India-Iran Relations

India-Iran Relations

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.

Brief History

  • With the creation of Pakistan in 1947, India and Iran lost their 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 wars, 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. 
    1. During the Iran-Iraq war, India remained neutral.
    2. In 1983, both countries established an India-Iran Joint Commission (J.C.) to promote economic cooperation and organize foreign minister-level meets.
    3. During the 1990s, Afghanistan came under Taliban rule. Northern Alliance was fighting against Talibs. Pakistan supported the Taliban while India & Iran supported the Northern Alliance.
    4. 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 signed the New Delhi Declaration on his visit to India.
    5. During this period, India started to import gas & oil from Iran in massive amounts. 

Post 2005-06

  • But after 2005-06, relations dipped due to Iran’s nuclear program, 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 nuclear program. But Western Pressure on India to reduce trade relations with Iran was too enormous for India to ignore. 
Timeline of India-Iran Relations

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 
Shia versus Sunni
  • Due to this, Iran supports Shia militias like Hezbollah, Houthi rebels (in Yemen), Fatemiyoun (made up of Afghan Shias), Zainebiyoun (Pakistani Shias) etc.

Developing Nuclear Weapon

  • Iran wanted to develop a Nuclear Weapon for the regime’s security. 
  • But Saudis & Israel are U.S. allies, and they don’t want this because it will disturb the Balance of Power in the Middle East in Iran’s favour. 

India-Iran Cooperation

India-Iran Cooperation

1 . Strategic Aspects 

  • Iran is critical in the fight against Al-Qaeda, ISIS, Taliban etc., which pose a danger to India. 
  • Iran is the crucial player in the stability of Afghanistan, which is important for Indian security considerations. 
  • 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 significant stakeholder. 
  • Due to the sectarian divide, India can use Iran to contain Pakistan (a Sunni country).

2. Energy Cooperation

  • Iran has the fourth-largest reserve of oil and second-largest reserve of Natural Gas globally.
  • Iranian crude offers many benefits to India, including a long credit cycle, payment in the local currency, and shorter voyage on freight costs.
  • 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 joint-venture fertiliser plants in Iran to exploit cheap natural gas. 
  • IPI Pipeline (Iran -Pakistan- India) is also on the cards from Iran to India. But India fears the safety of the IPI pipeline passing through Pakistan, and India favours that Iran takes responsibility for the pipeline’s security.

3. Cultural Relations between India and Iran

  • India’s sizeable 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. 

4. Connectivity

Chabahar Port in Iran is the key in all connectivity projects of India as

  • It provides an alternate route to Afghanistan
  • It provides connectivity to Central Asia and Europe via International North-South Transport Corridor (INSTC).
  • It is an essential 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. 
  • India stopped oil imports from Iran under US pressure. Before that, India imported about 2.5 billion tonnes of Iranian oil a month, which accounted for more than 10% of its energy needs. 
  • Due to decades of harsh economic sanctions, Iran faces massive unemployment and inflation. These conditions are creating massive unrest in Iran.

Political Challenges

  • Fundamental authority in Iran rests with Supreme Leader Khamenei, an unelected cleric.
  • India has enormous stakes in Saudi Arabia, U.A.E. and Israel. Indian bonhomie with Iran can upset these Middle Eastern powers at odds with the Iranian regime.  

Involvement in Proxy Wars

  • While Iran itself is 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 versus Iran Cold War in the Middle East is going on.   
    • Irani militias are supporting Bashar al Assad in Syria.
    • Yemen, where Iran is supporting Houthi rebels. 
    • Iran is supporting Hezbollah in Palestine and Lebanon. 

Kashmir Issue

  • In many of his sermons, Iran’s supreme leader Ayatollah Khamenei has supported the terrorists in the Kashmir conflict. 

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 would not receive preferential treatment and compete with other bidders. India is upset that Iran wishes to auction the Farzad-B field even when India asserted in 2017 that it is willing to put in $11 Billion in the project. India says 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 and 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

India- Iran Relations

Its importance can be seen in two aspects

1 . Strategic Importance

  1. Alternate Route to Afghanistan
    • The route is from Chabahar to Zaranj to Delaram . 
    • It will help to end Afghanistan’s dependence on Pakistan for trade.
  2. 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.
  3. 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  International North-South Transit Corridor that connects India to Central Asia, Russia and Europe.

Still an Issue

  • U.S. sanctions: Due to economic sanctions on Iran, it is difficult for India to fund the project. Although the U.S.A. has provided a sanctions waiver for the Chabahar port, it has been difficult to find equipment suppliers and partners due to worries that the U.S.A can target them. 
  • With the Taliban in power in Afghanistan, the rationale to reach Afghanistan is gone.
  • 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 constructing a rail line from Chabahar port to Zahedan, along the border with Afghanistan, without India as India was finding it challenging to build the infrastructure due to U.S. sanctions.

Issue: Increasing Chinese influence in India

  • Belt and Road Initiative (B.R.I.): Under the B.R.I. umbrella, China is presently strengthening its ties with Iran, Saudi Arabia, U.A.E., 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: Iran and China have signed an agreement under which China would invest $400 billion in Iran over 25 years in its economy, infrastructure and industries.
  • Gwadar-Chabahar connectivity: Iran proposed a tie-up between Gwadar and Chabahar.  
  • Bandar-e-Jask port: Iran has offered this port to China, 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 G.P.S. to Iran and has committed to building 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 program. The JCPOA was designed to stop Iran from producing its atomic weapons and set up a framework limiting the amount and degree to which Iran could enrich uranium. 
  • However, in 2018 U.S.A. unilaterally announced to decertify the nuclear deal on account of non-compliance by Iran and announced two rounds of economic sanctions on it. 
  • Dec 2020: New President Joe Biden has declared that his administration will revive the Iran Nuclear Deal. 

Limitations agreed by Iran under JCOPA

  1. Low enriched Uranium stockpile can’t exceed 300 kg.
  2. Enrichment of Uranium cant exceed 3.67% (for weapons, 90% enrichment is required, but after 20% enrichment, 90% can be achieved very quickly). 
  3. UN & IAEA Inspectors can inspect facilities. 

In return, Iran gets the termination of all economic and diplomatic sanctions imposed on it by the U.N. Security Council (UNSC), the European Union (E.U.) and the U.S.

US has pulled out of the deal and imposed sanctions

Sanctions include

  • No individual or company can trade with Iran. 
  • Sanctions re-imposed are “extraterritorial” in nature, i.e. they apply to not just American individuals and businesses but also non-American businesses or individuals.

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 the 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 faced 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 payment terms, 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.
  • The security of the Indian Ocean Region has been disturbed due to the volatile situation at the Strait of Hormuz impacts Indian trade negatively. It also allows outside powers to set base in the Indian Ocean, impacting the Balance of Power. 
  • Giving Space to China: If India succumbs to U.S. pressure while China remains firm, then India will lose strategic space to China.

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 unique 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 U.S. financial system.  
  • Oil payments are being made in rupees only against earlier arrangements of 45% rupees and 55% Euros. 

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