During her visit to India (June 27-29, 2018), US Envoy to UN, Nikki Haley spoke about the need for India to re-calibrate its relationship with Iran, and urged India to reducing oil imports (Iran happens to be India’s third largest supplier of oil after Saudi Arabia and Iraq). Haley, who met with PM Modi and discussed a number of issues (including Iran) did state that she understood the relevance of the Chabahar Project for India.

State Department Spokesperson while referring to all countries, including China and India, categorically stated that they would need to reduce oil imports from Iran to zero, or face economic sanctions.

New Delhi’s Response

New Delhi’s response to Haley’s remarks and the statements of the State Department Spokesperson was rather ambivalent. While on the one hand, India stated that it had its own interests, and sent out a message that it would not kowtow to the US. On the other hand, Oil and Petroleum Minister Dharmendra Pradhan also stated that New Delhi did not bank upon anyone country.

After domestic criticism, the Indian government did state that it will take up the Iran issue firmly with the US, to give an impression that it will not give in meekly to US pressure. Both sides shall also be holding talks on this issue. 

At the same time, oil imports from Iran for the month of June did witness a drop of over 15 percent. Oil imports from Iran for the month of June were estimated at 592,800 barrels per day (bpd) as opposed to 705,200 bpd in the month of May.

Iran’s strategic relevance for India and the Chabahar Port

While New Delhi can find other oil suppliers, one of India’s key interests in Iran is the Chabahar Port, for which New Delhi has provided assistance. During President Rouhani’s February visit this was one of the important items on the agenda. A lease agreement was signed for Shahid Beheshti Port at Chabahar, between Iran’s Port and Maritime Organisation and India Ports Global Limited. According to the agreement, for 18 months India would take over port facilities of what is phase 1 of the Chabahar Project.

The Port is extremely important for New Delhi, since it provides India much needed access to Afghanistan and Central Asia. Pakistan for long has refused to provide land access to India. New Delhi was also planning to make this Port part of the International North South Transport Corridor ( INSTC), and during the joint statement this point was highlighted.

Dharmendra Pradhan in an interview highlighted the importance of both Iran and the US: “..We have a special strategic relationship with US. We have a historic, cultural and civilisational relationship with Iran. Iran is also a factor in India-Afghanistan relationship because of its geographic proximity. Our economic interests are tied to both. The government will take a comprehensive view.”

Significantly, a senior Iranian Diplomat while speaking at a Seminar in New Delhi, warned India that if New Delhi actually reduced oil imports, Tehran would not hesitate to withdraw special privileges. Iran’s deputy ambassador and charge d’affaires Massoud Rezvanian Rahaghi said, “…If India were to replace Iran with countries like Saudi Arabia, Russia, Iraq, the US and others for the 10% of its oil demand then it may have to revert to dollar-denominated imports which mean higher CAD (Current Account Deficit) and deprivation of all other privileges Iran has offered to India.”

Rahaghi also drew India’s attention to the slow progress on Chabahar Port. A statement issued by the Iranian embassy, however, clarified that Iran understood India’s challenges, and also that India was a sovereign country which would choose suppliers on a number of factors. Said the statement: “friendly relations with supplier countries, market factors, geopolitical and geo-economical considerations and potentials and reliability of oil suppliers”.

Policy Recommendations

First, on the Iran issue New Delhi cannot play the waiting game and remain neutral. It needs to find common cause with other US allies, in Europe and Asia (especially South Korea and Japan) who too are at variance with Trump’s rigid approach towards Iran. Only recently, Russian Foreign Minister, Sergey Lavrov spoke about the decision of France, Germany and UK to carry on Trade with Iran (independent of the US Dollar). Lavrov also said that this decision applied to small and medium size enterprises.

There is no harm even in finding common cause with China and Russia. During the SCO Summit in June 2018, both Russia and China had spoken in favor of the Iran deal, while India adopted a cautious approach, though the PM did  mention of the Chabahar Project.

Second, as India and China are looking at a ‘reset’, it is also time for New Delhi to not just firmly raise the issue of terror emanating from Pakistan, with Beijing  but also urge Beijing to prevail upon Islamabad to address two important economic demands of India. This includes, Pakistan providing MFN Status to India, and land transit to Afghanistan and Central Asia. For long, Pakistan has kept India out of the APTTA (Afghanistan, Pakistan Transit Trade) agreement, last year an offer was made by Pakistan’s Army Chief, Qamar Ahmed Bajwa in a discussion with Afghan President, Ashraf Ghani,  but India did not consider this serious enough. In the current situation, it would be all the more relevant given the fact that India and China are seeking to work together on a capacity development project in Afghanistan. The proposal to work jointly was first discussed in the Wuhan Summit in April 2018, and then during the meeting between PM Modi and the Chinese President Xi Jinping on the sidelines of the SCO Summit in June 2018.

Whether or not India is ultimately granted access to Central Asia and Afghanistan, will largely depend upon the victor in Pakistan’s July 25th election, and even more on the inclination of the Pakistan army. While General Bajwa has made the right noises, it remains to be seen whether he is serious about improving ties with India.

In conclusion, a two pronged approach is required to counter the likely challenges arising out of Donald Trump’s approach towards Iran. First, finding common ground with other countries impacted by US’ stance towards Iran. Second, New Delhi needs to press for land transit to Afghanistan and Central Asia, and in this Beijing can play an important role.