Iran- India economic linkages have been impacted significantly, ever since the withdrawal of US from JCPOA (Joint Comprehensive Plan of Action), or the Iran nuclear deal, in 2018. The impact on the bilateral economic relationship between New Delhi and Tehran was even more pronounced, after India stopped purchasing oil from Tehran in 2019. The US had ended the waiver from sanctions which had provided to India, and a number of other countries, to import oil from Iran.
In 2018-2019, bilateral trade between India and Iran was estimated at over 17 Billion USD (mineral oil and fuel imports accounted for a significant percentage of the 17 Billion USD). In 2019-2020, for the period from April-November, bilateral trade was estimated at 3.5 Billion. There was a significant drop in Iran’s imports to India, owing to the reduction of Iranian petroleum imports by India to zero.
Downward trajectory in the bilateral relationship
2019 witnessed a downward trajectory as far as New Delhi-Tehran ties were concerned, with Iran expressing it’s disappointment with New Delhi for not taking a firm stance against Washington DC. Iranian Foreign Minister, Javad Zarif in 2019 while making the above point in an interaction with Indian journalists also stated, that ‘if you can’t lift oil from us, we won’t be able to buy Indian rice,’
Chabahar Port and the India-Iran relationship
The US on its part has exempted the strategically important Chabahar Port Project, India’s gateway to Afghanistan, from sanctions. The Port was earlier touted by many, as India’s counter to the Gwadar Port (Balochistan Province, Pakistan) which is at a distance of 70 kilometres and an important component of the China Pakistan Economic Corridor (CPEC). The Government of India had taken over phase 1 of the Shahid Beheshti Port in December 2018 (according to an agreement India was to operate two berths within phase 1 of the project). During the covid19 pandemic, India had used the Chabahar Port to deliver relief materials to Afghanistan.
After India’s decision to stop the purchase of oil from Iran, and the souring of ties between both countries, Iran had given indicators, that it was keen to get Pakistan (Iran had proposed to connect the Chabahar Port with Gwadar Port) and China on board. Iran had also complained, that progress on the Chabahar Port was slow, due to India’s cautious attitude towards the project, as a result of US pressure, and delays in funding .
In the aftermath of the Iran-China 25 year agreement, India has been paying greater attention to ties with Iran in general, and the Chabahar Project in particular, a point strongly reiterated by the back to back visits of India’s Defence Minister, Rajnath Singh and External Affairs Minister S Jaishankar, to Tehran respectively. Connectivity, economic linkages and issues of regional security (specifically Afghanistan) were discussed during both visits.
There were reports, that India had been elbowed out of the Chabahar-Zahedan railway project and important component of the Chabahar project, Iran has categorically dismissed this claim.
Indian exports of Basmati to Iran hit by sanctions
While the India-Iran bilateral relationship, is often viewed from the prism of the Chabahar Port and Oil, Iran also accounts for a large percentage of India’s Basmati (an aromatic long grain rice) exports – 34%. There is likely to be a dip this year, due to sanctions, and Iran is already substituting Indian Basmati with Pakistani basmati.
The North Indian states of Punjab and Haryana account for 75 percent of Basmati exports. Indian Basmati exporters and growers have expressed their concern over the likely fall in exports to Iran (which is an important market).
The impact of US sanctions on Iran’s economic ties with India, with Basmati exports being an important example, reiterate the point that the Iran-India relationship is far deeper, and multifaceted than is often perceived. While the thrust is on connectivity and geo-politics, the economic links are often overlooked. It is important for New Delhi, to seek the views of all domestic stakeholders as far as economic ties with Iran are concerned.
New Delhi should also take a cue from UK, France and Germany also referred to as the E3 which set up a special purpose vehicle (SPV), known as Instrument in Support of Trade Exchanges (INSTEX), in 2019, to circumvent US sanctions. During the covid19 pandemic, INSTEX was used to provide relief materials to Iran). New Delhi clearly needs to think out of the box, and accord its ties with Iran greater priority given the economic, historical and political context. The visits of India’s Defence Minister, Rajnath Singh and External Affairs Minister, S Jaishankar to Tehran in the month of September clearly emphasize the point, that India is doing a re-think with regard to its Iran policy, factoring its strategic and economic importance. There is also a realization, that Washington’s approach towards Tehran may witness a significant shift if there is a change of guard in November 2020 (which can not be ruled out).