Why PM Modi's Iran visit is important

Prime Minister Narendra Modi’s visit to Iran on May 22-23 has manifest bilateral and regional importance. It is a much delayed visit and until recently it seemed that it could well have got postponed to early next year. The decision to visit now rather than later is a welcome move. With the lifting of key international sanctions the road has been cleared for India to resume its engagement of Iran that was interrupted by the draconian muzzling of the country by the US on the financial, investment and trade fronts.

The abundant promise of our ties with Iran is to be juxtaposed with our existing major energy, trade, financial and manpower interests in the Gulf countries. Managing our multifaceted interests in the region requires continual high level engagement with local leaderships. Modi has already visited the UAE and Saudi Arabia and will be visiting Qatar en route to the US in early June. We have to make a careful assessment of mounting uncertainties in the region and their impact on our interests. The region is getting locked into a Saudi-Iran rivalry surcharged by the historical Shia-Sunni divide. This rivalry is shaping the political and security landscape in the region with unpredictable consequences. A modus vivendi between Iran and Saudi Arabia, which President Obama seems to favour by suggesting that the GCC should share the neighbourhood with Iran, is unlikely to occur in the near future as the regional role of an unshackled Iran will inevitably grow, and this will be resisted by the Sunni Arabs. Saudi diplomacy has become assertive and interventionist, and its implications for the country’s internal and external relations are unclear. US-Saudi relations are under some strain because of the P5+1 nuclear deal with Iran, apprehensions that US commitment to the security of West Asia is waning both because its policies in the region have largely failed as well as its declining dependence on oil from this area. The situation is further complicated by Turkey’s ambitions in the Arab world under president Erdogan, not to mention Saudi-Qatar rivalry, the conflict in Yemen in which Saudi Arabia has got bogged down and Iran’s influence amongst the Arab Shias, whether in Iraq, Syria or Lebanon.

India has a vital interest in the stability of the Gulf region, but the means at our disposal to ensure this are limited. We have to rely on diplomacy supported by economic engagement, convergence of thinking on security threats to the region and political even-handedness towards countries with conflicting interests so that we are viewed as a useful partner by all parties in different ways. We are well positioned to do this as our overall stature as a power is growing, we are gaining economic strength and our market holds huge potential, which makes us an attractive economic partner. We have, besides military strength, including nuclear capacity. Our expanding navy will play an increasingly important role in securing the sea lanes of communication in the Indian Ocean. Our policies should be such that we are not taken for granted by any country, which means that we should be seen as pursuing an independent and self-confident policy. With Iran, especially, we should not be deterred by concerns, if any, about how those in the region with animosity towards Iran would view a stronger investment by us in our Iran relationship.

We should keep in mind the close relations all these countries maintain with Pakistan without being concerned about Indian sensitivities. The April 2016 resolution on Kashmir by the OIC was deeply objectionable, and it was passed under the watch of Saudi Arabia and Turkey. It would be interesting to know which “friendly” country in the region reserved its position on this highly one-sided and provocative resolution. That such resolutions have been passed before and India has routinely objected does not mean that new found equations between India and West Asian countries and the emergence of Pakistan as a hot-bed of terrorism should not affect traditional one-sided positions. If the OIC resolutions are not important, as is argued by those who want to escape the embarrassment of being party to such anti-Indian resolutions, then why have them or why should not individual countries not express reservations about something which they do not consider particularly important? Turkey has no qualms about being a member of the OIC Contact Group on Kashmir, especially when India extends no support to the Kurds fighting for their rights in Turkey. The Muslim countries do not want to take issue with Pakistan on the aggressive language of the OIC resolution on J&K, despite their good relations with India. They separate the bilateral relationship from India-Pakistan issues, with a friendly bilateral discourse and an offensive multilateral one on Kashmir within the Umma. We should therefore separate our bilateral relations with these countries from their mutual quarrels. We should have good bilateral relations with the Arab world, Iran as well as Israel. In fact, Modi’s visit to Iran, preceded by those to the Arab Gulf countries, opens the political door for his projected visit to Israel. It might be relevant to mention that Iran and Pakistan exchange high level visits. President Rouhani was in Pakistan this March. Nawaz sharif has visited Iran twice already; earlier Zardari had visited Iran three times.

The areas where we can build mutually profitable ties with Iran are well known. Our energy needs and Iran’s huge oil and gas reserves create complementarities, which can be exploited to mutual advantage because of geographical proximity, long term Indian needs, and global production levels exceeding demand because of a downturn in the world economy that push for lower oil prices and force producers to preserve their market share. Iran, in fact, needs to recover its market share lost during the period of sanctions. We are negotiating the contract for the off-shore Farhad B gas field as well exploring the possibility of obtaining an onshore field too. The Iranians have not included Farhad B in the list of gas fields for international tendering, which is a special gesture towards India. The availability of abundant gas make joint ventures for production of Urea an attractive proposition, given India’s fertiliser needs. An aluminium plant is another possibility. We would need to negotiate the gas price, and this will entail hard bargaining. We have already begun to increase our purchases of crude from Iran. We owe more than $6 billion to Iran in foreign exchange for crude obtained during the sanctions period, but issues of banking channels and exchange rate to be used and interest payable have become a source of contention.The compromise worked out between the negotiating teams that the exchange rate to be used would be the one prevailing on the date of purchase as provided for in the original agreement, but that Indian buyers as a gesture would be willing to pay interest for the period that has elapsed- even if this was not in the original agreement- has been disavowed by the Iranian side at higher levels. It is not clear whether this issue will get sorted out by the time of Modi’s visit.

The contract for Chabahar will be signed during the forthcoming visit, which then would pave the way for the release of $150 million by our side for operational needs of the port for the next ten years. We can be satisfied with this progress but the Iranians have greater expectations. They want us to invest in the railway line from Chabahar to Zahidan (and on the Mashad) and another 180 kms rail project in the Caspian Sea area. The IRCON team has been in Iran recently but the Iranians argue that IRCON is fully familiar with this project as it has been under discussion for the last 12 years, and that what is actually required is a firm decision by our side to go ahead. Whereas the Iranian side believes we have been hesitant to commit ourselves to large scale investments in Iran, our side complains that the Iranians are very difficult to negotiate with, that they re-open issues already closed and that the many layers of their decision making processes make for unpredictability. We have to keep in mind the challenges Chinese competition can present to us in Chabahar where the Chinese are already building a refinery in the Special Economic Zone. The Chinese are also proposing participation in the Chabahar port development project in tandem with Gwadar. The Iranians are supportive of China’s OBOR as Chinese investments in regional and Iranian infrastructure will only increase Iran’s role as a transit country and potentially generate such income as to help wean the economy away from oil revenue dependence.

Iran can provide valuable connectivity to Afghanistan through Chabahar, which would be strategically a huge gain for Afghanistan and India, not to mention the gains that Iran can make from transit and the inevitable expansion of economic activity in this underdeveloped region of Iran that will accompany large scale movement of goods through the port. Currently only 2 million tons of goods pass through Chabahar, which is miniscule. India, Iran and Afghanistan will be signing a trilateral transit agreement during Modi’s visit. Links can be opened to Kazakhstan and Turkmenistan for Indian commercial traffic through Chabahar too. The North South Corridor is another project that will connect Bandar Abbas to southern Russia and northern Europe and provide a much shorter route from India to these countries.

During the sanctions period India and Iran had agreed to part payment for Iranian crude in rupees and these funds were used to finance imports of non-sanctioned products from India. This boosted our exports to Iran, but with the lifting of sanctions and the end of the rupee payment arrangements, India will have to work harder to retain its share of Iranian imports. A CII delegation led by its president visited Iran in April last and has returned with very positive views about trade possibilities. It would be important for our industry and businessmen to discuss the modalities of payment and investment and identify Iranian banks for this purpose, as well as smaller european banks in the Eurozone for Euro transactions, as big European banks are likely to stay away because of secondary US sanctions. Dollar transactions are, of course, out. India has to expedite credit arrangements. Even the commitment made by External Affairs Minister in 2014 has been delayed. A Preferential Trade Agreement and a Double Taxation Avoidance Agreement with Iran are being negotiated. India would also want to have a BIPA for investment protection.

Iran’s strategic location and the control it can can exercise on the Straits of Hormuz through which one-third of the world’s seaborne oil shipments passes makes a dialogue on maritime security with Iran a necessity. Iran has had naval exercises with China, Russia and even with Pakistan. We should step up our naval cooperation with Iran. On the security side stepped up contacts with regular meetings of the National Security Councils, naval exercises, port calls by navies and so on are under consideration and decisions could be firmed up during Modi’s visit.

All in all, much substance can be imparted into our relations with Iran and Prime Minister Modi’s visit will be an important milestone in this regard.

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Published Date: 20^th May 2016, Image Source: http://www.dnaindia.com [3]
(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of the Vivekananda International Foundation)