As the United States has pulled out from the Iran nuclear deal, India like the rest of the world, India is expected to be caught in the crosshairs of this potential fallout. Indian interests in Afghanistan and West Asia are at stake. Besides being a key source of crude oil for India, Iran is critical to India’s regional policy as it seeks to balance against China’s growing influence in South Asia.
The official response from India has been a cautious diplomatic tightrope walk, albeit in favor of maintaining the nuclear deal.
The Indian foreign office walked a diplomatic tightrope, its spokesperson Raveesh Kumar issuing an extremely cautious statement: “India has always maintained that the Iranian nuclear issue should be resolved peacefully through dialogue and diplomacy by respecting Iran’s right to peaceful uses of nuclear energy as also the international community’s strong interest in the exclusively peaceful nature of Iran’s nuclear program. All parties should engage constructively to address and resolve issues that have arisen with respect to the Joint Comprehensive Plan of Action (JCPOA).
How does this statement sit with India’s position on multilateral commitments?
According to Shubhajit Roy, “India has other concerns." Iran has not used the last few years well to rebuild its economy in any meaningful way. Its economic condition is even more vulnerable today than it was earlier. In the last few years, Iran has spent more capital on the conflicts in Syria, Yemen and Iraq, with the result that inflation and unemployment are rife and erupted in mass protests earlier this year. The Rouhani government is likely to come under greater domestic pressure, but more alarmingly, it could create greater space for the hardliners in Iran.
India desperately needs Iran for strategic interests
The real trigger in India-Iran ties is India’s great power aspirations and its expansive agenda for influence in Central Asia and beyond. India is developing Iranian port Chabahar as the beginning of a route to strife-torn, landlocked Afghanistan and as a gateway to Central Asia. It is both a financial and a strategic investment, given that Pakistan does not allow India land access to Afghanistan and Central Asia. India has already committed about $85 million to Chabahar development with plans for a total of $500 million on the port, while a railway line to Afghanistan could cost as much as $1.6 billion. India views this port as an alternative to the Pakistani port of Gwadar, which lies 140 kilometers east of Chabahar and is being developed by China as part of the China-Pakistan Economic Corridor. In February, India and Iran signed a pact that gives New Delhi operational control of a part of port for 18 months.
According to Suhasini Haidar-“The new US sanctions could slow or even bring those plans to a halt depending on how strictly they are implemented. The US took a lenient line on India’s wheat consignment to Afghanistan using Chabahar, with the former US Secretary of State Rex Tillerson saying the US wanted to target the regime not the Iranian people. His replacement Mike Pompeo and the new US National Security Adviser (NSA) John Bolton have a much tougher line on Iran, however, and any further restrictions they place will make India’s Chabahar plans more expensive and even unviable.
He further added, “Chabahar is crucial to Indian interests also because Iran is seen to be offering the port to other countries as well, including China, which is already developing Pakistan’s Gwadar port next door.”
Beyond Chabahar, India has been a founder of the International North South Transport Corridor (INSTC) since it was ratified in 2002, that starts from Iran and aims to cut right across Central Asia to Russia over a 7,200-km multi-mode network, cutting down transportation and time taken by trade by about 30%. New US sanctions will affect these plans immediately, especially if any of the countries along the route or banking and insurance companies dealing with the INSTC plan also decide to adhere to US restrictions on trade with Iran.
Oil and energy
Iran is India’s third-largest oil supplier. India came under intense US pressure from 2011 regarding its exposure to Iran and the Persian nation slipped from being India’s top source for oil, replaced by Iraq and Saudi Arabia. During the first round of sanctions, India built an alternative system of engaging with Iran while keeping its nose clean with the US — like using payments in rupees instead of US dollars.
“The impact (of new sanctions) in India will be there, but not so high,” said R Ramachandran, head of refineries at state-owned oil firm Bharat Petroleum Corp.
According to columnist Abhjit Iyer Mitra, “This is also the best thing that could have happened to India. India’s refineries are uniquely suited to process Iranian crude and Iran can no longer play the “Oh, but I have other suitors waiting for me” game. It also means the negotiating advantage is now decisively with India and the barter agreement with Iran will have to be reinstated, which once again favors India.
What was unique about the sanctions was that even if India paid Iran in cash, Iran’s negotiating position was so bad that it had to accept Indian offers at less than market cost, simply to generate enough cash to keep its economy running, with the losses having to be absorbed by the Iranian state.
Foreign policy challenges
Historically, India has showcased an uncanny ability to maintain strategic autonomy during periods of geopolitical turbulence. However, ongoing developments in the region could test the limits of India’s foreign policy and make it very difficult for India to continue to maintain close ties with both Iran and its strategic rivals.
“ A US decision to withdraw from the nuclear deal, however, could test the limits of India’s foreign policy and have serious implications for New Delhi. How New Delhi maintains its growing closeness with the United States, Israel, and Saudi Arabia besides flirting with Iran is major challenge for Modi government”, comments political analyst Devirupa Mitra.
Mitra further added, Whatever India decides to do vis-à-vis Iran it will be caught between a rock and a hard place. If it follows the US lead and draws away from Iran, it will leave a hole that China, and by association Pakistan, will be only too happy to fill. Already feeling encircled by China's growing influence in the region - especially with Nepal, Sri Lanka and the Maldives - India will not want to lose what little edge it has in maintaining some sort of geopolitical balance.”
Indo-US ties could also be hit if India sides with Iran.
The US has been hard on China and Pakistan and has asked India to be more proactive in the Indo-Pacific, with an eye on China. India joined the SCO along with Pakistan last year, and both will be formally admitted in June 2018, when Modi travels to the Chinese city of Qingdao for the SCO summit. This year, Chinese officials say they will consider inducting Iran into the 8-member Eurasian security organization. If the proposal is accepted by the SCO which is led by China and Russia, India will become a member of a bloc that will be seen as anti-American and will run counter to some of the government’s other initiatives, for example, the Indo-Pacific quadrilateral with the US, Australia and Japan.
