Indian Council of World Affairs

Gurudev Rabindra Nath Tagore visited Iran in 1932. His visit symbolized cultural ties between India and Iran which have endured even when there were no inter-state relations between them. At the time of the poet laureate’s visit, India was a British colony. Iran was independent, but still under strong British influence. Gurudev loved the poems of the known 14^thcentury Persian poet Hafez and visited his mausoleum in Shiraz.

Panchtantra stories are known as Kalileh-wa-Dimna in Persian. The original version of Panchtantra was lost in India and the translation from the Persian text brought back to us a part of India’s heritage, which would have been otherwise lost irretrievably. While the influence of Persian on Urdu is known, what is less known is that the root of Middle Persian (Pahlavi) was Sanskrit. Avestan was very close to Sanskrit..Though modern Persian is based on Arabic script, interest in the Persian language continued in India. There were many Indian writers who wrote in Persian. Their writings are known as the Indian style of Persian. I was told by my Iranian interlocutors that India has a larger number of Persian manuscripts than Iran itself. For instance, Rampur Reza Library has an excellent collection of Persian manuscripts. There are other collections too. Many Indian pilgrims go to Mashad, where the shrine of Imam Reza is located. A part of ancient Persian civilization  flourishes in India. The Parsi community has richly contributed to all aspects of Indian renaissance.

With Independence and partition, India lost geographical contiguity to Iran. The partition and Pakistan’s illegal occupation of the POK also cut off India’s access to Afghanistan. This has enhanced Iran’s importance to India as a route for reaching Afghanistan, Central Asia, and Russia. The absence of a common border has removed territorial issues from the bilateral equation. India and Iran share an interest in stabilizing Afghanistan.

In the 1950s, both countries were preoccupied with internal issues. Iran saw a brief interlude of nationalist government under Prime Minister Mohammad Mossadegh. After the CIA inspired coup and the return of Mohammad Reza Shah Pahlavi in 1953, Iran joined the western camp. India embarked on a different trajectory; it founded and shaped Non-Aligned Movement. Iran was the first country to recognize the new state of Pakistan; it quickly settled borders with that country. During the 1965 war, and again in 1971, Iran backed Pakistan. This included providing sanctuary to Pakistan Air Force in 1965. Iran under Shah was also the largest bilateral donor to Pakistan.

The Shah visited India in 1969 and Mrs. Gandhi visited Iran in 1973. Shahhad recognized changed realities in the sub-continent after the 1971 war. Shah visited India in October 1974 and the visit was significant as it came after India’s first nuclear test. India emerged as a valuable customer of Iranian oil; it imported 10 million tons of crude oil from Iran, out of her total imports of 17 million tonnes globally in 1974.[i]

The revolution of 1979 changed Iran’s internal as well as external context. The new leadership was keen to support closer relations with India. However, the Iran-Iraq war absorbed a considerable amount of Iran’s energy. The 1990s was a period of domestic re-construction in Iran. But it also brought opportunities for India and Iran to work together in Afghanistan.

Islamabad was successful in foisting Peshawar-based Mujahedin groups on Kabul after the Soviet withdrawal. This left Iran without a say in the post-war dispensation in Afghanistan, though it hosted nearly 2 million Afghan refugees during the Afghan war. Taliban played no role in the Afghan war of the 1980s; the group was created in 1994. This was after the Soviet withdrawal as well as the collapse of the Soviet Union. They were a group of religious students drawn from Madrassas in Pakistan.[ii]

The madrassas were run by Jamiat Ulema-e-Islam (JUI) with which General Naseerullah Babar, Pakistan’s Interior Minister in Benazir Bhutto Cabinet, had a working relationship.[iii]Taliban’s quick advance in Afghanistan brought together India, Iran, and Russia to support the Northern Alliance headed by Burhanuddin Rabbani and Ahmed Shah Massoud. The Murder of 11 Iranian diplomats in Mazar-E- Sharif in 1998 sparked a major confrontation between Iran, and the Taliban regime backed by Pakistan.

India and Iran cooperated in the UN and NAM fora in support of the legitimate government of President Burhanuddin Rabbani. The UN did not recognize the Taliban regime, and the Rabbani government representative continued to occupy the Afghan seat in the world body. India played a part in shaping and supporting  UNSC Resolution 1267 which has become the international benchmark for combating terrorism. The author was involved in consultations with some of the principal capitals. Iran and India also played a part in deliberations in the NAM to strengthen international consensus against the Taliban.

India supported Iran and voted against western sponsored resolutions in the UN Commission on Human Rights as well as the UN General Assembly. After Pokhran II nuclear tests, this author was deputed to Iran for consultations. Iran helped India in NAM Summit in Durban, where the political committee was chaired by Javed Zarif, the then Iranian Deputy Minister for Foreign Affairs. He later became Foreign Minister in the Rouhani government.

The events of 9/11 brought American presence back to Afghanistan. During the Afghan war, Iran supported the USA but this phase was short-lived. President Bush’s characterization of Iran as part of the Axis of Evil abruptly brought the wartime cooperation to an end.

India, Iran, and Pakistan also explored the construction of the Iran-Pakistan-India (IPI) pipeline. Though India eventually pulled out of this project, Pakistan signed an agreement with Iran to continue the project which was given a shorter title Iran-Pakistan (IP) pipeline. The agreement was signed during the last days of the Zardari government. President Zardari had visited Iran on the occasion. The return of Pakistan Muslim League (PML) government headed by Nawaz Sharif led to a perceptible slowing of the project, which has since then been abandoned. Pakistan instead opted for the import of expensive LNG from Qatar. Pakistan’s decision was obviously driven by politics, rather than economics.  Pakistan has been receiving a considerable amount of aid from Arab countries, particularly Saudi Arabia and UAE.

Pakistan’s lurch towards deeper Islamisation deepened the sectarian divide in that country; this led to a series of gun attacks on Shia pilgrims coming from Pakistan to visit holy places in Iran and Iraq in 2011. It was soon followed by attacks on the Iranian security forces. In 2019, there was a terror attack on IRGC personnel a day before Pulwama. The Iranian National Guards Corps (IRGC) ground forces commander Brigadier General Mohammad Pakpour stated that the suicide bomber was a Pakistani national Hafiz Mohammad Ali.[iv]The Security Council condemned the attack as ‘heinous and cowardly’. [v]The modus operandi in the two attacks was identical. In each case, an explosive-laden car was used to ram a bus carrying security personnel.

Sanctions

Iran’s nuclear program triggered negotiations with Western countries. Initial talks were with the E -3 consisting of the UK, France, and Germany during the term of the Khatami government.  The negotiations could not be completed. The next phase began after President Obama came to power. This time the talks included P5 + 1 group of countries (US, UK, France, Russia, China, and Germany).

The talks were held against the background of the US sanctions against Iran. These included sanctions against banking and insurance. This necessitated a Rupee payment mechanism to pay for the import of crude oil from Iran by India. The arrangement saved more than Rs.1,00,000 crores of foreign exchange over the 4 years period. For Iran, the payment channel was critical in keeping its oil exports flowing. India was the second biggest importer of Iranian crude.

The P5+1 talks resulted in the nuclear accord, which has a rather difficult nomenclature –the Joint Comprehensive Plan of Action (JCPOA). The agreement was concluded in 2015 July. UNSCR 2231 was adopted during the same month approving the nuclear deal. Though the resolution adopted with P-5 consensus has not been repealed, the US under the Trump administration withdrew from the agreement in May 2018.

Trump Administration re-imposed sanctions against Iran, even though other signatories including the UK, France, and Germany remain parties to the agreement. During the Presidential campaign, the then Presidential candidate Joe Biden had stated that he would ensure return of the US to the agreement. Delay in resuming the negotiations has resulted in the hardening of positions from both sides. In the meantime, the Rouhani government was replaced by President Ebrahim Raisi’s administration in Iran.  However, the Ukraine crisis has renewed interest in reviving the deal so as to bring Iranian crude oil exports to the market. During his recent visit to the region, President Biden has kept open the prospects of negotiations.

INSTC

International North-South Transit Corridor (INSTC) will improve connectivity between India and Central Asia, as well as India and Russia. The route involves a journey from Indian ports to Bandar Abbas and from there overland to Iran’s northern border. In the north, there are at least 5 transit points for the goods to move to Central Asia or Russia. Two of these are land crossings, while the other three are ports. In the extreme northeast, there is a railway junction at Sarakhs on Iran, Afghanistan, and Turkmenistan border.[vi] From here, the goods can move to Turkmenistan. On the other side of the border, there exists a rail network for the goods to move to any of the Central Asian Republics. The second transit point is the Inchebarun railway crossing, west of Sarakhs. This was jointly inaugurated by the Presidents of Kazakhstan, Turkmenistan, and Iran in 2014. The third crossing further west is Amirabad port on Iran’s Caspian Sea shore. Kazakhstan has invested in the port that it uses for exporting grain. Further west is the Iranian port of Bandar-e-Anzali. This is already in use for transporting goods to the Russian port of Astrakhan or the Kazakh port of Aktau. The fifth point is the Iranian port of Astara in the extreme west near Iran’s border with Azerbaijan. This is also connected to Astrakhan port in Russia.

Source: Vivekananda International Foundation, https://www.vifindia.org/print/3346

India has historically close relations with Central Asia. India joined Shanghai Cooperation Organisation (SCO) in 2017. But due to the absence of connectivity, the trade volume between India and the Central Asia is limited. India’s export of US $ 469.33 million to the 5 CARs in 2019-20 accounted for 0.67 percent of their global import basket of US $ 69.5 billion[vii]. Though our imports were higher at 2.328 billion, they were 2.76 percent of their global exports, which stood at US $ 84.33 billion[viii]. Operationalization of INSTC will help boost the trade.

India’s exports to Russia of US $ 3.017 billion in 2019-20 amounted to 1.18 percent of Russia’s global imports of US $ 254.60 billion[ix]. While our imports were larger at 7.093 billion, they accounted for 1.68 percent of Russia’s global exports of US $ 419.9 billion[x]. These figures suggest that there is considerable potential to increase trade for mutual benefit.

INSTC will help boost the trade by bringing down transport costs and time. At present trade with Russia has to be carried through Suez Canal, and from there westward to Europe before looping back to St. Petersburg. There will be a saving of 30 per cent in cost and 40 per cent in time if the goods are sent along the INSTC. In the case of trade with the Central Asian Republic states, the savings could be even more as the existing route involves either shipping goods to China and then westwards by land route, or shipping them to Russia and eastwards to CARs.

Contrary to the perception in media, the infrastructure exists for the operationalization of the INSTC. Three out of five crossing points on Iran’s northern borders are already connected to Bandar Abbas by railway - Sarakhs, Inchebarun, and Amirabad. There is a gap of around 200 km between Rasht and Astara on the extreme westward axis of INSTC from Bandar Abbas to Astara. But the absence of the railway link should not impede traffic. Iran is an oil-rich country, and road tariff is comparable with the railway tariff. RZD, a subsidiary of Russian railways has put in place an arrangement to move cargo from Bandar Abbas to Moscow and St. Petersburg. The entire journey from Bandar Abbas to Moscow can be covered under a single bill of lading. The issue that remains to be resolved is payment and insurance for the Iranian leg of the journey. Banks are wary of dealing with Iran-related transactions, even though transit goods are not covered by sanctions. The absence of banking channels is the most important impediment to the success of the INSTC route.

Unlike the Belt and Road initiative, INSTC does not require much investment. The infrastructure already exists; member states concerned will invest in improvements wherever needed. Increased trade will bring prosperity to the regional countries. After the eruption of the Ukraine crisis, the importance of INSTC to Russia has gone up. But this need not drag it into geopolitical rivalries. The route is not used for oil exports from Russia and much of Russia’s oil exports move by ship, not by road or rail.

Chabahar

Chabahar is Iran’s only port in the Gulf of Oman, outside the Hormuz strait. It  therefore holds, special importance for the country. Shah originally intended to build a submarine base in Chabahar. The port was also offered to the US. It offers India the shortest route for transit to Afghanistan as well.

Chabahar port will also broaden Afghanistan’s choices, and reduce its dependence upon Karachi port for transit. Pakistan has used this dependence as leverage to pressurize the Afghan government in the past. There are often long delays and pilferage in importing goods from Karachi. The Chabahar port will also offer an outlet to the sea for landlocked states of Central Asia. While Bandar Abbas is the largest port in Iran, it is congested and involves long delays. This will not be a problem in the case of Chabahar. The Iranian government also provides discounts in terms of terminal handling charges.

 
Source: Marine Insight, https://www.marineinsight.com/know-more/6-major-ports-in-iran/

Chabahar lies 170 km west of Gwadar port in Pakistan, which has been developed by the Chinese. Gwadar can be used for civilian as well as military purposes. Indian participation in Chabahar port does not have any military dimension. India has been offered a civilian facility to develop. Chabahar has two ports –Shahid Kalantari and Shahid Beheshti. Shahid Kalantari is the older port. The Indian contract is for the development of Shahid Beheshti port. Though the Chinese investment is much larger in Gwadar, Chabahar has twin advantages of relatively more secure hinterland, and access to cheap gas which Gwadar cannot match.

India was offered participation in the development of Chabahar port during President Khatami’s visit to India in 2003. This was initially assigned to a private sector company,  which formed a joint venture with Indian Railway Construction Limited (IRCON). When the author joined as Ambassador to Tehran in 2011, he brought the discussions back to the government track. The negotiations picked up momentum after December 2013. The MOU for Indian participation in Chabahar port was signed by the then Minister for Shipping, Shri Nitin Gadkari Ji on May 6, 2015. The contract was signed a year later, in June 2016 during PM Modi’s visit to Iran.

The US Administration has provided exemption from US sanctions for the operation of Chabahar port.  However, there is some nervousness amongst banks in dealing with Iran-related traffic. This problem needs to be addressed.

According to the official figures of the Port and Maritime Organisation (PMO), Chabahar port handled total traffic of 3.587 million tons from January till December 2021.[xi]This represented an increase of 13.6 per cent over the previous year’s figure of 3.157 million tons. But the present traffic at the port does not reflect its full potential. The port lacks regular shipping service. There is also a need for improved hinterland connectivity. Once developed, Chabahar could be a boon for all countries in the region.

Oil

Oil was discovered in Well No 1, Masjid-e-Sulaiman in western Iran in 1908 by Anglo-Persian Oil Company. (Source: The Prize y Daniel Yergin, Page 147) This was more than a quarter century before oil was discovered in Saudi Arabia. Though Saudi Arabia eventually overtook Iran in crude exports, Iran remained the second largest exporter of crude oil till 1979. Of the upwards of 5.5 million barrels produced daily in Iran, about 4.5 million were exported; the rest were consumed internally.’[xii] The world oil demand was 50 million barrels per day in 1979 when the second oil price shock erupted.[xiii] Thus, Iranian oil had much greater salience for the stability of the international fuel market at the time than is today. It accounted for around 9 per cent of the world demand in the 70s. Its share has since come down to 1-2 per cent of the global demand of 100 million barrels per day. Iran exported only 2.2 million barrels per day before the latest round of US sanctions were imposed in 2018. This has since come down to less than 1 million barrels per day. [xiv] Iran however, has plans to increase production quickly once sanctions are lifted.

Oil has played a major role in Iran’s national life and foreign policy. The nationalization of British Petroleum’s oil assets by the Mossadegh government led to a CIA-engineered coup to overthrow his government. Before the coup, the matter was also debated in the Security Council where India had helped moderate the  resolution against Iran. The successful coup restored Shah to power. British Petroleum’s concession was divided between a consortium of American, British, and French companies.

Iran under Shah remained firmly in the American camp. On oil prices though, Shah pursued an aggressive policy demanding higher prices. Iran played a major role in the evolution of OPEC. The Iranian revolution was among the major causes of the second oil price shock.

Iran emerged as the biggest supplier of crude oil to India by the early 70s. Iran offered excellent terms for crude sales to India. When the author joined Tehran as the Indian Ambassador in 2011, Iranian supplies accounted for 1/5th of India’s total consumption. During the sanctions period (2011-2015), India continued to import Iranian crude under a rupee payment arrangement. This made it possible to meet India’s energy needs while keeping Iranian oil flowing.

Iran also has the second largest gas reserves in the world. In the future, it will have an even bigger share of the world’s gas supply, as it develops its gas reserves. India has accepted the goal of net zero emission by 2070; as India moves towards a lower carbon footprint, gas will have a role as the bridging fuel. There is a complementarity between Iran’s surplus gas and the Indian energy market. The Indian government has announced that it wants to increase the share of gas in India’s energy mix from 7 to 15 per cent by 2030. Close proximity means that Iranian gas can be transported to India under a sub-sea pipeline, which avoids all the geo-political complications of an overland pipeline. For example, South Asia Gas Enterprise (SAGE), an Indian company proposes to bring gas to India through a sub-sea pipeline which will avoid all the risks associated with overland pipelines passing through Pakistan. There are three possible sources of gas for India– Iran, Oman, and UAE. Iran not only has the largest gas reserves but is also closest to India. Iran has also offered India the possibility of participation in the development of the Farzad B offshore gas field. Iran can also supply petro-chemical and fertiliser to India.

Future:

India and Iran continue to remain engaged at the political level, though the volume of trade and investment has been affected by US sanctions against Iran. Intherecent period, Prime Minister Dr. Manmohan Singh visited Iran in 2013 followed by Prime Minister Modi in 2016. Iranian President Rouhani also visited India in 2019. The two-way trade has however shrunk to US $ 2.106 billion with Indian exports of US $ 1.77 billion and Indian imports of US $ 331 million in 2020-21. [xv]Iran invested in the Madras refinery in 1965. Iran had also committed to investing $ 630 million in Kudremukh Iron and Ore Company Limited (KIOCL) in the mid-seventies. While Iran initially effected payment of US $ 255 million, the project was later shelved and eventually completed with Indian investment. India on the other hand committed an investment of $ 85 million in Chabahar port. The level of trade and investment does not reflect the full potential of the bilateral relationship between India and Iran.

The recent imposition of EU sanctions against the Russian crude oil exports has led to a sharp increase in crude prices globally. With the US Congressional elections due to take place in November 2022, President Biden visited Saudi Arabia on the 14th of June. As he wrote in his Op-Ed piece in the Washington Post before the visit, one of the key objectives of his trip to the Middle East was to mitigate the effect of Ukraine war on oil prices.[xvi]To moderate the sharp escalation in crude prices, he advocated increased production. Saudi Crown Prince Mohammad Bin Salman mentioned in Jeddah meet that Saudi Arabia will increase its oil production to 13 million barrels by day from a nameplate capacity of 12 million now by 2027 [xvii]. However, this is a long-term framework that will not provide immediate relief. The OPEC + meeting on 3 August 2022also announced an increase of 100,000 barrels per day. [xviii] But this is the shortest increase announced by this group. A drop in crude prices is observed since then, but this is more due to the fear of recession, rather due to an improvement in the demand-supply position.

The crude price situation can improve considerably with the lifting of US sanctions on Iran and Iran’s integration into the international mainstream. Iran can supply at least 1 million barrels per day of oil at its current level of production. It has ambitious plans of increasing its crude oil production. There are some hopeful signs as the nuclear talks between Iran and P5+1 resume in Vienna to revive JCPOA. The success of the talks will not only help moderate the oil prices but will also bring down regional tensions. Iran has also been having regular exchanges with its  neighbors. Most importantly, there have been several rounds of talks between Iran and Saudi Arabia. Conversely, if the talks do not succeed, the dividing lines in the region will become sharper. It is not in anyone’s interest to have a conflagration in the region, which accounts for more than 20 per cent of the global oil supply today.

Iran and India are ancient civilizations. The Iranian people have shown their resilience during the sanctions. Its integration into the international mainstream will bring stability to the region.

*****

*The author is former Ambassador of India to Iran and author of The Forgotten Kashmir: The Other Side of the Line of Control
Disclaimer: The views expressed are of the authors.

[i]NYT, India, Badly Needing Aid, Hails Visit of Shah of Iran, October 3, 1974

[ii]Making Sense of Pakistan by Farzana Sheikh, Page 207

[iii]Making Sense of Pakistan by Farzana Sheikh, Page 169

[iv]Tehran Times, 19.2.2019

[v]United Nations, Security Council condemns ‘heinous and cowardly’ attack in Iran, February 14, 2019

[vi] Karvi Rana, Maiden Russian cargo transit rail to India using INSTC reaches Iran, Logistics Insider, July 14, 2022, https://www.logisticsinsider.in/maiden-russian-cargo-transit-rail-to-india-using-instc-reaches-iran/

[vii] Trade Statistics, Department of Commerce,

[viii]Trade Statistics, Department of Commerce,

[ix]Trade Statistics, Department of Commerce,

[x]Trade Statistics, Department of Commerce,

[xi]Port and Maritime Organisation, Iran Statistics, 2021 Annual Report

[xii]The Prize by Daniel Yergin, page 678

[xiii]The Prize by Daniel Yergin, page 685

[xiv]OPEC Monthly Oil Market Report, July 2022

[xv]Trade Statistics, Department of Commerce, GOI

[xvi]Washington Post, Joe Biden op-ed : What I hope to accomplish in Saudi Arabia and Israel, 9 July 2022

[xvii] Reuters, Saudi crown prince says unrealistic energy policies will lead to higher inflation, July 16, 2022

[xviii] OPEC, Press Releases, 31^st OPEC and non-OPEC Ministerial Meeting, 3^rd August 2022