India- Iran Relations
This article deals with ‘India-Iran Relations.’ This is part of our series on ‘International Relations’ which is an important pillar of the GS-2 syllabus. For more articles, you can click here.
- With the creation of Pakistan in 1947, India and Iran lost the geographical contiguity.
- In 1950, India and Iran signed a Treaty of Friendship and Perpetual Peace marking the beginning of diplomatic relations between independent India and Iran.
- In 1953, Central Intelligence Agency orchestrated a coup to remove Iran’s elected Prime Minister, Mohammad Mossadegh and instituted the rule of Shah Mohammad Reza Pahlavi.
From 1953 till 1979 (Under Shah’s regime)
- In Cold War Politics
- Shah of Iran allied with the U.S.A. after signing the Baghdad pact in 1954.
- India was non-aligned.
- Along with that, due to its affiliation to CENTO, Iran also developed proximity with Pakistan.
- During the 1965 and 1971 war, Iran provided military assistance to Pakistan.
- Hence, nothing significant happened during this period.
Period between 1979 – 1990s
- In 1979, Islamic Revolution happened in Iran and Iran came under the control of the theocratic regime of Ayatollah.
- Post-1979, India and Iran began to establish proximity.
- During the Iran-Iraq war, India remained neutral.
- In 1983, both countries established an India-Iran Joint Commission (JC) to promote economic cooperation and organise foreign minister-level meets.
- During the 1990s, Afghanistan came under Taliban rule. Northern Alliance was fighting against Talibs. Pakistan was supporting the Taliban while India & Iran were supporting the Northern Alliance.
- Meetings between heads of government started. In 1993, Narasimha Rao visited Tehran while in 1995, Akbar Hashemi Rafsanjani visited India. In 2001, Vajpayee and Khatami signed the Tehran Declaration while, in 2003, Khatami, on his visit to India, signed the New Delhi Declaration.
- During this period, India started to import gas & oil from Iran in huge amount.
- But after 2005-06, relation dipped due to the nuclear programme of Iran as a result of which Iran was placed under Western sanctions. India was forced to reduce trade with Iran under western pressure.
- Initially, India maintained that Iran had the right to have its own nuclear programme. But Western Pressure on India to reduce trade relations with Iran was too large for India to ignore.
Geo-political dynamics of Iran
Iran is the leader of Shia World
There is a Shia-Sunni divide in the whole Islamic world
- Iran = Leader of Shias
- Saudi Arabia = Leader of Sunnis
Developing Nuclear Weapon
- Iran wanted to develop a Nuclear Weapon for the regime’s security.
- But Saudis & Israel are US allies and they don’t want this because it will disturb the Balance of Power in the Middle East in Iran’s favour.
1 . Strategic Aspects
- Iran is key in the fight against Al-Qaeda, ISIS, Taliban etc. which pose danger to India as well.
- Iran is the key player instability of Afghanistan where India has created assets.
- Iran is also important for securing Sea Lanes of Communication (SLoC) by combating piracy in the Indian Ocean region.
- India aspires to become a net security provider in the Indian Ocean region where Iran is a major stakeholder.
- Due to the sectarian divide, India can use Iran to contain Pakistan (which is a Sunni country).
2. Energy Cooperation
- Iran has the 2nd largest reserves of Natural Gas.
- ONGC Videsh Ltd. has stakes in the Farzad-B gas field in Iran (the world’s biggest natural gas field).
- India also wants to set up a joint-venture fertiliser plant in Iran for exploiting cheap natural gas.
- IPI Pipeline (Iran – Pakistan – India) is from Iran to India is also on the cards. (But India fears the safety of the IPI pipeline passing through Pakistan and India favours that Iran take the responsibility for the security of the pipeline.)
3. Cultural Relations between India and Iran
- India’s large Shia population has an emotional connection with Iran.
- Lucknow is influenced by Persian (/Irani) culture.
- Hyderabad’s Qutb Shahi Dynasty was Persian (/Irani) in origin.
Chabahar Port in Iran is the key in all connectivity projects of India as
- It provides an alternate route to Afghanistan.
- Provide connectivity to Central Asia and Europe, via International North-South Transport Corridor (INSTC).
- It is an important part of the Ashgabat Agreement.
5. Other Points of Cooperation
- Indian Wheat and Pharmaceuticals are in great demand in Iran. Even during sanctions, wheat and pharmaceuticals were exported to Iran from India because these two items were out of the ambit of sanctions.
- India and Iran have stakes in the Indian Ocean and both can cooperate for regional security from piracy.
Challenges in India-Iran relations
- Economic Challenges :
- Due to Western sanctions, it is difficult for Indian companies to trade with Iran.
- Due to decades of harsh economic sanctions, Iran is facing huge unemployment and inflation. These conditions are creating huge unrest in Iran.
- Political Challenges :
- Fundamental authority rests with Supreme Leader Khamenei, an unelected cleric.
- India has huge stakes in Saudi Arabia, UAE and Israel. Indian bonhomie with Iran can upset these Middle Eastern powers which are at odds with the Iranian regime.
- Involvement in Proxy Wars: While Iran itself facing an economic crisis at home, the Iranian regime is fighting and supporting a large number of proxies in the Middle East as part of its foreign policy. These include
- Saudi vs Iran Cold War in the Middle East is going on.
- Heavy military expenditure in Syria for supporting Bashar al Assad.
- Yemen where Iran is supporting Houthi rebels.
- Iran is supporting Hezbollah in Palestine and Lebanon.
- Kashmir Issue: Iran’s supreme leader Ayatollah Khamenei has equated the ongoing Kashmir conflict with that of Yemen and Bahrain in many of his sermons.
- Issue of Farzad-B gas field: ONGC Videsh Limited discovered the gas in the Farzad-B gas field in 2008. As India was waiting for the contract, Iran asserted that India will not be given any preferential treatment and will have to compete with other bidders. India is upset that Iran wishes to auction the Farzad-B field even when India has asserted in 2017 that it is willing to put in $11 Billion in the project. India asserts that it expects preferential treatment in the Farzad-B field as Indian firms in 2008 had discovered gas in the field.
Chabahar Port Issue
The idea of Chabahar port came up in 2003 when Iranian President Khatami visited India and a deal was signed between the two states. Post-1947, the partition has deprived India of physical access to Afghanistan and Central Asia. Chabahar port was envisaged as a project to correct this historical injustice.
In 2016, the Trilateral Agreement was signed between India, Iran and Afghanistan. Under this agreement, India committed to developing Chabahar port as well the land-based route connecting Chabahar port to Zahedan, along the border with Afghanistan. India has committed to invest $500 million in this project.
Importance of Chabahar Port
Its importance can be seen in two aspects
1 . Strategic Importance
- Alternate Route to Afghanistan
- Route => Chabahar to Zaranj to Delaram .
- It will help to end Afghanistan’s dependence on Pakistan for trade
- Counter China at Gwadar Port
- It will help to counter the Gwadar port of Pakistan built by China.
- Chabahar is located 72 kilometres west of Pakistan’s Gwadar port.
- It will help in Anti-Piracy Operations.
2. Economic importance
- Increased connectivity with energy-rich Central Asia is in line with India’s Connect-Central Asia policy.
- It will act as a lynchpin in the International North-South Transit Corridor that connects India to Central Asia, Russia and Europe.
Still an Issue
- US sanctions – Due to economic sanctions on Iran, it is difficult for India to fund the project. Although the USA has provided a sanctions waiver for the Chabahar port, it has been difficult to find equipment suppliers and partners due to worries that they can be targeted by the USA.
- It is still difficult to reach Afghanistan’s hinterland via this route because of the presence of the Taliban.
- Saudi Arabia and Israel will be antagonised because of Indian association with such mega projects in Iran.
2020 Update : Iran has decided to proceed with the construction of rail line from Chabahar port to Zahedan, along the border with Afghanistan, without India as India was finding it difficult to built the infrastructure due to US sanctions.
Issue : Increasing Chinese influence in India
- Belt and Road Initiative (BRI): Under the BRI umbrella, China is presently strengthening its ties with Iran, Saudi Arabia, UAE, Egypt and other Middle East countries using engagements such as the construction of stadiums, railways, industrial parks, 5G highways, clean energy project etc.
- 25-year comprehensive strategic cooperation agreement: $400 billion agreement includes allocations in Iran’s transport, manufacturing sector etc.
- Gwadar-Chabahar connectivity: Iran proposed a tie-up between Gwadar and Chabahar.
- Bandar-e-Jask port: Iran has offered this port to China which is located just 350km away from Chabahar to China.
- In 2019, a joint naval exercise was conducted between China, Iran, and Russia in the Gulf of Oman.
- China is offering its GPS to Iran and has committed to built infrastructure for 5G.
- China continued to buy Iranian oil even after the U.S. sanctions waivers expired, although in smaller volumes. In contrast, India stopped buying Iranian oil last year after U.S. waivers ended.
Issue: US out of Iranian nuclear deal
- In 2015 an agreement, the Joint Comprehensive Plan of Action (JCPOA) or Iran nuclear deal, was reached between Iran and the P5+1 group — U.S., U.K., France, Russia, China and Germany — on Tehran’s nuclear programme. The JCPOA was designed to stop Iran from producing its own nuclear weapons and set up a framework limiting the amount and degree to which Iran was allowed to enrich uranium.
- However, in 2018 USA unilaterally announced to decertify the nuclear deal on account of non-compliance by Iran and announced two rounds of economic sanction on it.
- Dec 2020: New President Joe Biden has made it clear that his administration will revive the Iran Nuclear Deal.
Limitations agreed by Iran under JCOPA
- Low enriched Uranium stockpile can’t exceed 300 kg.
- Enrichment of Uranium cant exceeds 3.67% (for weapons 90% enrichment is required but after 20% enrichment, 90% can be achieved very quickly).
- UN & IAEA Inspectors can inspect facilities.
In return, Iran gets termination of all economic and diplomatic sanctions imposed on it by the UN Security Council (UNSC), the European Union (EU) and the US.
US has pulled out of the deal and imposed sanctions
- No individual or company can trade with Iran.
- sanctions re-imposed are “extraterritorial” i.e. they apply to not just American individuals and businesses, but to non-American businesses or individuals as well.
US problems and Reasons for withdrawal
- The deal doesn’t have binding restrictions on Iran’s Ballistic Program.
- Many of the restrictions in JCPOA have sunset clauses i.e. provisions will become less strict over the years.
- The deal doesn’t prevent Iran to prevent sponsorship of terrorism in the region.
Implications of US withdrawal from JCOPA on India
- Higher Oil price
- Iran was India’s third-biggest supplier.
- India will have to face the added cost of having to recalibrate Indian fuel refineries that are used to process Iran’s special crude.
- Iranian oil came with discounts on freight, and favourable terms of payment including non-dollar payments.
- Indian projects impacted
- Chabahar project: Chabahar port is nominally exempted from U.S. sanctions, but suppliers are reluctant to deliver equipment.
- It has prevented ONGC Videsh to invest in the Farzad B gas field.
- Remittance: More than 50% of the total remittance received by India last year came from the gulf region. Any disturbance in the region would lead to a decline in such remittances.
- Security of Indian Ocean Region disturbed => Volatile situation at Strait of Hormuz impacts Indian trade negatively. It also gives opportunity to outside powers to set base in the Indian Ocean which impacts the Balance of Power.
- Giving Space to China: If India succumb to US pressure while China remains firm, then India will lose strategic space to Chin
Approach of Other nations to deal with this
- China is routing transactions through the Bank of Kunlun. U.S. sanctions on this bank are ineffective since it is carefully insulated from the U.S. financial system. (India must learn from this)
- European countries have attempted to bypass sanctions through a special mechanism called INSTEX.
Indian payment approach
- India has given the responsibility to UCO Bank to route the payment as it has no exposure to the US financial system.
- Oil payments are being made in rupees only against earlier arrangements of 45% rupees and 55% Euros.