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Indo-Iranian Relations Set To Deteriorate


India’s decision to throw Iran under the proverbial bus as the cost for maintaining its strategic partnership with the United States brings to mind the old adage, “States have no friends, only interests.”

Indian Prime Minister Narendra Modi waited until after his country’s recent elections to officially announce that New Delhi would comply with Washington’s sanctions on Iranian oil exports and reduce its imports to zero. India had long deftly maintained its relations with both Iran and the U.S., despite their animosity toward one another, but pressure from U.S. President Donald Trump’s administration has put an end to that ability.

India’s decision goes against its earlier claims that it would not follow U.S. sanctions against Iran because New Delhi only recognizes sanctions authorized by U.N. Security Council resolutions. However, India’s stance was made clear on April 23, when Indian Minister of Petroleum and Natural Gas Dharmendra Pradhan said in a tweet that India “has put in place a robust plan for an adequate supply of crude oil to Indian refineries. There will be additional supplies from other major oil-producing countries.” On May 23, following the announcement of the outcome of the Indian elections in which Modi’s Bharatiya Janata Party (BJP) received a resounding victory, Indian Ambassador to the United States Harsh Vardhan Shringla said his country was accepting its last oil shipments from Iran: “That’s it. After that, we haven’t imported any.”

India’s Changing Foreign Policies

The escalating conflict between Washington and Tehran has raised the stakes in India’s relationship with the United States and in its efforts to maintain economic ties to Iran. India has old and deep cultural, religious, and trade relations with Iran that were historically based on the common principles of anti-imperialism, decolonization, and South-South solidarity and non-alignment during the Cold War.

But after the Cold War ended and New Delhi began focusing on international economic integration in the 1990s, India diverged from these historical roots as it deepened its military and energy relations with the United States. For example, under the Bush Administration, the 2005 U.S.-India defense partnership agreement eventually opened the way for India to acquire advanced military weaponry from the United States and to deepen cooperation on civilian nuclear energy technology. During the Obama Administration, the United States and India held consistent diplomatic strategic dialogues in the areas of trade, economic cooperation, defense and counter-terrorism, science, technology and research collaboration, climate change, and energy security. The Trump Administration’s geopolitical strategy known as “Indo-Pacific region” has been crucial in deepening India-U.S. relations, especially in the areas of defense capabilities and responses to the growing economic and military power of China.

India has also been enhancing its relations with countries such as Saudi Arabia, the United Arab Emirates, and Israel in recent years, despite its simultaneous efforts to maintain historic relations with Iran. India is particularly interested in acquiring military hardware, investment and counterterrorism cooperation from Saudi Arabia and Israel. In fact, India was the largest purchaser of Israeli arms in 2017.

At the same time, India has maintained its long-standing relations with Iran, and in some regards, has deepened them. In the 1990s, both India and Iran supported the Northern Alliance in Afghanistan against the Taliban regime. In 2003, they announced the establishment of a “strategic partnership” and have subsequently cooperated on energy, trade, counterterrorism, defense and intelligence operations. Most recently, they have been cooperating on the joint development of the Iranian port of Chabahar that will enable India to gain access to vital Central Asian energy markets and beyond. However, under intensifying U.S. pressure during the last year, India was finally forced to choose. And it chose the United States over Iran.

Tehran’s Perspective

Iran was reportedly “astonished” by India’s decision to halt all oil imports from Iran. In the earlier round of international sanctions against Iran, Washington never clarified exactly how far India needed to reduce its Iranian oil imports, instead developing an extensive bartering system of trading Iranian oil for rice and other Indian exports outside of U.S. dollar-denominated international oil exchanges. Iran did not believe that India would really eliminate all Iranian imports, particularly given the very generous terms under which Iran was selling oil to India, and the elaborate new rupee-rial payment system that has been established.

Economic sanctions have had a significant impact on Iran’s economy, creating inflation and mounting economic hardship. According to estimates by the International Monetary Fund (IMF), Iran’s economy shrank by 3.9 percent in 2018, and is expected to shrink by 6 percent in 2019 with inflation possibly reaching 40 percent. However, that projection was made before the latest elimination of waivers, so arguably the economic impact could hit Iran’s economy even harder.

The mounting economic hardship is strengthening anti-U.S. hardliners within Iran and putting President Hassan Rouhani and other advocates of international cooperation on nuclear issues on the defensive. Observers expect the new U.S.-led sanctions will not completely block all of Iran’s oil exports, primarily because of opportunities to use Iranian firms and surrogates operating in Iraq to smuggle Iranian oil through Iraq and make it appear to be Iraqi exports. But the sanctions are taking a growing toll economically, socially, and politically.

The Role of Chabahar

While India has complied with U.S. demands to cease oil imports from Iran, Washington has nevertheless granted New Delhi a waiver that allows it to continue working with Iran on the port of Chabahar. India took over the operation of the port in December 2018 through a state-owned company in partnership with an Iranian port operator. Located in the Sistan and Baluchestan province of southern Iran, the port project is part of an India-Iran-Afghanistan transport corridor that would bring Indian goods to Iran and into Afghanistan and into Central Asia, bypassing Pakistan. Washington also granted a waiver for another multi-billion dollar infrastructure project being undertaken by India, Iran and Russia called the International North-South Transport Corridor. It will bring Indian goods to the Iranian port of Bandar Abbas, up through Iran, and across the Caspian Sea to Russia and Europe. The United States and India view the projects as strategic alternatives to the massive China-led Belt and Road Initiative (BRI).

According to Sumitha Narayanan Kutty, an associate research fellow in the S. Rajaratnam School of International Studies at Nanyang Technological University in Singapore, India’s large investment in Chabahar reflects a shift in the nature of its historic relations with Iran. While India has replaced Iranian oil from other suppliers, it is still very dependent on Iran for achieving its broader strategic goals to access markets in Afghanistan, Central Asia, Turkey, and Europe. The fact that India acquiesced to the U.S. on Iranian oil but got a waiver for Chabahar suggests that the energy component is clearly no longer the main factor in Indo-Iranian relations.

But Iran’s displeasure with India’s capitulation to the United States is palpable. Given the importance of Chabahar to India’s geostrategic goals, it was perhaps not a surprise that the day after India’s official announcement that it would halt Iranian oil imports, Iranian Foreign Minister, Mohammad Javad Zarif, was in Pakistan, where he floated the idea of possibly connecting Chabahar and the southern Pakistani port of Gwadar, which is a key part of China’s huge BRI. Some viewed the suggestion as a way for Iran to signal to China its desire to become more engaged in the BRI, and that Chabahar should not be seen as a competitor to China’s development at Gwadar. But the very idea that Chabahar could no longer be an exclusive Indian route to Afghanistan must have shocked New Delhi, which has long presumed it was Iran’s favored partner for collaboration in the region.

India’s decision to stop purchasing oil from Iran will likely damage the longstanding relations between the countries, and India will need to repair and rebuild relations over time.  Iran’s ambassador to India, Dr. Ali Chegeni, recently stated: “India has historically been a good friend to Iran. Our friendship doesn’t belong to this generation, but dates back thousands of years. We have been next door to each other for centuries, and share common culture, beliefs, language, arts, music, and so many things. One or two events cannot change that. We are too connected to each other.” But that was before India actually halted its Iranian oil imports.

While India appears to be aligning with the U.S. for now, the Trump administration must not get too comfortable with the Modi government’s cooperative behavior. Washington should be wary that New Delhi’s interests in Southwest Asia are as such that this could be a temporary shift in attitude towards Tehran. Thus, the United States must be cognizant of the limits to which India will support its policy of “maximum pressure” on Iran.

Dr. Rick Rowden is a senior economist at Global Financial Integrity in Washington. Dr. Rowden specializes in the long-term national economic development strategies of developing countries and the emerging field of South-South economic relations. Previously, Rowden has served as: a senior policy analyst at ActionAid, Inter-Regional Adviser for the United Nations Conference on Trade and Development, and consultant to the United Nations Development Program & the World Health Organization. In Spring 2020, he will begin teaching at American University’s School for International Service.

The views expressed in this article are those of the author and not an official policy or position of the Newlines Institute.

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