"Relations between India and Iran are beyond political and diplomatic. It is a historical relationship, it is a relationship based on civilizational heritage." Iran's President Mr. Rouhani said during his India visit in 2018.

Why India-Iran ties are significant?

Positive Aspect

Strategic

• Besides being a key source of crude oil for India, Iran is critical to India’s regional policy as it seeks to balance China’s growing influence in South Asia.
• Pakistan and China have been strategic partners for decades and the ongoing China-Pakistan Economic Corridor has further cemented this strategic relationship.
• In 2022, Iran signed a Memorandum of Obligations to join the SCO as a permanent member, of which India is also a member since 2017.

Geopolitical

• Through the Belt and Road Initiative (BRI), China has also successfully enhanced its role in both South and Central Asia.
• Notwithstanding Iran’s growing bonhomie with Pakistan and China, India must stay in close contact with Iran and consciously and consistently pursue good diplomatic and economic relations with it.
• Saudi Arabia and Israel are two opponents of Iran in the region and they are making every possible effort to counter Iranian influence in the region.

Strait of Hormuz dilemma

• One of the most significant capabilities of Iran is its ability to disrupt maritime access to the Persian Gulf through the narrow Strait of Hormuz.
• The disruption of oil and gas production or its transportation through the Strait of Hormuz, would lead to a big spurt in the prices of oil and gas, which, in all probability, would create a major global economic crisis.
• Even if the strait is not closed, any conflict in the region could increase global oil prices drastically.
• This makes the oil supply route from the Persian Gulf region very vulnerable.

Economic

• India’s interest in diversifying its market in central Asia.
• INSTC connectivity to Eurasian Economic Union
• India-Iran bilateral trade in 2021-22 stood at $1.91 billion which is approx. 9% less than that in 2020-21.

Chabahar Port

• New Delhi is left with Chabahar as the only access route into Afghanistan and Central Asia.
• It has already committed over $500 million to the development of the port, which was operationalised in 2017 when India sent a shipment of wheat to Afghanistan via Chabahar.
• New Delhi may have to limit its investments in Chabahar or risk facing blowback from Washington, Tel Aviv, and Riyadh.
• Due to the ongoing tussle between the US and Iran on the Iranian nuclear programme, the US has imposed sanctions on the purchase of oil from Iran, and as a consequence, Iran's oil supplies in the international market have decreased. Even India has stopped purchasing Iranian oil.
• For India, oil imports are key to sustaining its economic growth trajectory as they are needed to meet 80 per cent of energy requirements.

Chabahar-Zahedan Railway Project

• In the ‘New Delhi Declaration’ signed in 2003, both countries had decided to jointly develop the Chabahar Port complex.
• The Port development was exempted from the sanctions.
• India’s main investment in the Chabahar Port where it has taken over operations of one terminal, had progressed well in the last few years, handling 82 ships with 12 lakh tonnes of bulk cargo in 8200 containers since December 2018.
• A contract to develop the 628-km railway line (Chabahar-Zahedan) along the Iran-Afghanistan border was signed in 2016.
• IRCON was appointed by the Government of India to assess the feasibility of the project. It was working with CDTIC, an Iranian company.
• It had completed the site inspection and review of the feasibility report. The Iranian side was to nominate an authorised entity to finalise outstanding technical and financial issues. India waited for the same.
• However, Iran started work on the railway project in July 2020.
• India is not part of this project as of now since there is a lack of clarity on whether it will attract the USA sanctions. However, it has conveyed to Iran that it is open to joining the project later.

Farzad-B Gas Field

• It is located in the Persian Gulf (Iran).
• The contract for exploration of the field was signed in 2002 by an Indian consortium comprising ONGC Videsh, Indian Oil Corporation and Oil India.
• The contract expired in 2009 after the declaration of commerciality of the field, based on the gas discovery.
• It has gas reserves of more than 19 trillion cubic feet.
• ONGC has invested approximately USD 100 million.
• Since then, the consortium has been trying to secure the contract for the development of the field.
• The major dispute between India and Iran was over the setting up of two pipelines, and also over money to be quoted on the development plan.
• Around 75% of the deal was finalised by May 2018, when the USA unilaterally withdrew from the nuclear deal and announced sanctions on Iran.
• In January 2020, India was informed that in the immediate future, Iran would develop the field on its own and would like to involve India appropriately at a later stage.

Cultural

• India has the 2nd largest population of Shias in the world after Iran some of whom probably also have ancestral ties to Iran.
• These ties back to a complex political situation in India. Religion and national allegiances play a large part in Indian politics and this is magnified with the upcoming elections.
• There are two Iranian consulates in India in Hyderabad and Mumbai. Iran seeks a third one in Lucknow.
• There are many religious sites for Shia Muslims in India and in Iran also.

Commercial

• Iran believes that India fulfils a substantial part of Iran’s needs.
• For example, India is very capable in steel, aluminium, mines and metals, railroads, software, IT, technology and so on. There is a lot of demand in these sectors in Iran.
• India-Iran commercial relations are under stress since the US imposed sanctions on Iran after pulling itself out from the Join Comprehensive Plan of Action (JCPOA) in 2018. Recently, the US has slapped sanctions on a Mumbai-based Indian firm 'Tibalaji Petrochem Pvt. Ltd.' - a petrochemical trading firm. This is the first US penalty towards an Indian firm in response to the firm's engagement in commercial activities with Iran concerning the oil trade.

 Terrorism

• Globally, New Delhi and Tehran are on the same page in their opposition towards groups like al-Qaeda and the Islamic State.
• Increasing hold of ISIS is a threat to Iran and with India, effective efforts against terrorism India can be an attractive partner.

Pakistan and Taliban

•  After the recent US-Taliban agreement, India needs Iran on its side as the Taliban’s influence and the Pakistan military’s influence are on the rise in Afghanistan.
• After the Taliban's comeback in Afghanistan in 2021, Iran has yet to recognize the Taliban. The primary reason behind Iran's reluctance of recognising the Taliban in Afghanistan is that Iran is a Shia Muslim country while the Taliban is a Sunni group monopolizing and consolidating power on its doorstep. Therefore, Iran is significant for India in the wake of India's differences with the Taliban.

Other projects

• India has been vigorously pursuing the Iran–Pakistan–India (IPI) gas pipeline project for the last decade.
• The Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline is yet to take off and India is very keen to kick-start an undersea pipeline project that would bring Iranian gas to India via the Arabian Sea bypassing Pakistan.
• Iran may also provide connectivity to Central Asia and Europe, via the International North-South Transport Corridor (INSTC), which is estimated to be 40% shorter and 30% less expensive than trade via the Red Sea-Suez Canal-Mediterranean route.

Negative aspects

• India-Iran relations are in a fix, if not going downward in recent times.
• Oil supplies are reduced to India and Iran is not in favour of allotting gas fields to India in recent times. Mostly India’s relations with the US might be the reason for this.
• But India is in a better position having been forced to diversify its crude supply base. It may impact on Chabahar port project if the US sanctions on Iran continue.
• It will impact India’s balance in the complex West Asia region.

Concerns

India-Iran oil equation 

India has brought down the oil imports from Iran to zero due to the threat of US sanctions under the Donald Trump administration.

China factor

China has become Iran’s biggest economic partner, and Beijing’s influence is visible in its foreign policy actions. 

The Chabahar problem

• Plans to develop a railway link from the port to the Afghan border have not made any progress, which has upset the Iranians.
• With a new set of stringent sanctions coming in and tensions raging between the US and Iran over the assassination of Iran’s top military leader Qassem Soleimani, Indian firms are not willing to invest in the port.

Involving China

Iran has not only suggested that China would be part of the Chabahar project but has also dangled the possibility of Pakistan joining the project at some future date.

India’s Middle East Policy shift

• Earlier India’s Middle East policy has traditionally tried to balance the three poles in the region: the Arab Gulf states, Israel and Iran.
• But now India is being seen as more friendly with the Saudis, Israelis and Americans which is disliked by Iran. 
• India has also grown increasingly close to Israel, a country that is the source of vital military equipment for India, but which is also engaged in severe competition with Iran. 
• Instability in the gulf region: India’s immediate challenge in an event of escalation in the Gulf of Oman would be international crude prices.

India’s closeness with the USA

• The United States itself is an increasingly vital partner for India. This is disliked by Iran.
• Iran appears to be more closely aligned with Pakistan in Afghanistan than before, as evidenced by Pakistan Prime Minister Imran Khan’s recent trip to Iran.

Iran’s ties with China and implications for India

China

• Only major country to defy the US sanctions: Meanwhile, the U.S. continues to implement its “maximum pressure policy”. China remains the only major country that continues to defy U.S. sanctions and buy oil from Iran, apart from a small quantum that goes to Syria.
• The sale of oil to China, however, does little to replenish Iran’s coffers. China is eschewing payments in order to avoid triggering more sanctions against Chinese entities.

Trilateral naval exercise

• When seen in the context of the trilateral naval exercise between China, Iran and Russia in the Strait of Hormuz at the end of December 2019 codenamed “Marine Security Belt”, these developments suggest a further consolidation of Sino-Iran ties in a region of great importance to India.
• With Pakistan's inclusion in the exercise, over time, this could expand into a “Quad” involving China’s “all-weather friend” Pakistan in the Indian Ocean and the northern Arabian Sea, with broader implications for India as well as the “Free and Open” Indo-Pacific.

Recent developments

• During the recent visit of Dr. Ali Bagheri Kani (the Deputy Foreign Minister of Iran) in November 2022, the two countries reiterated their commitment to continue cooperation for the development of the Shahid Beheshti terminal of the Chabahar Port.
• A meeting between Iranian President Mr. Raisi and Indian PM Mr. Modi was held in September 2022 at Samarkand (Uzbekistan) during the Shanghai Cooperation Organization's summit. In the meeting, the Iranian President made a reference to the historical, cultural, and civilizational common ground between the two countries and further said that Indian figures like Mahatma Gandhi are always respected by the Iranian nation.

Way Forward

• India needs to play a balancing act between the USA and Iran.
• Further, India needs to closely watch the space created by the US exit from Afghanistan.
• In a world where connectivity is seen as the new currency, India’s loss on account of these projects can become a gain for some other countries, especially China.