India and Iran: It’s Not Just Energy, Stupid!

When it comes to India and Iran, it’s not just about energy anymore.

Energy dominates any conversation on India’s interests in Iran. The effects of the nuclear sanctions, balancing the Iran-United States rivalry, and Tehran’s role in the Middle East are other debates that keep us preoccupied. 

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In recent years, however, a second important bilateral pillar – transit cooperation (including the joint development of transportation infrastructure) – has gradually taken centerstage in bilateral discussions. What sets the transit sector apart is the fact that it is a bit more easier to manuever within it, in an otherwise almost entirely sanctionable Iran.

There is a clear alignment of bilateral interests in this space. At the sidelines of the Vibrant Gujarat summit in January, Prime Minister Narendra Modi reiterated India’s strong interest in the development of the Chabahar port in Iran to facilitate the transit of Indian goods to Afghanistan, Central Asia, Russia and Europe. The Iranian president Hassan Rouhani, on his part, spends a good chunk of his time travelling across Iran’s neighborhood underscoring his country’s secure railway and roadway routes. He has rallied hard behind the idea that Iran should become a “big corridor” for transiting goods.

Ministerial-level meetings in recent months under the joint dialogue on economic cooperation (set up in 1983) have also stressed transportation cooperation between the two countries. India’s road transport minister Nitin Gadkari, railroad minister Suresh Prabhu and their Iranian counterparts have acknowledged mutual interest in the Chabahar port project and the transit routes connecting it to Afghanistan and beyond.

Here’s what’s on the table right now. The first set of projects (and cornerstone of such cooperation) places Afghanistan at the centre of its strategy. Located in India and Iran’s shared neighborhood, the landlocked country is going through a challenging period of transition. India and Iran agree that connecting Afghanistan to the region through trade and commerce is crucial to its future stability. Keeping this in mind, the three governments reactivated talks on the Chabahar port at the sidelines of the 2012 Non-Aligned Movement (NAM) summit held in Tehran.

Chabahar, located in Iran’s southeastern province of Sistan va Baluchestan, will be Iran’s first deep-water port. It is also India’s first foreign port project. Once operational, it will take the pressure off of the country’s oldest and only other commercial port, Bandar Abbas. Today, a significant portion of Iranian goods are first unloaded in Dubai before making its way to Bandar Abbas.

The port project was first discussed over a decade ago during the Vajpayee administration when Iranian president Mohammad Khatami’s visit to India. In October 2014, the Union Cabinet cleared a proposal to invest USD86 million in the port (of an allocated USD 300 million, according to some reports). To faciliate this, an Indian company (Indian Ports Global) is expected to be created with equity split between the Jawaharlal Nehru Port Trust (JNPT) and the Kandla Port Trust (KPT). A memorandum of understanding is expected to be signed in the next few months.

About 72 nautical miles east of Chabahar lies Gwadar – Pakistan’s deep water port being constructed with Chinese assistance in Balochistan. India intends to bypass Pakistan (transit being a non-starter here) and move its goods to Afghanistan through Iran. If India capitalizes on the reduced threat perception in Iranian Baluchestan (vis-à-vis Gwadar in restive Pakistani Balochistan province), Chabahar can become a reality sooner than later.

The second lot focuses on bolstering India’s land connectivity to Europe, the Caucasus, Russia and the rest of Central Asia. These include the International North South Corridor (INSTC) with India, Iran, Oman and Russia being key signatories. The commerce ministry expects the cost of shipment to Russia and the Commonwealth of Independent States (CIS) to fall by forty percent via this road route, using the stretch between Iran and Azerbaijan.

Two other projects under the aegis of the United Nations Economic Social Commission for Asia and the Pacific (UNESCAP) – the Asian Highway (AH) network and the Trans-Asian Railway network – form the bigger picture with regard to transit connectivity in the continent. India and Iran are key players here as well.

A third and recent thread relates to project exports from India to Iran in the railway sector. Encouraged by the sanctions relief window, New Delhi is in talks with Tehran for over $5-billion worth project exports. This includes the rail routes connecting Chabahar to Afghanistan.

Such discussions complement Iran’s interest in strengthening ties with India in the steel and mines sector. The Iranians have also voiced their enthusiasm to engage India’s technical expertise to construct railroads and rail wagons. Last year, the Steel Authority of India (SAIL) bagged an export contract to Iran Railways to supply about 1 lakh tonnes of rails (Following this, SAIL proposed to set up an integrated steel plant in Iran this January, marking potentially India’s first major investment in the country).

Today, things aren’t getting any easier for Iran on the energy front with market forces (read low oil prices) working against it. As one analyst bluntly put it, “What’s 1.5 million barrels of (Iranian) crude per day, in a world that’s currently over-supplied by 2 million barrels per day?” Furthermore, reading the mixed signals from the ongoing Iran-P5+1 nuclear talks, India needs to make the most of this small window of opportunity that ends on July 1, 2015. What can be done within this time is expediting the above mentioned transit projects so as to ensure our regional goals are met.

When it comes to India and Iran, it’s not just about energy anymore. In the near term, this bilateral relationship involves picking the proverbial “low-hanging fruit” – transit. New Delhi must put the pedal to the metal right now.

A shorter version of this piece was originally published in Mint.