Context: India’s stakes in its relationship with Iran go far beyond crude oil. The recent conflict between Israel and Iran, leaves India in a difficult spot in balancing its policy with Iran and Israel.
Relevance of the topic:
Prelims: About Chabahar port, INSTC, Tehran Declaration, New Delhi Declaration
Mains: Significance of Iran for India.
Iran has been a long-standing diplomatic and economic partner to India.
India’s relations with Iran
- India and Iran share ancient civilisational ties- common cultural, linguistic, and ethnic roots.
- India signed a Friendship Treaty with Iran in 1950, committing to perpetual peace and friendship.
- Two landmark agreements:
- Tehran Declaration (2001): Aimed at boosting cooperation in energy, trade, and security.
- New Delhi Declaration (2003): Covered various areas of bilateral cooperation, including economic collaboration, hydrocarbons, science and technology, education, reconstruction of Afghanistan and combating international terrorism.
Iran is important to India for multiple reasons, including its geographical location and rich energy resources.
Significance of Iran to India:
- Strategic Location in West Asia: Iran lies at the crossroads of West Asia, Central Asia, and South Asia. It is located near the Strait of Hormuz, a critical choke point through which about 20% of global oil passes.
- Gateway to Central Asia and Afghanistan: Iran offers an alternative land and sea route to access Afghanistan (bypassing Pakistan) and Central Asian Republics like Turkmenistan, Uzbekistan, Kazakhstan, etc.
- Infrastructure Projects: India and Iran signed an MoU in 2015 to develop the Shahid Beheshti terminal at Chabahar Port. Chabahar port project being jointly developed in Iran is of crucial importance to India, as:
- It would provide connectivity to Afghanistan and the resource-rich Central Asian countries, bypassing Pakistan.
- Chabahar is a key link in the International North South Transport Corridor (INSTC), connecting India with Iran, Russia, Central Asia, and Europe, reducing transit time and cost while boosting trade with Eurasia.
- It would counter China’s growing influence in the region, particularly its Belt and Road Initiative.
Important Oil Supplier to India
- Before Western sanctions over its alleged nuclear program, Iran was one of India’s top three oil suppliers for many years. Critical infrastructure, such as the Mangalore Refinery and Petrochemicals Ltd, was built with the capability to process Iranian crude oil.
- Iran was a preferred supplier for India as it used to extend favourable terms, including discounted prices and extended credit periods. Oil supplies continued irrespective of the UN sanctions against Iran.
- Note: In 2018, when the US reimposed its sanctions after getting out of the nuclear deal, India used the rupee payment mechanism to partly pay for the oil in Indian rupee, to get past the US sanctions.
Important Export Destination:
- Iran was an important export destination for certain items from India including semi/wholly milled rice, black tea, fertilisers, organic/inorganic/agro chemicals, pharmaceuticals, yarns and fabric.
- Exports to Iran were as much as $5.3 billion in 2013. However, the fall was sudden and sharp since 2019, after India stopped buying oil from the country, with exports in FY25 at $1.24 billion.
Exporters hope for a return to normal relationship with Iran, as the country holds a lot of potential for growth.