India losing its footprint in Iran and the Persian Gulf

Once upon a time, the import of Iranian oil in India was so huge that Indian refineries were built in a manner to specifically refine Iranian crude oil-remember Mangalore refinery. Iran was supplying 90% of India’s crude oil requirement at one point. Iran was only conduit to the gas fields and oilfields of Central Asia, and the only entry point into grief stricken Afghanistan.

Today India has stopped purchasing oil from Iran. Not just oil trade, the exports to Iran have suffered too. Indian merchants have almost entirely stopped signing new export contracts with Iranian buyers due to caution about Iran’s falling Rupee reserves with Indian banks. Why and how did the relations go upside down?

India is facing one loss after the other in the Persian Gulf. In 2020, we lost the Chabahar Rail Project and now the Farzad-B gas pipeline which ONGC Videsh discovered. How are these projects important for India and what exactly is happening in the Persian Gulf?

The rise and fall of India-Iran ties

Conventionally, Iran had been important from an energy security point of view. The import of Iranian oil in India was so huge that Indian refineries were built in a manner especially to refine Iranian crude oil. Our relations with Iran were not beyond oil transactions in the cold war era.

In the beginning, Iran and India mainly transacted for oil. But this oil trade was so huge that Iran alone fulfilled 90% of India’s crude oil demand.

Since the 1990s, the importance of Iran is more strategic. The ‘Tehran Declaration’ of 2001 marks the beginning of the ‘strategic partnership’ between India and Iran against the Taliban. The ‘Delhi Declaration in 2003 laid down the roadmap for the IPI gas pipeline and India’s participation in INSTC (International North-South Transport Corridor) 

Our relations with Iran went way beyond oil transactions post the cold war era. Iran became important from security point of view for India. The two were fighting together against a common enemy-the Taliban. The ‘Tehran Declaration’ of 2001 marks the beginning of the ‘strategic partnership’ between India and Iran against the Taliban.

Then, the ‘Delhi Declaration in 2003 laid down the roadmap for the IPI gas pipeline and India’s participation in INSTC (International North-South Transport Corridor).

After the USA became wary of the Delhi-Tehran axis, it came up with the lucrative offer of a civil nuclear deal with India and side-lining of Iran. Since then, relations with Iran started developing a crack-line. India also began to diversify its oil imports under US pressure.

In 2010, the relations again started to come back on track for a while. India declared the intention of developing Chabahar port and joint oil exploration with Iran. India had realized its mistake of side-lining Iran when the threat of the Taliban became stronger after US withdrawal from Afghanistan. But in these years, China became close to Iran and became its biggest trading partner. The excessive decision-making delays made India lose one project after the other. In 2020, we lost the Chabahar Rail Project and now the Farzad-B gas pipeline which ONGC Videsh helped discover.

Why were these projects important to India?

Through the Chabahar Zahedan Rail Project, India would have got an alternate route to Afghanistan bypassing Pakistan. The plan was to develop the rail line further till Zaranj and then till Delaram into Afghanistan. Iran was viewed as India’s gateway to central Asia and Afghanistan.

The Farzad-B oil field where Indian ONGC Videsh had an investment of $100 million has more than 19 trillion cubic feet of oil. India needs gas and Iran is closest to India of all the countries in the Persian Gulf. More than the financial loss in these projects, India is losing an important ally in West Asia in its fight against the Taliban. India is also suffering a reputational loss that it gave in to US sanctions and could not fulfil its commitments in Iran in time. Chabahar had become an enduring symbol of India-Iran friendship which is being shrouded under the growing clout of China.

What happened- The situation at present?

India is facing one loss after the other in the Persian Gulf. In 2020, we lost the Chabahar Rail Project and now the Farzad-B gas pipeline which ONGC Videsh discovered.

How are we placed with respect to other countries in the Persian Gulf

Eight countries border the Persian Gulf-

Iraq, Kuwait, Saudi Arabia, Bahrain, Qatar, United Arab Emirates, Oman, and Iran. Of these, Iran and Saudi Arabia are the two main centers of power. The Saudis and Iranians have never actually declared a war on each other directly. Instead, they fight indirectly by supporting opposing sides in other countries, be it Iraq, Syria, or Yemen. 

This is known as proxy warfare and it has a devastating attack on these smaller countries. The feud between these two countries is the key to understand the dynamics of the region. The power tussle between these two countries has given rise to political instability, terrorism and Shia-Sunni rift in the region.

The region is also significant because Hormuz Strait, he most important choke point lies in the region, and Indias oil security requires that India must be present in the region.

How are India’s relations with the other power centre of the Persian Gulf?

Saudi Arabia is the other major centre of power in the Persian Gulf. Saudi Arabia is known for its closeness to Pakistan as well as the Taliban. Traditionally, India and Saudi Arabia interacted more at societal level than at the governmental level. Saudi Arabia is home to nearly 3 million Indian expatriates. But now India’s relations have become strategic with Saudi Arabia after the Riyadh Declaration of 2010. In recent years, bilateral ties had acquired a security dimension with both countries stepping up cooperation in counter-terrorism and intelligence-sharing. India now banks on Saudi Arabia for managing its terrorism related concerns with respect to Pakistan.

India has the world’s 3rd largest Muslim population (after Indonesia & Pakistan). Being the custodian of the two of Islam’s holiest sites (Mecca & Medina), Saudi becomes important in India’s strategic calculus.

Today, Saudi Arabia has become India’s biggest crude oil supplier. Although, Saudi Arabia has a good nexus with Pakistan but India is important for Saudi Arabia from an investment point of view. The attractiveness of Indian market and changed India-US relations became the basis of new India-Saudi Arabia relations.

Threats to External Security

Iran is crucial for external security of India considering that it was the only key to Central Asia, the oilfields of Central Asia, being the entry point to Afghanistan and to neutralise Pakistan’s nefarious designs.

A balancing approach with South West Asia remains crucial for India and Iran was key to it.

Maintaining ties with Iran even as it forges a new relationship with Saudi Arabia and Israel is critical for India’s balancing policy in West Asia. Saudi-Arabia and Israel are both US allies.

Beyond energy security, West Asia is crucial for more reasons than one-

• West Asia is the gateway to land-locked energy-rich Central Asia. 
• About 11 million Indians work in West Asia. India is the largest recipient of foreign remittances from West Asia.
• From a geostrategic point of view, it is important to counter the clout of China which is making continuous inroads into the region with its OBOR project.

Iran provided access to Afghanistan and now we are out of ideas as to how we approach Afghanistan which after the withdrawal of US forces is at the mercy of Pakistan.

How can India Iran ties be improved now?

In addition to Iran’s Farzad-B Gas Field, the Chabahar-Zahedan railroad project, India-Iran relations are driven on a third component—the Chabahar port project. Chabahar Project ties India and Iran together. It has become a symbol of the enduring friendship between India and Iran. Chabahar stands as a strategic gain for India, especially in the light of China’s involvement in the development of Gwadar Port in Pakistan. Chabahar was envisioned as a checkmate for Gwadar. However, Iran has expressed willingness to invite other countries including China for the port’s further development. It must be noted that while China has invested $46 billion in the development of Gwadar, India had only pledged $500 million towards the development of Chabahar. Today, China has promised to invest $400 billion in Iran.

Both India and Iran stand to gain by coming together. India is a large market for Iranian products; and that Iran is India’s gateway to central Asia and Afghanistan. Iran is potentially a regional hub for trade and transit. India needs an immediate course correction and should not let Chabahar slip into Chinese hands.

Given the backdrop of Iran’s nuclear status and constant efforts of US to isolate Iran, its relations with India are at a juncture where India must tread carefully, keeping safe from international entanglements to serve domestic interests better. As India has learnt the art of de-hyphenation, its time to bring out a consistent and autonomous Iran policy.