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Asean Affairs   July 3, 2014

India – Iran relations: A Balancing Act

By Rasika Gynedi

India’s foreign policy priorities under the new Modi government with respect to the usual partners, neighbors, and competitors are still emerging. However, little attention has been paid to India’s relations with Iran. India faces continued challenges in trying to maintain a balanced relationship with Iran while also revitalizing relations with the United States. For the new BJP government to continue engagement with Iran, Prime Minister Narendra Modi will need to make sure his government has a single, coordinated view on balancing relations with Iran and the United States.

India’s engagement with Iran arises from two needs: access to energy resources and access to Afghanistan. To meet its energy requirements, India imports crude oil from Iran. Iran is the seventh-largest supplier of oil to India at present, down from the third spot in 2012. In addition to oil, India consulted with Iran over the possibility of a natural gas pipeline between the two nations. Secondly, India desires access via Iran to play a continued role in Afghanistan’s reconstruction based on the likelihood that economic development there could promote regional stability. As Pakistan is not a politically feasible transit point for Indian goods, Iran provides India with the easiest route to Afghanistan. Moreover, Afghanistan’s vast untapped mineral deposits worth an estimated $1 trillion are an important resource, which Indian companies have begun to mine. Although India has sought to depoliticize relations with Iran and keep them on an economic footing, the United States has strongly discouraged bilateral relations with Iran due to Tehran’s nuclear ambitions. Consequently, Indo-Iranian ties have complicated India’s relations with the United States in several instances.

In 2005, while negotiating the U.S. – India civil nuclear agreement, India simultaneously consulted with Iran over the India-Pakistan-Iran (IPI) natural gas pipeline. In this context, then petroleum minister Mani Shankar Aiyar’s comments on India being “fully committed” to the pipeline raised serious concerns in the United States over the viability of the nuclear deal. David Mulford, the U.S. ambassador to India asserted that if India did not vote against Iran at the International Atomic Energy Agency (IAEA), the nuclear deal would not materialize. In a similar situation regarding crude oil, Pranab Mukherjee, India’s former finance minister, claimed that India would not take steps to cut petroleum imports from Iran. Once again, this raised alarms in the U.S. administration and according to some government officials warranted sanctions on India.

For access to Afghanistan, Chabahar, a port in Iran, has been an important gateway for India to connect to Kabul. India invested in Chabahar for two reasons. First, to ensure Indian goods reach Afghanistan via Iran and second, concern over China’s investment in Gwadar port in Pakistan, just 45 miles east along the same coast. Not surprisingly, this increased investment in Iran by India raised concerns among U.S. administration officials.

Yet since 2005, there have been signs that the Indian administration is prepared to de-prioritize its relationship with Iran in exchange for deeper ties with the United States. An early sign of this strengthening partnership came in 2005 when India voted against Iran at the IAEA and three times thereafter. Moreover, a cabinet reshuffle in 2006, removing Aiyar, was perceived as a move to ensure U.S.–India relations moved forward smoothly. Ultimately, in 2009, India pulled out of the Iran gas pipeline deal altogether. More importantly, India significantly reduced its dependence on oil imports from Iran and also suspended transactions with Iran through the Asian Clearing Union (ACU), the primary channel of India-Iran oil sales. Additionally, India withheld 55 percent of its payment in 2013, choking off vital capital flows to Iran and increasing pressure on Tehran over its nuclear program. Lastly, and partly because of pressure from the United States, India ceased construction of Chabahar port in 2010.

In a move to reciprocate India’s attempts to reduce its economic engagement with Iran, the State Department exempted India from sanctions related to Iranian oil sales. U.S. congress also introduced a bill to expedite the export of natural gas to India. Moreover, the United States endorsed the Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline project as a potential alternative to the IPI pipeline through Iran.

Overall, these measures point to a deepening of Indo-US relations, but the lingering importance of Iran in the relationship between the two countries should not be overlooked. U.S. – Iran relations have thawed to an extent since the Geneva agreement was signed in 2013, under which Iran agreed to freeze portions of its nuclear program in exchange for reduced economic sanctions. This agreement — viewed as an unofficial trigger by India — provided an opportunity for talks with Iran on an undersea pipeline project, and for greater investment in Chabahar.

In order to maintain its balance between its interests in Iran and its relationship with the United States, the Modi government must remain consistent with their messaging on Iran. Further, a conversation between the United States and India on the sidelines of the Strategic Dialogue on India’s evolving role in Iran and India’s energy needs would be beneficial. Lastly, a much more focused conversation regarding India’s access to Afghanistan via Iran would be valuable under the auspices of the U.S.-India-Afghanistan Trilateral Dialogue.

Ms. Rasika Gynedi is a researcher with the Wadhwani Chair in US-India Policy Studies at CSIS.

Courtesy: This post originally appeared on the Center for Strategic and International Studies, Washington D.C. cogitASIA blog

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