India and Iran signed the historic Chabahar deal during Indian Prime Minister Narendra Modi’s two-day visit to Tehran last week. This was the first bilateral visit by an Indian PM in the last 15 years. It also took place at a critical juncture in the rapid evolution of India’s engagement with the region, as Modi visited Saudi Arabia in April 2016 and the United Arab Emirates in August 2015. Indian External Affairs Minister Sushma Swaraj had also visited Tehran on 16 and 17 April. These developments clearly reflect an urgent move towards strengthening and reinforcing India’s ‘Think West’ policy.
India and Iran are close economic and strategic partners. Despite tight sanctions due to Iran’s nuclear weapons program, Delhi never ceased its bilateral links with Tehran and pursued discussions on transport networks. The withdrawal of the sanctions by the western world has renewed the prospects of India-Iran relations.
The signing of the Chabahar port agreement was much expected, as it commits substantial Indian investment to develop the all-weather, deep-sea port for Iran. The agreement calls for joint investments, which will significantly boost the role of the under-tapped port of Chabahar connecting Iran through India and Afghanistan to central Asia. PM Modi also committed a $500 million line of credit to develop Chabahar into a regional trading hub, which makes it the first foreign port in which India is involved to this extent. It is being seen as India’s counter-move to Pakistan’s Gwadar port, which was built with Chinese assistance and is only 72km from Chabahar port.
The Chabahar port would facilitate the trade of goods from Iran into South Asia with the Chabahar Free Trade Zone in place. As per Iran’s media reports, the volume of trade between the two countries over the past nine months has crossed $ 9 billion. India has also committed an investment of over $ 20 billion in the Chabahar Special Economic Zone. In relation to this, bilateral trade agreements are being finalized. Negotiations on a preferential trade agreement are going on with an emphasis on the issue of double taxation and investment promotion and protection.
India also pledged to help build a 500-km railway line between Chabahar and Zahedan. Similarly, India is competing over the North-South Transport Corridor (NSTC) since the turn of the millennium. In 2014, trial runs of the two containers were conducted to test its efficacy. Furthermore, trilateral agreement between Afghanistan, India and Iran was signed to construct the Zaranj-Delaram road and connect it with Iran. Afghanistan was most interested in this agreement as the transit opportunity open doors to land routes instead of sea route.
Similarly, Iran is an important source of oil and gas for India. Several Indian companies are investing in crude oil exploration and continued to procure it from Iran when American and EU sanctions existed and significant restrictions were levied on trade with Iran. Now, when the penalties have been lifted, the pursuit of energy cooperation becomes vital and unhindered. In 2012, when the gas field was discovered, the pact between the Oil and Natural Gas Corporation (ONGC) of India and the Government of Iran faced a stalemate.
As of now, the Reserve Bank of India is in the process to activate the Iranian bank accounts in India under the Asian Clearance Union. Furthermore, these commercial ties have laid on the long-standing civilizational links between India and Iran. The two countries also decided to establish a Hindi Chair in Tehran University and renew their cultural exchange program.
But there are challenges in the path of cooperation between the two counties too. Firstly, the connectivity projects have undoubtedly impacted India’s ties with its neighbours. It is no surprise that while the Chabahar port was being negotiated, the construction of the Gwadar port in Pakistan was also progressing. China has not only invested in the infrastructure of Pakistan and building an economic corridor, but is persuading Iran on creating an industrial city. Secondly, Modi is visiting Iran soon after his visit to Saudi Arabia. And that is another reason why Modi’s ‘think west policy’ needs careful adjustments. Iran and Saudi Arabia are hostile states and their mutual distrust has heightened recently. At the recent Organisation of Islamic Cooperation Summit in Istanbul, Saudi Arabia accused Iran of supporting terrorist attacks. Hence, it becomes critical for India to balance its relations. Lastly, the penalties on Iran by the western community have not been fully lifted and there are several regulations pending for foreign investments in Iran. So India is compelled to work within the confines of the partial sanctions and pressure from the United States.
The Chabahar port is an alternative route for India to trade with Afghanistan. The container and multipurpose cargo terminal provides access to the road system in Afghanistan, and India will not have to depend on Pakistan to allow transit trade. Pakistan has often been reluctant to grant access to its territory for trade between India and the Central Asian states too.
But Iran may also go opt for outcomes that benefit it the most. It is in Iran’s interest to negotiate investments with China or encourage pipeline projects with India and Pakistan. More importantly, due to its geo-strategic location, Islamabad attracts the attention of Iran, China, Russia and the United States.
India and Iran are close economic and strategic partners. Despite tight sanctions due to Iran’s nuclear weapons program, Delhi never ceased its bilateral links with Tehran and pursued discussions on transport networks. The withdrawal of the sanctions by the western world has renewed the prospects of India-Iran relations.
The signing of the Chabahar port agreement was much expected, as it commits substantial Indian investment to develop the all-weather, deep-sea port for Iran. The agreement calls for joint investments, which will significantly boost the role of the under-tapped port of Chabahar connecting Iran through India and Afghanistan to central Asia. PM Modi also committed a $500 million line of credit to develop Chabahar into a regional trading hub, which makes it the first foreign port in which India is involved to this extent. It is being seen as India’s counter-move to Pakistan’s Gwadar port, which was built with Chinese assistance and is only 72km from Chabahar port.
India is compelled to work under partial sanctions and US pressure
The Chabahar port would facilitate the trade of goods from Iran into South Asia with the Chabahar Free Trade Zone in place. As per Iran’s media reports, the volume of trade between the two countries over the past nine months has crossed $ 9 billion. India has also committed an investment of over $ 20 billion in the Chabahar Special Economic Zone. In relation to this, bilateral trade agreements are being finalized. Negotiations on a preferential trade agreement are going on with an emphasis on the issue of double taxation and investment promotion and protection.
India also pledged to help build a 500-km railway line between Chabahar and Zahedan. Similarly, India is competing over the North-South Transport Corridor (NSTC) since the turn of the millennium. In 2014, trial runs of the two containers were conducted to test its efficacy. Furthermore, trilateral agreement between Afghanistan, India and Iran was signed to construct the Zaranj-Delaram road and connect it with Iran. Afghanistan was most interested in this agreement as the transit opportunity open doors to land routes instead of sea route.
Similarly, Iran is an important source of oil and gas for India. Several Indian companies are investing in crude oil exploration and continued to procure it from Iran when American and EU sanctions existed and significant restrictions were levied on trade with Iran. Now, when the penalties have been lifted, the pursuit of energy cooperation becomes vital and unhindered. In 2012, when the gas field was discovered, the pact between the Oil and Natural Gas Corporation (ONGC) of India and the Government of Iran faced a stalemate.
As of now, the Reserve Bank of India is in the process to activate the Iranian bank accounts in India under the Asian Clearance Union. Furthermore, these commercial ties have laid on the long-standing civilizational links between India and Iran. The two countries also decided to establish a Hindi Chair in Tehran University and renew their cultural exchange program.
But there are challenges in the path of cooperation between the two counties too. Firstly, the connectivity projects have undoubtedly impacted India’s ties with its neighbours. It is no surprise that while the Chabahar port was being negotiated, the construction of the Gwadar port in Pakistan was also progressing. China has not only invested in the infrastructure of Pakistan and building an economic corridor, but is persuading Iran on creating an industrial city. Secondly, Modi is visiting Iran soon after his visit to Saudi Arabia. And that is another reason why Modi’s ‘think west policy’ needs careful adjustments. Iran and Saudi Arabia are hostile states and their mutual distrust has heightened recently. At the recent Organisation of Islamic Cooperation Summit in Istanbul, Saudi Arabia accused Iran of supporting terrorist attacks. Hence, it becomes critical for India to balance its relations. Lastly, the penalties on Iran by the western community have not been fully lifted and there are several regulations pending for foreign investments in Iran. So India is compelled to work within the confines of the partial sanctions and pressure from the United States.
The Chabahar port is an alternative route for India to trade with Afghanistan. The container and multipurpose cargo terminal provides access to the road system in Afghanistan, and India will not have to depend on Pakistan to allow transit trade. Pakistan has often been reluctant to grant access to its territory for trade between India and the Central Asian states too.
But Iran may also go opt for outcomes that benefit it the most. It is in Iran’s interest to negotiate investments with China or encourage pipeline projects with India and Pakistan. More importantly, due to its geo-strategic location, Islamabad attracts the attention of Iran, China, Russia and the United States.