Category Archives: International

In Light of 2014: Indo-Iranian Relations

IndiaIranIndo – Iranian relationship began way back in stone ages. It continued to evolve during different periods of history. Thanks to interaction between two cultures during numerous Persian excursions, one can observe significant overlap in social, cultural and linguistic characteristics of the two countries, particularly in northern India. While India is home to a large Shia population, Iran has Hindu temples in numerous towns and a Sikh gurudwara in Tehran. India and Iran shared a border till 1947. Post independence, their relations have been known to vacillate on occasions owing to certain conflicts of interest. During the cold war period, the two countries took opposite paths. While India (though non-aligned) enjoyed close military relations with USSR, Iran enjoyed closeness with “benevolent” USA (Ironically). Meanwhile, Iran supported Pakistan and India supported Iraq (Iran and Iraq were at war during 1980-88). Post 1990 the relationship took a turn. Both countries came together, thanks to mutual interest in Afghanistan. Delhi and Tehran supported Northern alliance against Taliban. This brings us to 21st century. Here again, two have not had perfect friendship. In contrast to Tehran, Delhi supported presence of NATO troops in Afghanistan. It has also opposed Iran’s nuclear program. Despite the differences, both nations enjoy important economic relations with each other.

Iranian economy, like most Middle Eastern economies, is significantly dependent on petroleum which constitutes 80% of exports. Of its total exports, worth US $ 66.37bn (2012 FICCI est.), India enjoys an 8.1% share. Iranian economy is also marred by high inflation rates. The official inflation rate hit 27.4% by end of 2012 and is expected to pass 30% by end of 2013. Rising oil prices have eased the pressure of sanctions but poor economic policy and mismanagement by government has fueled high inflation rates.

India-Iran enjoys economic and commercial ties covering many sectors. However, the trade relations have traditionally been buoyed by Indian import of Iranian crude oil resulting in overall trade balance in favor of Iran. The two-way trade between India and Iran has shown good growth in recent years. In fact, it has grown more than 20% during the five years spanning 2007-12 from US$ 13bn in 2007-08 to US$ 16bn in 2011-12. India’s export to Iran has grown more than 25% from about US$ 1.9bn in 2007-08 to US$ 2.4bn in 2011-12. Iran’s exports to India during these years have registered an increase of almost 30% from US$ 11.1bn in 2007-08 reaching US$ 13.6bn in 2011-12.

Upon the dawn of 2013, sanctions took a toll over the trade between two countries. India cut oil imports from Iran. India’s crude imports from Iran plunged by more than 26.5 per cent in the 2012-13 FY (April-March) as US and European sanctions on Tehran combined to make it difficult for Indian refiners to ship Iranian oil. Imports of Iranian crude fell to 13.3 million metric ton, or close to 267,100 barrels per day (b/d), in 2012-13 from 18.1 million metric ton, or around 362,500 b/d, in 2011-12. Iran seemed to be trapped in a labyrinth with its oil export plummeting and inability to repatriate money it has earned from oil it did manage to sell as sanctions have cut off bank transactions. In 2010, Washington intimated New Delhi that Indian companies that deal with Iran via Asian Clearance Union risk to violate certain US sanctions that prevent International firms from doing business with Iranian banks, and the firms continuing to do so may be barred from the US. Iran even offered free shipping of oil to Indian firms basically just to keep the oil flowing. Iran’s remaining Indian clients – Mangalore Refinery and Petrochemicals Ltd, Essar Oil and Indian Oil Corp – could save freight of 70 cents to US$1 a barrel on purchases from Iran, according to some estimates. Any discount is crucial for India as it tries to cut its massiveUS$170b oil bill. For a long time, India has been trying to pursue Iran for payment of Oil imports in Indian Rupees, trying to save US$8.5b of foreign currency. Iran however agreed only to a 45-55% ratio; 45% being paid in rupees.

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Very recently, the whole scenario has taken a turn towards good. Iran tied a breakthrough deal with West. The deal curbs the uranium enrichment program of Iran and in return release some of the sanctions on Iran. Iran can look forward to a bounty of funds that have been trapped in foreign banking institutions due to the sanctions. India alone is estimated to be a source of US$6b. India is looking forward to boost its energy ties on the back of this historic deal. Although, the deal is in a very early stage, coming 6 months will bring more talks and more development. The deal is a harbinger of imminent success in 2014. Iran can be a potentially crucial partner for its ongoing undertakings in Middle East. Iranian leadership under Rouhani can mediate in Syrian crisis particularly because Syria is also home to a large no. of Shia Muslims, much like Iran. Iran can also help west in establishing peace in Afghanistan, particularly since America is looking to withdraw its forces. Though these early declarations are just a beginning of more difficult negotiations, but a positive start is motivating to all the stakeholders including India.

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