IRAN SEEKS IMPROVED TRADE TIES WITH INDIA AMID SANCTIONS
31, Mar 2019
Prelims level : International Relation Mains level : GS II - Effect of policies and politics of developed and developing countries on India’s interests, Indian Diaspora
- Despite of sanctions from U.S. Iran is exploring ways to increase its bilateral trade with India, including expanding banking channels.
India – Iran Relations:
- India can decrease the dependence on Saudi for oil and Iran oil is comparatively cheap
- Iran has the world’s second-largest reserves of natural gas, yet it is not a major exporter. Iran has several challenges to overcome before it can become an energy supplier to Europe and Asia. Iran’s energy infrastructure – long neglected as a result of Western sanctions – requires major upgrades to make it capable of sustained energy exports.
- This will require massive foreign investment and India can tremendously help here.
- It is located on the Makran coast, Chabahar in southeastern Iran. Its location lies in the Gulf of Oman. This coast is a relatively underdeveloped free trade and industrial zone, especially when compared to the sprawling port of Bandar Abbas further west. Also, it is the only Iranian port with direct access to the ocean.
Why this port is of interest to India?
- India believes the port is critical to its interests and wants to develop it as a counter to Pakistan’s Gwadar port which was built with Chinese assistance
- The port will allow India to bypass Pakistan to transport goods to Afghanistan and Central Asia using a sea-land route
- Chabahar Port lies in the Persian Gulf in Iran and will help India in expanding its maritime commerce in the region
- It also provides opportunities to Indian companies to penetrate and enhance their footprint in the region
- It is located 76 nautical miles (less than 150km) west of the Pakistani port of Gwadar, being developed by China. This makes it ideal for keeping track of Chinese or Pakistani military activity based out of Gwadar
- The port will cut transport costs/time for Indian goods by a third
- From Chabahar, the existing Iranian road network can link up to Zaranj in Afghanistan, about 883 kms from the port. The Zaranj-Delaram road constructed by India in 2009 can give access to Afghanistan’s Garland Highway, setting up road access to four major cities in Afghanistan — Herat, Kandahar, Kabul and Mazar-e-Sharif.
Role in Afghanistan:
Iran-Afghan railway link:
- India is currently involved in constructing a 560-mile-long railway line linking the Iranian port with the iron ore mines in Hajigak in southern Afghanistan.
- The railway link when completed will potentially afford India some strategic benefits including –
- Increasing India’s position and leverage in Afghanistan and the central Asian region. This
- affords India an easier connection to Afghanistan after avoiding Pakistani blockages.
- Apart from the impact on security and regional politics this more importantly implies that Indian companies will have opportunities to start exploration over Afghanistan’s mineral wealth which is estimated to be close to $3 trillion. (This alone is over double the size of India’s economy.)
- Both Iran and India share the goal of a stable government in Kabul free of the Taliban’s influence and not revert to the Taliban-controlled Pakistani client state that it was in the 1990s. To that end, India and Iran must engage each other to strengthen the hand of the government in Kabul.
- Iran believes that India fulfils a substantial part of Iran’s needs. For example, India is very capable in steel, in aluminium, in mines and metals, railroads, software, IT, technology and so on. There is a lot of demand in these sectors in Iran.
- One of the biggest advantages in recent times is that Indians are offering a credit line to the Iranians. That’s a very substantial element in the hands of the Indians to offer for different projects to Iranians and this credit, which is in rupees, is beneficial to Indians. According to the financial structure, Indian companies will benefit from it, the rupee will benefit from it.
- Iran would act as a gateway to Central Asia
- After removal of sanctions the significance of Iran geopolitically has increased.
- Central Asia is going to be the scene of renewed great power rivalry, and India must act, not as a mere spectator, but as a leading player.
- 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.
- 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
- India has the 2nd largest population of Shias in the world after Iran some of whom probably also have ancestral ties to Iran. This 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.
- India has been vigorously pursuing the Iran–Pakistan–India (IPI) gas pipeline project for the last decade. The operation of the IPI project would be reinforced by the trilateral “Framework Agreement,” in which the three governments would be committed to the provisions of the Energy Charter Treaty
- With the Iran-Pakistan-India (IPI) pipeline still stuck and the Turkmenistan-Afghanistan- Pakistan-India (TAPI) pipeline yet to take off, India is very keen to kick-start an undersea pipeline project that would bring Iranian gas to India via the Arabian Sea bypassing Pakistan.
- This is a great opportunity for India to transport natural gas from Iran to Porbandar port in Gujarat
- Zaranj-Delaram Highway is being built with financial support from India.
- A strategic partnership between India, Iran and Russia is intended to establish a multi- modal transport link connecting Mumbai with St Petersburg, providing Europe and the former Soviet republics of Central Asia access to Asia and vice versa.
- Iran may also provide connectivity to Central Asia and Europe, via the International North South Transport Corridor (INSTC), which is estimated to be 40 percent shorter and 30 percent less expensive than trade via the Red Sea-Suez Canal-Mediterranean route.