COMMENT: Iran and India – a pragmatic friendship rekindled

COMMENT: Iran and India – a pragmatic friendship rekindled
Indian PM Narendra Modi arrives in Iran.
By Aleksandra Jarosiewicz in Warsaw May 31, 2016

Iran and India, two heavyweights on the Asian continent that are connected by cultural and linguistic ties, are in the process of a wide-ranging rapprochement following the partial lifting of international sanctions on Iran from earlier this year. The outcome of the first visit by an Indian prime minister to Iran since 2001 in May shows where the two parties have their priorities.

India seems intent on trying to push the cooperation to a new level because of its strategic considerations regarding Afghanistan and its eagerness to counter Pakistan and China’s influence in the region. Indian PM Narendra Modi tried hard on his visit to Tehran on May 22-24 to show the special bond connecting Iran and India by noting that the countries’ friendship is “as old as history”.

For its part, Iran is simply taking its chance. Once regionally isolated, it is now open to benefit from India’s interest. Tehran perceives energy-hungry India as an important buyer of Iranian oil and potential investor in the economy. In the political dimension, Iran would be eager to see India loosening its ties with Saudi Arabia and other Sunni-dominated countries, which for now is hardly possible given that relations between New Delhi and Riyadh are developing over oil deliveries and India is not willing to harm them. 

The facts speak for themselves. Although the visit brought the signing of a number of agreements ranging from transport and trade to nanotechnology and counter-terrorism, it is infrastructure that is becoming the backbone of cooperation, at least for the time being.

A tale of two seaports

Chabahar, the Iranian seaport closest to the Indian Ocean, became a focal point of the recent high-level visit. On May 23, Iran and India signed an agreement allowing India to invest $500mn in the port development that will include the construction of two terminals and five berths. India also secured the right to operate the new infrastructure for 10 years.

Chabahar is a key element of New Delhi’s wider strategy aimed at integrating Afghanistan, Iran and India through the development of infrastructure that would help in boosting regional trade. During the visit, a trilateral agreement to develop the transit and transport corridor connecting the three countries was signed, demonstrating a common goal. The Indian state-owned company IRCON and Iran’s CDTIC also signed a memorandum on the construction of a railway from Chabahar to Zahedan. The project, worth $1.6bn, is to be financed by IRCON. 

The new corridor will help India bypass neighbouring Pakistan with which it has had historically thorny relations and which is hampering trade between New Delhi and Kabul. The infrastructure would also help in developing trade relations with Central Asia, where India has already lost out to China in its global quest for energy resources. In such a context, Chabahar is India’s answer to the Gwadar seaport in Pakistan that was sponsored by China. Gwadar, a key element of the corridor linking Pakistan, Afghanistan and China, is located just 80km from Chabahar.

This geopolitical dimension of the project could hinder the realisation of India’s plans, as Iran will most probably try to avoid being involved in the rivalry between India on one side and Pakistan and China on the other. At the same time, however, Tehran is unlikely to bow to any outside pressure. In practical terms, Chabahar would bring relief to the burdened seaport of Bandar-a Abbas that is located at the entrance to the Strait of Hormuz.

Iran’s pragmatic approach

Iran is certainly open to cooperation with India, trying to benefit from the new post-sanctions era. And it is clear that Tehran is also interested in hosting Indian investments. But it is cautiously picking the sectors it wants to offer and is laying down conditions, one of which is: pay your debt first.

The visit of the Indian PM yielded no results in the energy sphere, although only a few weeks ago Indian Petroleum Minister Dharmendra Pradhan visited Tehran to discuss investment in the Farzad-B gas field and further oil purchases (India has became the second largest importer of Iranian oil in recent months). But instead of new deals, the only outcome of that visit was the rush to repay $6.4bn of India’s debt to Iran for previous oil deliveries. A few of days before Modi’s visit, media outlets reported that Indian refiners had paid part of this debt to Iran using the Turkish state Halkbank, which controversially ran a payments business with Iran until it was closed in 2013. No date of the second installment was provided, however. The debt was cleared despite the differences regarding the exchange rate that should be used to calculate the payment (part of the debt was in the Indian rupee that has weakened in the past three years against the dollar). 

As this shows, Iran is making it clear that further development of the friendship “as old as history” requires the settlement of an historic debt first.

Aleksandra Jarosiewicz is a senior fellow at the Centre for Eastern Studies (OSW) in Warsaw.