawal of the US from JCPOA in 2018, while all eyes in India’s strategic community and commentators have been on the impact that US tensions with Iran will have on the Chabahar Port project (India had taken over operations of the 1st phase of the project in December 2018), what has gone unnoticed is the dip in bilateral trade between both the countries. In 2018-2019, bilateral trade between India and Iran was estimated at over 17 Billion USD. In 2019-2020, this declined significantly.
Watch: India and Iran Defence Ministers meet to discuss bilateral ties
The decline was attributed largely to the drop in Indian imports from Iran, since India stopped the purchase of oil, though other sectors too have been hit. For the period April-November 2019-2020 exports of cereals were estimated at 648 Million USD as opposed to over 1.58 Billion for the same period in the previous year. Senior Iranian officials had complained that the overall economic relationship between both countries, and even the Chabahar Port were likely to be impacted by India’s decision to stop purchase of oil.
The overall economic relationship (including Chabahar Port) is likely to be impacted by India’s decision to stop purchase of oil from Iran.
The Other Commodity – Basmati Rice
As a result of the focus on oil, the trade in many commodities such as export of cereals is often glossed over as mentioned earlier. Iran is a very important market for Indian Basmati (according to certain estimates Iran accounts for nearly 1/3rd of India’s Basmati exports). In 2018-2019, India had exported 1.48 million tonnes of Basmati Rice to Iran. Between them the North Indian states of Punjab and Haryana account for between 70-75% of exports to Iran.
Iran accounts for nearly one-third of India’s Basmati Rice exports (1.48 million tonnes in 2018-2019).
It would be pertinent to point out, that last year when India stopped purchase of oil from Iran (after US had removed the waiver which it had provided) Iranian Foreign Minister, Javad Zarif while talking to Indian journalists made the point, that if India stopped purchase of oil, Iran would stop buying Indian rice.
Indian Basmati exporters have been facing problems in receiving payments from Iran in the recent past (non payment of dues from the Iranian side is estimated at Rs. 1,700 Crore). Iran is supposed to be looking at Pakistan Basmati rice, as a substitute for Indian rice.
If India stopped purchase of Iranian oil, Iran would stop buying Indian rice.Javad Zarif, Iran Foreign Minister
A Balance between Washington and Tehran
It is important for India to balance its relations between Washington and Tehran. The visits of Indian External Affairs Minister, S Jaishankar and Indian Defence Minister, Rajnath Singh to Tehran are a welcome step in this direction. During both visits, there was a clear thrust on giving a fillip to connectivity, with an emphasis on the progress of the Chabahar Port, and also to work closely on matters related to regional security. The Iran-China agreement, as well as the strategic relevance of Chabahar Port have been the propelling factors for New Delhi’s pro-active outreach in recent months.
The Iran-China agreement and the Chabahar Port have been the propelling factors for New Delhi’s pro-active outreach in recent months.
Re-sparking the Economic Relationship
It is crucial that India finds innovative ways to get the economic relationship with Iran back on track and thus ensure that other sectors like Basmati Rice are not hit. New Delhi needs to work closely with countries like Germany, France and the UK which have set up a special purpose vehicle, SPV known as INSTEX to circumvent US sanctions on Iran (during the Covid-19 pandemic, this SPV was used for providing relief materials to Iran). A possible change of guard in Washington DC would automatically increase India’s options given the fact, that Joe Biden has already made it clear that he will toe a different line from that of Trump. New Delhi should however not bank on the same and it should try to find ways to get the trade relationship back on track.
Watch: Key facts on India-Iran relations
India needs to work closely with Germany, France and the UK which have set up a special purpose vehicle, SPV known as INSTEX to circumvent US sanctions on Iran.
Saving Ties with Iran
The relationship with Iran is a multi-layered one, not just restricted to one issue, and multiple stakeholders need to be brought on board especially in the context of trade relations. The joint statement released during Iranian President Hassan Rouhani’s visit to India stated that the role of ‘businessmen and industry’ was important in promoting bilateral relationship and greater interaction was needed between trade bodies.
It is important, that Indian government devises a clear strategy for economic relations with Iran, while seeking the views of all domestic stakeholders, especially businessmen and seeks their inputs for economic relations with Iran. Sectors which have been badly impacted by US sanctions need to be given special consideration. Innovative and imaginative thinking along with pro-active diplomacy vis-à-vis the US can help in dealing with the challenge of sanctions.
The relationship with Iran is a multi-layered one, and multiple stakeholders need to be brought on board, especially in the context of trade relations.