‘Sanctions are coming’, this is how Trump touted Iranian sanctions on twitter. But, Trump’s trailer of sanctions to whitewash Iranian regime, might also be detrimental to its ally, India as it tries to revamp economic, strategic, defence and financial relations with US’ s rivals- Russia, Iran to give an impetus to India’s national interests on global platform by playing the card of ‘diplomacy for development’. In the wake of sanctions, US has forced India to let go its diplomatic balancing act and choose sides. As Trump ‘embraces’ Iran and Russia with the new sanctions regime, India finds itself opening up a Pandora’s box of unwelcome troubles. These troubles can only be eliminated with the tact of skill and diplomacy.
The road becomes slippery for Iran and US since Donald Trump pulled out of the Iran nuclear deal, which was signed in 2015 with other European powers to abort Iran’s nuclear programme in exchange for relaxing economic sanctions on Iran. Claiming it to be the worst deal ever signed by an American president, he affirmed that the deal was futile in controlling Iran’s aggressive nuclear arsenal and unilaterally imposed sanctions on Iran and all the other countries who continue to trade with Iran. But “luckily” India was one of the eight countries who was exempted from the American sanctions. The temporary relief includes a waiver for the development of the Chabahar port and the construction of railway line connecting Afghanistan with Iran as well as for the import of Iranian oil.
President Trump ‘orders’ India to cut down the Iranian oil imports to Zero, and promises even better deals for India from its Gulf allies. Iran is the third largest importer of oil for India, after Iraq and Saudi Arabia. With Iran, the ties extend far beyond oil to deeply entrenched historical ties as both the ancient civilizations shared cultural similarities. But at the heart of the Indo Iranian relations, are India’s vital strategic interests of Chabahar in the Indian Ocean and ‘all for oil diplomacy’ due to which it cannot afford to sever its ties with Iran. Chabahar offers the most strategic standpoint to contain the Chinese influence in the region as well as offers a gateway to India’s extended neighbourhood ‘Central Asia’ With the swords of sanctions continuing to hang over India after a period of 6 months, India may be willing to replace Iranian oil with Saudi or US oil, but it won’t let the US sanctions freeze the development of the Chabahar port given its geo-strategic location and the leverage it provides to shape the regional politics.
Chabahar, a port in southeastern Iran in Sistan Baluchistan province located close to the entrance of Gulf of Oman is India’s gateway to Afghanistan. The core idea behind developing the port was to find the alternative route to deliver humanitarian aid to war-torn Afghanistan as Pakistan had blocked the transit accesses to India due to the historical thorny relationship. India’s interest in Chabahar was as early in 2003 but due to the lack of political will and looming sanctions on Iran by the western powers, India had distanced itself from investing in the project. Later in 2016, after the lifting of sanctions, a trilateral agreement between India, Iran and Afghanistan was signed to develop the strategic port of Chabahar and a transport corridor from Chabahar to Afghanistan. As per the agreement, India has committed 500 million in the development of the port and another 1.6 billion for building a railroad from Chabahar to the north in Zahedan on the Iran Afghanistan Border. Zahedan will be a juncture for the easy regional connectivity as it will provide smooth accesses to the start of the Indian built Zaranaj -Dalaram Highway in Afghanistan.
Subsequently, a new sea land trade route will offer an unhindered flow of goods, capital and technology from both the sides making Afghanistan less dependent on its stubborn neighbour Pakistan and ramping up the trade, thus Afghan economy. Building Afghanistan’s economy will slash Kabul’s dependence on foreign aid and open the door for many other economic opportunities thus dropping the widespread opium trade in southern provinces which underlines the major source of revenue for Taliban insurgency. The US has been fighting the Afghan Taliban for 17 years now. With the development of Chabahar port and the construction of rail link to Afghanistan, the US sees the future of a stable Afghanistan which underscores its foreign south Asia policy with the help of its ally India. Keeping the American strategic interest in mind, the waiver was granted to India. The ‘carve out’ of the Chabahar was inevitable as Kabul’s interest could have become vulnerable and Afghanistan would have turned into a new playground for the US- Iran confrontation.
Though India might have promoted Afghanistan’s economic interests as a primary concern for developing the port, but a geostrategic game is at play between the two regional powers, As a part of China’s aggressive One Belt One road initiative to link all the sea, land routes to China, it has flexed its muscles in Pakistan by developing Gwadar airport. Gwadar gives China strategic scores over India as it can be exploited as a military base strategic surveillance spot for China. With already spreading its tentacles in other parts of Asia, to counter this string of pearls, India started developing Chabahar just 60 km away from Gwadar in Pakistan.
The port of Chabahar is also at a focal point for India’s north and a south transnational corridor extending to central Asia, Russia and Europe. This will alter the course of trade with Central Asia nations by reducing the transit time and transportation costs. Indian goods transported through this route will gain preferential treatment and reduction in tariffs, It is a strategically located port because it provides direct access to the Indian Ocean and is far away from the troubled waters of the strait of Hormuz which is at the juncture of the Persian Gulf and Gulf of Oman from where the largest portion of crude oil passes. Iran’s daily threatening of closing the Strait of Hormuz in retaliation for speaking the language of sanctions distresses is not a grave concern for India as the Chabahar port is beyond this strait and trade and commercial activities at Chabahar will remain unaffected.
Chabahar port is a game changer in the sea of politics but unfortunately, it took almost a decade for India to sign this ‘historic’ agreement of Chabahar Port. Many Indian private companies fearing the return of sanctions had been reluctant in making serious investments on port Chabahar. In 2017, the Iranian government also questioned the seriousness of New Delhi’s intent in building the Chabahar Zahedan rail link as the state-owned Ircon responsible for the project did not inform Tehran that if it has managed funds for the rail project. Now that the waiver for Chabahar is secured, India should fast-track the development of the port rather than depending on its trite publicity of shipping of its first consignment of wheat to Afghanistan via the port. But to save the port from India’s consistent delays and complacency, Iran has welcomed China and Pakistan to invest in Chabahar port for the economic successes of the port.
China has exhibited great vigour in building the China Pakistan Economic Corridor (CPEC) and spent a hefty sum of 50 billion in comparison to India’s 500 million on the Chabahar port. Adherence to timely commitments makes China a resourceful partner in investing in the port. Also, China being the largest importer of Iranian oil is also the largest trading partner of Iran and recently Chinese company ZPMC won the bid to supply cranes to the Chabahar port. Any formal investment from China might decay the strategic influence of New Delhi investing in Chabahar and also diminish its footprint in the Indian Ocean. However uncomfortable India feels with Chinese presence, Iran won’t ditch China to align with India’s strategic interests as the cash-rich China will revive the financial situation and promote infrastructural development at Chabahar
Though both the countries have been granted waivers, unlike China, India bows to the unreasonable sanctions of US to slash the oil trade from Iran. This is evident from India’s bilateral talks with Saudi Prince Mohammad Bin Salman on the sideline of the G20 summit where MBS said it is ready to fill the ‘void’ created by the reduction of the Iranian oil and also promised to boost the investment in technology and financial sectors. India’s hunt of poaching for new oil field avenues shows that it is gearing itself up to find an affordable alternative to the Iranian crude oil after the waiver expires. One possibility is also that the US might push India to exponentially curtail defence purchases from Russia in exchange for extracting concessions on sanctions imposed on oil trade with Iran. US has staunchly opposed the purchase of Russian made S 400 defence missiles system, but it has passed a bill that gives India a partial relief waiver from sanctions against Russia firms. Ostensibly, there prevails a guarantee of waivers only once India replaces Russia with the US as a major defence partner and Iran with Saudi Arabia, it’s all season friend for the oil trade.
India gets cost-effective crude oil from Iran as the country saves on shipping costs and Iran offers the longest credit hours. Even in the wake of waiver, India is only allowed to import around 3,00,000 barrels per day (bpd) of Iranian crude oil compared to the normal volumes of 4,50,000 to 5,50,000 a day which is not enough to meet India’s requirement for oil. As India thinks of sidestepping Iran, with Saudi Arabia, it may have to shift to dollar payment mechanism as Saudi Arabia prefers trading oil in dollars. The net result is the widening current account deficit as the dollar emerges strong and rupee weak. Iranian incentives of free shipping, free insurance, and long credit hours cannot fill the profit pothole that will be dug by India itself. Iran’s accusation that India is siding with the US in the wake of sanctions can now be deemed true as it continues to explore oil trade with the Tehran’s rival Saudi Arabia. Following this move, India’s statement that it does not follow any unilateral sanctions now seems to backfire as the ground reality reflects a contradictory story.
Further, the OPEC has reached the consensus to surge the oil production by 1.2 billion barrels per day to prop up the price. Subsequently, this decision will hurt the Indian economy and create a wave of unrest among the Indian citizens who were already frustrated with the skyrocketing of the oil prices. In such a scenario, Iran’s attractively priced oil would have served as a bulwark to bear the storm the OPEC. By any means, if India imports oil more than the prescribed quantum of 300,000 bpd from Iran under the US waiver, the US Indian relationship will see a downward turn. Following a US waiver to India, Iran has also signed a memorandum of understanding with India to revive the rupee payment mechanism which will strengthen the plummeting rupee but will downward spiral the Iranian economy as, due to the sanctions, payment in dollars is not an option. Though now in quandary, at this stage, it is likely that India prioritizes its ‘independent foreign policy’ to preserve national and strategic interests of Chabahar over the USA’s hawkish and thuggish anti-Iranian diplomacy. It is also possible that the USA will provide exemptions for Chabahar port after 6 months, but once the Iranian imports are cut down to zero, Iran will try its best to dilute the Indian involvement at Chabahar and the waiver granted by the US will be futile.
On the other hand after the waiver period is over, China is likely to rebuff Trump’s sanction and continue to trade with Iran as its priority of economic interests overrides strategic cooperation with the USA. Furthermore, China and Iranian alliance are of utmost importance to what China calls as a counterweight to America’s hegemony in South Asia. China’s effort of keeping the Joint Comprehensive Plan of Action (JCPOA) deal alive is a symbol of the consolidated China-US relationship. As the waiver kicked in, China’s two biggest refineries resumed its oil trade. When the sanction regime began against Iran and amid the China-US tariff war, it was the first country to defy US sanctions on Iran proving that it is Iran’s faithful friend. After the waiver expires in May, China is unlikely to pay heed to US demands and intensify its trade relationship with Tehran to achieve the trade volume of more than US 37 billion Dollars of 2017.
The aftermath of the expiration of waiver will show Iran who stands by its side; India or China to save its oil-dependent economy from drowning as both are the top buyers of oil. The one who rebounds to buying Iranian oil will be a major stakeholder in developing Chabahar and ultimately earn the trump card to dominate the sea of politics. In the pursuit of leading a strategic roadmap to Chabahar and preserving its ties with Iran, USA should not get cold feet from India as India’s innumerable interests will be at stake. If this happens, USA will halt its joint efforts with India in the reconstruction of Afghanistan and individually take measures for its nation-building ‘experiment’ of Afghanistan. In the coming months, the geopolitical games might change the diplomatic recourse and change the dynamics of India’s relationship with Iran and US.
India’s grip on strategic port loosens as China turns to India. (April 11, 2018). The Economic Times.
India set to pay for the Iranian oil in rupees from November: sources. (September 20, 2018) Reuters
Saudi Arabia to supply extra oil cargoes to India in November as Iran sanctions loom. (October 10. 2018) The Economic Times.
US to allow eight countries to temporarily import Ira(n’s oil despite sanctions. (November 2, 2018). The Washington Post.
Significance behind India developing the Chabahar Port in Iran. ( February 16, 2018). The Hans India
OPEC and allies agree to cut oil production by 1.2 million barrels per day ( December 7. 2018). CNBC
Image Credit: League of India
Subscribe to our weekly newsletters.
Get all our posts, blogs and video content via e-mail.