Anticipating increasing tensions between Iran and the United States, Government of India has apparently advised the Indian firms to go slow over their investments in proposed projects in Iran’s ‘Chabahar Free Trade Zone’. According to a news report, there is an apprehension that India’s financial transactions and technology imports from the rest of the world could get jeopardised if India gets caught in the crossfire between the United States and Iran. With this development, the future of a slew of gas based projects like urea, petrochemicals, steel plants and LNG in the Chabahar Free Trade Zone also seems to be in doubt. These projects had been announced after the Obama Administration had lifted the sanctions against Iran in January 2016. Earlier, India had agreed to develop two berths at the Chabahar port as well, after signing a Memorandum of Understanding (MoU) with Iran on May 6th, 2016. India believes that the Chabahar port is of great strategic importance as a maritime trade transit route to Iran, Afghanistan and Central Asia. However, New Delhi had been ‘hot and cold’ over the project because of the US sanctions against Iran in the past. Is there once again a shadow of worsening US-Iran ties on India’s investments in the Chabahar port and the Chabahar Free Trade Zone?
Significance of Indian investments in the Chabahar port and Chabahar Free Trade Zone
India has been blocked geopolitically in terms of transit to Afghanistan through the Pakistan route. It is futile to assume that in the foreseeable future, Pakistan would lift such restrictions that they have imposed because then it will give entry to India in Central Asia. This would disturb the ‘strategic outlook’ of Pakistan in terms of its own role in Central Asia in keeping India out of it.
Therefore, the alternative is to develop a route through Iran and Chabahar being in close proximity to Pakistan-Iran border, gives India a strategic leverage over Pakistan. Moreover, it presents India the shortest route to Afghanistan and Central Asia. It can also be used in the proposed ‘International North South Transport Corridor’ to southern Russia.
India has decided to invest $80-100 million in two berths of Chabahar port with a guaranteed involvement of India for the next 10 years at this project. There is also Chabahar Free Trade Zone, where Iran wants India to make investments in terms of the development of the area. India has been having preliminary discussions with Iran over the urea, petrochemicals, steel and LNG plants in the region. India has already extended a $500 million credit line to Iran for developing these projects because they are at the very incipient stage because of negotiating dynamic provisions like the price of gas which is a determinant input factor for the urea plant.
In the case of India not materialising its investments in Chabahar, the most severe impact would be felt by Afghanistan because their dependence on the Pakistan route is getting tenuous continuously. More than Iran and India, the United States is mindful about this possible repercussion on Afghanistan.
Why had India waxed and waned about its interest in Chabahar?
The unconfirmed report saying Ministry of External Affairs (MEA) of India has advised the Department of Fertilisers and Petrochemicals to go slow on its investments in Chabahar may be inaccurate as the documents merely gives an advice of moving ‘cautiously’ over the projects till the dust settles between the United States and Iran, after the Trump administration has taken over.
As far as Iran is concerned, moving ‘cautiously’ does not place any particular project in doubt. Given the environment in that country, moving ‘cautiously’ is a sensible advice given by the MEA from time to time to the interested investors from India to Iran.
A pragmatic Indian Government has to take into account the prevailing tensions between Iran and the United States to secure its investment and strategic interests in the region, especially with regards to investment in areas such as petrochemicals. Financial sanctions against Iran by the United States made it very difficult for India to invest in Iran even for the port development process.
But US sanctions against Iran is only one of the multiple factors that make this strategic engagement troublesome. All the multiple factors are connected to the complex foreign investment regime of Iran. This does not mean that Iran does not promise a great potential for India’s investments both from the hydrocarbon and strategic perspective. Hence, ‘caution’ as a principle to invest in Iran is not a bad approach prima facie.
Is India being overly cautious about US-Iran ties?
US sanctions against Iran were against Iranian companies and individuals involved in the missile programme. It also included those entities that were believed to be supporting the extremist organisations (by the Americans). India has no strategic interest and absolutely absolves itself out of the Iranian involvement in either missile programmes or support to extremist organisations. Why did then India face the brunt of American sanctions against Iran?
Practically speaking, financial institutions in India had been very cautious with their engagement with Iran because of very complex nature of American sanctions against them and the unwelcoming behaviour of the Iranians to foreign investment. There is a great deal of reluctance in India with respects to its financial engagement with Iran despite the fact that the Government of India has been proactive in encouraging Indian financial institutions to increase its financial presence in Iran.
India is taking a correct approach of being ‘cautious’ in trading with Iran at this juncture because even if the Chabahar project gets a little delayed, it would not be a bad proposition for India in general. After all, the ‘ease of doing business’ for any foreign investor in Iran has never been easier enough to sustain a business. Due to such complexities of Iranian outlook towards foreign investment, India cannot afford to move beyond the American sanctions against Iran and ultimately end up getting caught in the intricacies with the Iranians itself. It would mean moving ‘cautiously’ with Iran (with or without American sanctions).
The Chinese factor
China is already involved in Chabahar in terms of building an oil refinery in that region and has already made an offer to Iran to build Chabahar. China considers it as an important pillar to its ‘One Belt, One Road’ initiative. Therefore, it is not bothered about the American sanctions against Iran. Even the Iranians would like China to play an important role in Chabahar as this is the mode of the dual-use policy of Iranian diplomacy. Iranians would like to see all the balls in the air at all times, instead of putting all of them in one basket.
India has to take into account this important development and skilfully navigate its ways to secure its core interests in the region. India cannot afford to lose Chabahar in anticipation of future American sanctions against Iran. It should be noted that the Iranians are not too enthusiastic about Chinese involvement in Chabahar because they have ruined the oil fields of Chabahar through their inferior technology and of course, the imperialist ways of business operations by China has miffed Iran. Therefore, Iran is making overtures to India to fill replace China in the region.
United States Army Commander in the region General John Nicholson had made a testimony that ‘Iranian-India-Afghan’ cooperation over the Chabahar port presents great economic potential’. Interestingly, this testimony came a week after the sanctions were imposed against Iran by the United States. Therefore, it is visible that the Chinese factor has forced even the United States to push for India’s strategic involvement in Chabahar.
As the policy of President Trump on Iran unfolds itself, India can wait ‘cautiously’ over the next few months to see what implications does it have for India’s engagement in Chabahar. In practical terms, nothing substantial between India and Iran would materialise on Chabahar in the next few months because of the continuing negotiations over the nature of Indian investments in the region with respect to dynamic provisions and most importantly the $500 million line of credit being offered by India to Iran for the development of the region.
Chabahar is a strategic ‘fruit platter’ that has been served by Iran to India. India must not let it break before the Chinese takes advantage of the strategic route and jeopardise India’s interests further, unless, of course, the American sanctions against Iran are reinforced with material intricacies.
With Iran, the element of trying to grasp strategic opportunity while being cautious about it at the same time would be a balanced approach for India for all the times.