India-Iran are civilisational partners with modern convergences in energy security, connectivity, and regional stability. The churn in West Asia and sanctions on Iran have simultaneously constrained and created space for a pragmatic reset.
Fluid West Asian Order:
US Strategic Retrenchment & Sanctions:
- The U.S. has reduced direct military footprint but continues to use sanctions as leverage (e.g., Iran oil, Syria), creating space for regional players to re-align.
Rise of China & Russia:
- China’s 25-year, $400 bn strategic pact with Iran and Russia–Iran ties (esp. post-Ukraine war) indicate a multipolar shift.
- Both push alternatives to the U.S.-led order in West Asia.
Regional Reconciliations:
- Saudi–Iran détente (2023, brokered by China) and renewed Gulf–Levant dialogues reduce polarization. This creates both opportunities and uncertainties for India’s outreach.
Energy & Maritime Chokepoints:
- Control over the Strait of Hormuz, rising OPEC+ assertiveness, and volatility in oil markets affect India’s energy security.
- Simultaneously, new transport corridors (INSTC, IMEC, Chabahar) compete for strategic relevance
Strategic Compulsions of India-Iran relations:
Energy Security:
- Before U.S. “maximum pressure” (2018–19), Iran supplied ~10–13% of India’s crude basket (peaks ≈ 12%). Cheap freight and favourable terms (longer credit/insurance) aided India’s refinery mix.
- Iran holds 9% of global oil and 17% of global gas reserves and long-run LNG/gas pipeline possibilities (e.g., Iran–Oman–India seabed concept).
Connectivity & Trade Access:
- Chabahar Port (operated by India Ports Global Ltd since 2018; long-term 10-year operating pact concluded in 2024) gives India a Pakistan-bypass to Afghanistan/Central Asia.
- INSTC (India–Iran–Russia multimodal): trial runs show 30–40% time and 20–30% cost savings vis-à-vis the Suez–Mediterranean route which is vital for accessing Caspian/Eurasia.
- Regional Stability (Afghanistan):
- Historic India–Iran coordination with the Northern Alliance (1990s) stabilised the region.
- India also has moved Indian wheat/urea to Afghanistan through Chabahar during crises, supporting humanitarian corridors.
- Multilateral Leverage:
- Iran is a full SCO member (2023) and joined the BRICS expansion (2024)—platforms where India can shape rules on connectivity, payments, and energy markets.
Economic Opportunities:
- Merchandise & Services Trade:
- Bilateral trade peaked at $13 bn (2018–19) but fell sharply post-sanctions. It has scope to recover via petrochemicals, pharma, auto parts, agri, IT services, and project exports.
- Projects & Investments:
- Farzad-B gas discovery (by OVL) demonstrates upstream capability; even without operatorship then, India can pursue downstream petrochem, fertilizers in Chabahar SEZ.
- Rupee-rial/local-currency settlement (as earlier via UCO/IDBI) can conserve forex and de-risk sanctions exposure.
- Payments & Logistics Tech:
- E-rupee pilots and direct port-to-port settlement with customs digitisation at Chabahar can turn it into a time–cost dependable India hub for Central Asia.
- Pharmaceutical & Healthcare Market:
- India is among the world’s top generic drug suppliers; Iran’s 90-million population and demand for affordable medicines offers a major export market.
- For example, Indian pharma exports to Iran already cross $100 million annually, with scope for vaccines, generics, and medical devices.
- Agricultural & Food Exports:
- Iran imports staples like rice, sugar, tea, and wheat—all where India has surplus.
- For example, India exported 1.3 million tonnes of basmati rice to Iran in 2018–19, making Iran one of India’s top rice buyers before sanctions.
- Tourism & Cultural Industries:
- Pilgrimage tourism (e.g., Shia shrines in Qom and Mashhad for Indian visitors) and Bollywood–Persian cultural exchanges have potential.
- Example: Iran’s interest in film, yoga, Ayurveda collaborations could diversify bilateral trade beyond oil and ports.
Key Impediments:
- Sanctions & Banking Risks:
- Secondary sanctions deter shippers, reinsurers, and equipment vendors; even Chabahar’s earlier U.S. waiver faced compliance frictions.
- Geopolitical Balancing:
- India’s fast-growing ties with the U.S. and Israel must be squared with Iran cooperation.
- China Variable:
- The announced Iran–China 25-year partnership raises risk of crowded strategic space (Gwadar–Chabahar interplay, energy lock-ins).
- Project Execution Lags:
- Chabahar–Zahedan railway and parts of INSTC have seen delays, hurting credibility and network effects.
- Iran’s Domestic Volatility:
- Inflation, periodic political churn, and subsidy stresses complicate long-horizon contracting.
Way Forward:
- Ring-fence Connectivity: Fast-track Chabahar berths, scanners, yard capacity, and the Zahedan rail (EPC+sovereign backstop). Publish time–cost SLAs to attract liners.
- Payments Architecture: Restore a rupee-rial/LCS window with adequate reinsurance and escrow; prioritise essential commodities and project cargo.
- Energy Pragmatism: Negotiate term crude with pricing flexibility; pursue petrochem/fertiliser JV in Chabahar SEZ to hedge crude volatility.
- INSTC at Scale: Time-tabled block trains (Nhava Sheva–Bandar Abbas/Bandar Anzali–Astrakhan) with customs pre-clearance and single through bill of lading.
- Strategic Signalling: Use SCO/BRICS to coordinate port logistics, standards, and digital trade while maintaining strategic autonomy with the U.S. and Israel.
- Private Sector On-Ramp: Sovereign risk cover (EXIM/ECGC), viability gap for rail spurs, and tax incentives for Indian MSME exporters to Central Asia via Chabahar.
Conclusion:
A connectivity-and-energy first, sanctions-compliant template can turn India–Iran ties from episodic to institutional. If India executes at ports, payments, and rail now, New Delhi gains a durable Eurasian gateway and credible leverage in a shifting West Asian order.
‘+1’ Value-addition:
- Oil share: Iran supplied 10–13% of India’s crude pre-2019.
- Trade peak: $13 bn (2018–19) which sharply dropped post-2019.
- INSTC impact: Up to 30–40% faster and 20–30% cheaper than Suez route on pilot runs.
- Status: Iran – SCO member (2023); BRICS expansion (2024); Chabahar 10-year O&M pact (2024).
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