The State of Indian-Iranian Relations

Carnegie India, in collaboration with the India International Centre, hosted a roundtable discussion on Prime Minister Narendra Modi’s upcoming visit to Iran. This visit, the first bilateral visit to Tehran by an Indian prime minister in 15 years, comes at a critical juncture in the rapid evolution of India’s engagement with the region. Modi’s visit to Tehran follows trips to Saudi Arabia in April 2016 and to the United Arab Emirates in August 2015.

The roundtable discussion featured Dinkar Prakash Srivastava, the former Indian ambassador to Iran. Srivastava examined the challenges and opportunities of India’s latest outreach to Tehran. To take the full advantage of the current historic moment in Iran, the participants concluded, New Delhi must match Modi’s diplomacy with a substantive effort to resolve outstanding issues with Iran and a long-term strategy on connectivity, energy security and regional cooperation.

Discussion Highlights

• Overview of Relations: Iran and India have a history of high-level contact, including visits from the shah to post-independence India and visits from Prime Minister Nehru to Iran, as well as two high-level state visits in 2001 and 2003 and the signing of the New Delhi Declaration in 2003. However, participants explained that the relationship has been stymied by a range of issues, such as India’s voting record against Iran in the International Atomic Energy Agency and India’s refusal to stand by Iran during the sanctions period. New Delhi’s historically close ties with the Arab nations have also proved to be an impediment to developing close relations with Iran.
   
• Most Critical Issue: Participants argued that the $6.5 billion that India owes Iran in lieu of oil imports is possibly the thorniest of the current issues between the countries. India is the second biggest customer of Iranian crude after China. But it has built up a backlog of payments over three years while Iran was under sanctions over its nuclear program. Participants agreed that it is imperative that Prime Minister Modi address this issue during his visit, if relations are to proceed on a warmer note.     
   
• Connectivity Through Iran: The issue of reliable connectivity through Iran has become paramount in the wake of India’s growing ambitions in the Central Asian region, participants explained. This connectivity is critical to two major initiatives. First, it is needed to gain access to the oil and gas fields of Central Asia to fuel India’s growing economy and to open up the Central Asian markets for Indian products. Second, India needs easy land access to Afghanistan, enabling New Delhi to strengthen its strategic and economic ties with the country. With Pakistan effectively blocking any direct land route from India, Iran must be a reliable transit point.  
   
• Chabahar Port: The development of Chabahar Port, critical to enabling such connectivity, has lingered for 14 years. Participants said that a memorandum of understanding was signed between the Indian and Iranian ministers for transport in 2015, allowing for the commencement of negotiations for the leasing of existing berths at the Chabahar Port, but progress remains stalled due to a failure to agree on terms. India’s inability to deliver on this project has negatively affected not only Indian credibility, participants added, but also New Delhi’s economic and strategic interests.
   
• The International North-South Transit Corridor: Coupled with the Chabahar Port, the International North-South Transit Corridor (INSTC) can be the cornerstone of the India-Iran relationship, participants argued. The INSTC trade corridor, running through Iran and Afghanistan, is a consolidated transportation network, including rail, road, and water transport connecting Mumbai to Moscow, via Bandar Abbas in Iran.  It would allow India to bypass the overland routes through Pakistan and China to Central Asia. Not only does the INSTC have the potential to serve as a strategic counterbalance to China’s One Belt, One-Road Initiative, participants argued, it would also allow India to integrate with Eurasian markets and firmly establish itself in Central Asian oil and gas production.
   
• Energy Security: Given that India is a net importer of energy and Iran a net exporter, participants pointed out that this sector provides a foundation for bilateral relations. Iran’s abundant oil and gas fields have the potential to meet India’s ever-growing demands. The signing of an agreement to develop the Farzad-B gas fields, which had been stalled during the sanctions period, would be a welcome step in this direction, participants suggested. They added that the prime minister must also assure the government’s support for private investments such South Asia Gas Enterprise’s proposed $4.5 billion undersea pipeline from Iran to India. Iran would also serve as a safe and stable transit point for Central Asian gas and oil, either via pipelines or other means. India must however act decisively so as to not lose any advantage in this critical area, they concluded.
   
• Pakistan: Pakistan has maintained high level diplomatic engagement with Iran, participants acknowledged.  However, the rise of Shia killings coupled with attacks on Iranian border guards by Sunni groups in Pakistan have elicited strong reactions within Iran. Pakistan’s refusal to commit troops in Yemen on behalf of Saudi Arabia helped bilateral relations, but a latent rivalry between Pakistan and Iran over Afghanistan persists. Despite turbulence in their relationship, Iran and Pakistan are likely to maintain close ties for strategic reasons, participants concluded.
   
• Afghanistan: Iran has maintained contact with the Taliban, to ensure its eastern borders remain free of influence from the self-proclaimed Islamic State, participants said. However, given the theological differences between the Taliban and Iran, participants argued that this contact will not have long-term consequences. India must ensure Iran’s objectives in Afghanistan are clearly outlined to determine their convergence with New Delhi’s goal of a peaceful and stable Afghanistan, they concluded.
   
• China: In a state visit to Iran, Xi Jinping emphasized China’s place as Iran’s biggest trading partner for six years in a row. This relationship will only grow stronger as both countries have agreed to increase trade to $600 billion over the coming decade, participants said. They argued that the Chinese filled a void created by Western sanctions and earned trust and goodwill with the Iranian people. Given their deep cultural and civilizational ties, India’s absence was conspicuous, they added.
   
• Iran, the Arab Gulf, and Israel: India must find a way to balance competing imperatives with Iran, the Arab Gulf, and Israel, participants said. Since India does not have bilateral issues with any of the major players in the Gulf, it should avoid zero sum diplomacy and constructively engage with the region as a whole. Its stance toward the region must be guided by national interests, whether through economic cooperation with Gulf Cooperation Council states or through robust defense ties with Israel, participants said. As a neutral player with legitimate security interests, they contended that India can also play a role in building the security architecture of the region to further its interests.

This event summary was prepared by Arushi Kumar and Shashank Reddy, research assistants at Carnegie India.