India and Iran Relations

Published on 28 Jan 2025

India and Iran share a millennia long history of interactions. The contemporary relations between the two countries are marked by high level exchanges, commercial cooperation, connectivity paradigm and cultural and people to people ties.

Importance of Iran to India

✔     Energy

●      Crude Oil Trade: Historically, India has been a significant importer of crude oil from Iran, reducing its dependence on other nations.

●      Investment in Iran's Energy Sector: Indian companies have expressed a willingness to invest up to $20 billion in Iran's energy sector.

o   Example: Plans to establish petrochemical and fertilizer plants in the Chabahar Special Economic Zone, which could strengthen economic ties between the two nations.

●      Natural Gas Reserves: Iran possesses the world's second-largest reserves of natural gas.

o   Example: Initiatives like the proposed Iran-Oman-India undersea gas pipeline can assist India in transitioning towards cleaner energy.

✔     Economy

●      Bilateral Trade: India Iran trade has been slowly improving.

o   Example: India-Iran bilateral trade during the FY 2022-23 was $2.33 billion, registering a growth of 21.76% YOY.

●      Infrastructure Projects: Various infrastructure projects offer India alternative routes to reach Central Asia and West Asia, bypassing the overland route through Pakistan.

Example: Chabahar Port and the International North-South Transport Corridor

●      Strategic Strait of Hormuz: Iran's control over the Strait of Hormuz, a vital maritime passage, allows it to influence global oil and gas transportation.

o   Example: Disruption in this area can trigger a sharp increase in oil prices, leading to a global economic crisis.

●      Afghanistan: With both China and Pakistan supporting the Taliban regime, India sees Iran as a gateway to achieving its objectives in Afghanistan.

✔     Cultural

●      Shia Connection: India has a significant Shia population, second only to Iran. This shared religious affinity strengthens cultural ties between the two nations.

●      People-to-People Ties: There is strong cultural exchange between the two nations.

o   Example: Iranian students study in India, benefiting from scholarships and educational programs. These interactions enhance cultural understanding.

●      Educational and Cultural Institutions: Iranian consulates in India, Indian schools in Iran, and scholarship programs for Iranian students promote cultural and educational collaboration.

Example: The Kendriya Vidyalaya Sangathan operates an Indian school in Tehran, underscoring the importance of educational and cultural connections

Challenges in India-Iran Relations

✔     US relations

●      Oil Imports: India stopped importing oil from Iran in mid-2019 following sanctions on the Persian Gulf nation by the Trump administration.

o   Example: Earlier, Iran significantly featured in India’s energy basket, as Iranian oil made up nearly 11 percent of India’s overall oil intake

●      Chabahar Project Delays: While India received a waiver to invest in the Chabahar Port, the project faced delays due to delays by the US Treasury in clearing imports of heavy equipment.

✔     China Factor

●      Increasing cooperation: China has strengthened its strategic partnership with Iran.

o   Example: A 25-year agreement involving substantial investments in Iran's economy, particularly in the oil, gas, and petrochemical sectors was signed between Iran and China.

●      Military Cooperation: China has enhanced its military cooperation with Iran, and trilateral naval exercises with Russia and Iran suggest a deepening of Sino-Iran ties in the region.

●      Chabahar Concerns: China's proposals for port tie-ups, has raised concerns for India's Chabahar port project, given its proximity to the Chinese-developed Gwadar port in Pakistan.

✔     Infrastructure

●      Farzad-B Gas Field: India is no longer involved in the Farzad-B gas field project in Iran, citing Iranian policy changes, financial uncertainties, and US sanctions as reasons.

✔     Geostrategic

●      Relations with Other Middle Eastern Countries: India's deepening relations with anti-Iranian Arab nations.

o   Example:  Post-Abraham Accords New Delhi is exploring prospects for cooperation with the U.S., Israel, and UAE through minilateral forums like the I2U2.

●      India's Domestic Issues: Iran's take on domestic Indian issues have strained relations.

o   Example: Supreme Leader criticized India for its actions in Kashmir, creating tensions in the relationship.

Joint Statement issued during India’s National Security Advisor’s visit to Iran

A significant development is the growing India-Iran ties in a period that is witnessing fundamental changes in the international order.

 

✔     Cooperation Commitment: Both nations pledge to enhance cooperation to address global challenges and strengthen multilateralism.

✔     Counterterrorism: Joint commitment to fight terrorism for regional peace and stability, particularly in the Pak-Afghan region.

✔     Chabahar Project: Recognizing the significance of the Chabahar project for regional connectivity and welfare.

✔     Regional Connectivity: Collaboration with Russia and other countries to upgrade existing corridors, like the International North-South Transport Corridor (INSTC).

✔     Concern for Afghanistan: Expressing concerns about the situation in Afghanistan and supporting an inclusive government.

✔     Cultural and Historical Ties: Emphasizing the need to deepen relations due to deep cultural and historical connections between the two nations.

Suggestions to improve India-Iran relations

✔     Leverage SCO Membership: Iran's full membership in the Shanghai Cooperation Organization (SCO), where India is also a member, could enhance collaboration on connectivity projects.

●      Example: Chabahar port and the International North-South Transport Corridor (INSTC).

✔     Maintain Strategic Autonomy: India should strategically align with both Iran and the U.S. based on its autonomous and need-based approach.

✔     Alternate Payment Mechanisms: Develop alternate payment methods for transactions with Iran to ensure economic flexibility and investment opportunities.

●      Example: The activation of a rial-rupee mechanism in Iran-India trade, saying that it would play a decisive role in Tehran’s economic dealings with India.

✔     Engage in High-Level Talks: Conduct high-level talks with the U.S. to address India's security and strategic concerns, particularly in the context of China's growing influence in the region.

✔     Neighborhood Focus: While India aims to strengthen ties with the U.S. and Israel, it should also prioritize its near-term neighborhood developments, recognizing the importance of its relationship with Iran..

✔     Trade Agreements: Conclude a preferential trade agreement and a bilateral investment treaty swiftly to promote economic cooperation.

✔     Leverage Historical Ties: Both India and Iran can capitalize on their historical and civilizational relations to strengthen their partnership.

India and Iran's commitment to enhancing cooperation, countering terrorism, and deepening cultural ties bodes well for their future partnership. These foundations will likely serve as catalysts for continued collaboration and shared endeavors in a rapidly evolving global landscape.

Tags:
World Affairs

Keywords:
Iran Chabahar Port INSTC Strait of Hormuz Persian Gulf

Syllabus:
General Studies Paper 2

Topics:
International Relations