India and Iran: Unravelling Ties

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On July 31st, Iran warned that it could decide not to grant the development project of the Farzad-B gas field to India, after a decade of negotiations. This statement is merely the latest stage of an ongoing feud between the two countries over the project. The quarrel, among other issues, calls into question the future of what used to be relatively good relations between Iran and India.

The Farzad-B gas field was discovered in Iran in 2008 by a consortium of Indian state-run companies, which have been negotiating with the Iranian government over the exploitation of the gas field since then. An agreement was reached in 2015: the Indian companies planned to extract 56 million cubic meters of gas per day and to export them to India.

Yet, while the deal looked like a win-win for both parties, negotiations turned into a year-long row. In what seems to be the latest retaliation, Tehran has threatened not to award the development project to India, and Gazprom, Russia’s state gas company, is to be considered in the bid. This Iranian statement comes as a response to India’s decision to reduce its crude oil imports from Iran by a quarter, since this cut was perceived as a means to pressure Iranians into granting the deal to the Indian consortium.

This vicious cycle reflects a certain lack of communication and understanding between the two parties. Beyond commercial concerns however, this feud might indicate a broader trust issue between Tehran and New Delhi.

Iran and India, once neighbors, are age old friends. Commercial and cultural links date back from ancient times. The shared heritage of these two nations can still be seen today through the influence of Farsi in the Urdu language, and the historically significant role of the Parsi community living in India. Even after India’s independence in 1947 and the Iranian revolution in 1979, their relations remained relatively unaltered. A new dynamic was set in the 2000s and Tehran and New Delhi initiated a strategic partnership, to promote better cooperation at the government-level.

However, the international sanctions imposed on Iran loosened its ties with India. Though traditionally a major trading partner, India complied with the sanctions and lowered its exchanges with Iran over the years, which explains the slowing down of the Farzad-B project negotiations. Bilateral trade attained its usual scope in 2015, when the sanctions were lifted after a nuclear deal was reached between Iran and the P5+1.

At present, Iran and India sustain ostensibly good diplomatic relations for all appearances. Indian PM Narendra Modi visited Tehran in 2016, Indian and Iranian officials met several times the same year, and Modi congratulated Iran’s President Rouhani for his re-election in 2017. Yet, behind official smiles and handshakes lie several issues, going beyond the Farzad-B feud, which can harm the future of the relations between these two countries.

The sanctions have impacted another decade-long Indian-Iranian project, the Chabahar port. Indian state-run companies are involved in the construction and management of the port, located on Iran’s coast. Along with railway networks in development, this major infrastructure project aims at connecting India to Iran and Central Asia, while avoiding unstable Afghan routes and the forbidden Pakistani ones. This project also intends to compete with the Chinese project at Gwadar port in Pakistan.

Chabahar’s development was relaunched in 2015, after the sanctions against Iran had been lifted. Yet, the honeymoon already seems over between Iran and Indian contractors. Since Donald Trump’s election to the US presidency, Indian investors are getting cold feet. With a vehement opponent to Iran in the White House, they dread the imposition of new sanctions that could make the project cumbersome. On top of that, the Iranian government has decided to open the bid for the port development to other contractors, with China in the crosshairs. Thus, an Indian-run Chabahar seems increasingly less likely.

Beyond these failing cooperation projects, Iran and India are growing apart on other fronts, ranging from oil trade to the Kashmir question.

India is Iran’s second most important importer of crude oil, and Iran is India’s third largest supplier of oil. But oil trade, which encompasses the major part of the bilateral trade between Indian and Iran, is shrinking. India is today diversifying its oil imports, increasing those from Iraq and Russia for instances, but also from Saudi Arabia, Iran’s arch rival.

India and Iran are also linked through their mutual neighbor, Afghanistan. The three countries initially cooperated on the Chabahar port project and the Central Asia trade routes. But while India is helping to promote democracy and the rule of law in Afghanistan, Iran has been accused of sponsoring the Taliban. If this Iranian support becomes official, it could be a bone of contention between Tehran and New Delhi, since the latter consistently supported the Afghan government and would therefore be reluctant to back the rebel fighters. 

These political divergences go further. Ayatollah Khamenei recently expressed support for the Muslims of Kashmir, and talked of the disputed region in terms of an independent nation. These declarations, aimed at upsetting the Indian government, were made in the run-up to Narendra Modi’s visit to Israel, Iran’s enemy. On July 4th 2017, Narendra Modi paid a groundbreaking visit to Israel, being the first PM to set foot there in 25 years. This historic event epitomized the enhancing relations between India and Israel, which Tehran looks unfavorably on.

India’s increasingly closer relations with the United States put additional strains on the relationship between Tehran and New Delhi. During a visit last June, Trump and Modi reiterated their willingness to sustain a strong relationship. But Trump takes a hard line on Iran and has voiced his discontent with the nuclear deal. He has not pulled the US out of the agreement yet, but the American Treasury issued sanctions against Iranian individuals and companies in July. Under the previous administration, India could maintain good relations with both parties, trade with Iran, and get closer to the US at the same time. However, if the new American administration takes a more severe stance, India might be compelled to choose a side. If so, it is likely to let go of Iran.

Thus, many issues hamper cooperation between New Delhi and Tehran. Once strategically closer, both countries are now looking for new allies. In view of these unravelling ties, the future does not look promising for Indian-Iranian relations.