As Iran looks to the East, India must not lose sight of it
Iran is central to India’s trade, energy and connectivity plans with not just Central Asia and Afghanistan, but with entire Eurasia.
Ever since US President Donald Trump withdrew from the multilateral nuclear agreement with Iran, Iran’s Supreme leader Ayatollah Khamenei, who is responsible for setting the directions of the nation’s security and foreign policy, has repeatedly advised the government against relying on European powers to salvage the Joint Comprehensive Plan of Action (JCPOA).
Earlier this year, asking the Iranian government to avoid dependence on foreign countries, the leader argued that ‘in foreign policy, top priorities for us, today, include preferring the East to the West, preferring the neighbouring countries to the far reached locations, preferring nations and countries that share in our goals.’
Iran’s ‘Look to the East’ policy seeks to reconcile pragmatic ends as well as ideological goals of the country. It allows Iran to benefit from its integration into the world economy, while avoiding dependence on the West.
The renewed emphasis on deepening relations with the East stems from the Iranian leadership’s view of the international system as undergoing an era of transition, in which the pole of economic power — and along with it, political power — is gradually shifting from the West to the East.
Maintaining its obligations under JCPOA and fighting off the unilateral American sanctions, Iran is trying to rehabilitate its relations with the international community.
In doing so, it is focussing on strengthening relations with Asian powers willing to cooperate with Iran, while circumventing American sanctions. At a time when the economic rise of China and India has redefined economic integration in terms of continent-wide connectivity projects and energy corridors, a key component of Iran’s Look to the East Policy 2.0 is to find synergies with these projects.
Connect Central Asia through Chabahar
For India, connecting with Central Asia is important not only from the point of view of energy and resource security, but also for utilising the region’s transit potential to connect with Europe and Russia.
Countries in the region, on their part, are seeking to multiply their source of infrastructure investment, diversify routes and create an integrated and seamless transport space. They are also hoping that connecting with global supply chains will boost business activity in their own countries.
Under the Chinese Belt and Road initiative, a number of transport corridors are connecting landlocked Central Asian countries to ports on China’s eastern seacoast.
But Iran’s Persian Gulf is the shortest gateway to the ocean for these countries. For Afghanistan, it provides a secure and alternate route to the sea, reducing its dependence on Pakistan.
For India, Iran is a crucial escape out of its post-partition geopolitical entrapment, with Pakistan blocking India’s access to Central Asia and Afghanistan.
Iran is a crucial node in India’s bilateral, sub-regional and transcontinental connectivity projects, important not only for their geo-economic potential, but also in the geopolitical sense for ameliorating India’s extended neighbourhood’s dependence on China.
Chabahar, a deep water port capable of handling big-cargo ships, is being developed as transhipment to Afghanistan and Central Asia, freeing Bandar Abbas mainly for trade with Russia and Europe. Four months after sanctions were lifted from Iran in January 2016, India, Iran and Afghanistan signed a tripartite Chabahar agreement, calling for joint investments to develop Chabahar as a regional trading hub.
The first phase of the Chabahar port was inaugurated last year, but the return of American sanctions on Iran’s banking sector, and the absence of payment mechanism for India to pay the Iranian company it had hired to manage its commercial operations at Chabahar, delayed the operationalisation of the port.
Underscoring Chabahar’s importance to India’s developmental partnership in Afghanistan, as the port would provide the war-torn country with a secure trade and transit route with India and the world, it was granted waiver from the US sanctions on Iran.
Subsequently, in a major boost for trade logistics between the two countries, Afghanistan announced its decision to establish the Afghan shipping sector, with private ships flying Afghan flags between Chabahar and India.
To operationalise the potential of Chabhar for boosting India’s trade with the region, in January this year, India acceded to the Asghabat Agreement for facilitation of transportation and transit of goods between the landlocked Central Asian countries of Turkmenistan, Uzbekistan and Kazakhstan, and Persian Gulf littoral countries of Iran, Oman.
India has invested massively in connecting Chabahar with Zaranj-Delaram road in Afghanistan and a railway link between Chabahar and Zahedan, on the Iran-Afghan border. The railway link would be extended to Mashhad in eastern Iran and thereon to Central Asia.
In a testimony to the growing significance of Chabahar for India’s trade with the region, when Uzbek President Shavkat Mirziyoyev visited New Delhi in September this year, the two countries, while setting a bilateral trade target of $1billion to be achieved within two years, decided to route their trade through Chabahar.
Iran is the linchpin of INSTC
Bandar Abbas on the entrance of the Persian Gulf and Bandar-e Anzali on Iran’s Caspian Sea coast are two key transit ports of the International North-South Transport Corridor (INSTC), a multimodal network of sea and railway route providing more efficient connectivity between India’s Eastern seaboard and Eurasia. Compared with the traditional route linking India to Northern Europe and Russia via the Suez Canal, the INSTC is expected to cut the time and cost of delivering goods by 30% to 40%.
With last year’s trade turnover reaching $1billion, Kazakhstan is India’s largest trade partner in the region, but much more potential remains untapped.
India is seeking to reach Kazakhstan and Russia through an Eastern branch of the INSTC, linking Gujarat’s Mundra Port with Bandar Abbas and thereon to Iran-Turkmenistan-Kazakhstan railway network. Last month in New Delhi, Kazakhstan, Turkmenistan, Iran and India held a quadrilateral meet on cross-border connectivity. The idea was to attract Indian businesses and investments to Eurasia, while informing them about the logistical capabilities of the route.
As INSTC brings down the logistics cost, the Eurasian Economic Union (EAEU) will boost regional trade by reducing custom duties and eliminating non-tariff barriers between member states. Once both India and Iran have signed free trade agreements with WAEU, they will not only have a preferential access to the integrated Eurasian economic space, but would also help reduce the market dominance of China, which has a non-preferential agreement with EAEU.
Iran is a crucial player in the Pipeline Geopolitics of the region
Iran is also crucial for India’s long-term strategy of securing reliable and diversified energy supplies. As oil is on the frontline of the economic confrontation between the United States and Iran, the latter is trying to capitalise its gas reserves — second biggest in the world — with the help of Russia and China.
When five more phases of the supergiant South Pars gas field come online by March, 2019, Iran would have added 84 million cubic meters to the 560 mcm of daily gas recovery from the field. Phase 11 of the South Pars, to be developed by CNPC — which now holds the majority share after it assumed 50.1% stake of French Total when the latter failed to get a US waiver — is supposed to increase capacity by 56mcm/day.
Even as the Chinese track-record in Iran’s gas sector has not been very good, China has been one of the few countries investing in the Iranian oil and gas sector despite international sanctions on Iran.
After repeated delays in fulfilling its contractual obligations, in 2014, Iran had cancelled CNPC’s contract to develop North Azadegan field. As western companies flee from Iran, it would seek to avoid dependence on China, and therefore, India needs to carefully think about seeking a licence to develop the Farzad b gas field it discovered about a decade ago.
Given that the Iranian population is concentrated in the northern part of the country while its active gas fields are located along the south-west coast, the logic of internal logistics for Iran and the Russian desire to export gas to South Asia anchor the emerging energy cooperation between the two countries.
In a north-south energy corridor, Russia would use Azerbaijan’s pipeline system to transport gas to North Iran, while Iran can supply to Russian customers in Persian Gulf and potentially South Asia.
Last year in November, Iran and Russia signed a MoU envisaging support for construction of a 1,200 km long pipe line from Iran to India, with a branch pipeline going to Pakistan. In June, India received its first LNG ship as part of a long-term deal, under which Russia would supply India LNG worth $25 billion over the next 20 years.
For India, undersea gas pipelines to major gas producers Russia and Iran would not only be economical, but also provide a way out of the geopolitical uncertainties paralysing the Turkmenistan-Afghanistan-Pakistan-India (TAPI) Pipeline. As TAPI remains a pipedream, Iran, sharing a long border with Turkmenistan, is eager to participate in gas swap, delivering Turkmen gas to South Asia.
Iran’s ‘look to the East’ policy presents India with a strategic opportunity to utilise Iran as the crucial land-bridge connecting India with Eurasia. But as the two countries closely cooperate on energy and connectivity, they must not only work to multidimesionalise their relations, but also immunise their ties against third-party influence. And there are no prizes for guessing who that influential third party is.