Will India Sign China-Style Strategic Deal With Iran?

For the past few weeks, the diplomatic engagement between India and Iran has intensified, triggering speculation that New Delhi may resume oil imports from its traditional supplier soon.

During several such talks, including last week’s telephone conversations between Indian Foreign Minister Subrahmanyam Jaishankar and his Iranian counterpart Hossein Amirabdollahian, the resumption of trade ties, especially energy, has dominated the discussions.

The Iranian minister underlined the need to “follow up on bilateral agreements” that are aimed at boosting cooperation between Tehran and New Delhi.

On Monday, Indian media reported that Iran had offered India a mega deal, similar to what Tehran signed with Beijing in 2021, inviting close to $400 billion in investment in the infrastructure and energy sector under a 25-year cooperation agreement.

However, Indian experts see inhibition in New Delhi towards signing a deal with Tehran akin to the China-Iran Comprehensive Strategic Partnership signed in 2021 as, they think, the risk outweighs the economic benefits.

Md. Muddassir Quamar, associate fellow at the Delhi-based Institute for Defense Studies and Analysis (IDSA), reckoned that there is an issue of geopolitical signaling in the offer.

“Iran is keen to offer a deal to India to showcase that it is not isolated and that its relations with Asia are thriving while the West is trying to isolate Iran. From an Indian perspective, signing a deal with Iran at this point gives wrong signals to its strategic partners in the Gulf and the Middle East as well as in the West. This means that there is too much geopolitical risk without any notable economic incentive,” Quamar observed.

The West Asia expert also underlined that India-Iran relations stand on their own merit and are not based on relations with third parties. However, he noted that Indian energy imports were badly affected by the US withdrawal from the Joint Comprehensive Plan of Action, popularly known as the Iran nuclear deal, and the refusal of the Trump administration to grant exemption to Indian oil entities from doing business with Iranian oil companies.

“India used to import nearly 11-12% of its crude requirements from Iran which is a historic and strategic partner for India irrespective of the current geopolitical issues with the West,” Amb Anil Trigunayat, distinguished fellow at the Vivekanand International Foundation, told Sputnik.

Addressing a press conference on the sidelines of the third Tehran Dialogue Forum on Monday, Iranian Foreign Minister Hossein Amirabdollahian said that diplomats from the European Union and Iran are seriously following up on consultations on the resumption of the JCPOA. Tehran has indicated that differences have been resolved, except for safeguard issues with the nuclear watchdog, the IAEA.

“We hope that the remaining differences to be resolved with the IAEA delegation visit to Tehran,” the minister added.

New Delhi has thus far waited for progress in the indirect negotiations between Iran and the US on the revival of the nuclear deal, but this has not materialized, making the resumption of trade ties a complicated issue.

“Even if one looks at it [the Iranian offer of a mega deal to India] from an economic perspective, the China-Iran CSP hasn't really materialized, and there is a huge gap between what was promised and what has been realized thus far. Agreed, it is a long-term deal, but the premise was that in the short-term Chinese entities can capitalize on sanctions relief if the JCPOA negotiation succeeds,” Md. Muddassir Quamar told Sputnik.

The internal situation in Iran over the hijab row has also complicated the JCPOA negotiations.

Nevertheless, New Delhi hasn’t aligned with the West over the hijab row, which erupted following the death of 22-year-old Mahsa Amini, who died after being detained by the country's morality police in September.

India abstained in the UN Economic and Social Council on a draft resolution introduced by the US to oust Iran from the principal global intergovernmental body dedicated to the promotion of gender equality and women empowerment.

The JCPOA negotiations are currently on hold. This means that at this point, even if Iran offers an attractive deal, the probability of it materializing in the short-to-medium term is very low, Quamar underlined.

“In other words, the economic incentive argument for an India-Iran strategic partnership agreement does not hold much water in the given scenario, and there is not much Iran can offer India as far as an economic partnership is concerned,” he emphasized.

A Limited Deal, a Possibility

Customs data from January-October showed that Iran’s trade with India stood at $2.09 billion, less than one-eighth of the level both countries achieved in 2019. In the $17.03 billion bilateral trade in 2018-19, the energy volume stood at $12.3 billion.

Since May 2019, trade ties have reversed, following the lapse of the oil sanctions waiver granted to India by the US. In FY20, bilateral trade stood at US$4.77 billion.

Tehran has been urging Delhi to resume the oil trade by "ignoring” unilateral sanctions imposed by the United States, in an effort to replicate Delhi’s approach to Russian oil.

“The argument about the economic imperative of India's energy imports from Iran has some merit. In all likelihood, if a deal has to materialize, it will most likely be confined to oil and gas imports. In such a scenario, New Delhi and Tehran will have to negotiate the finer contours, especially with respect to the payment issue,” Quamar said.

India and Iran have previous experience of a barter-like arrangement wherein the payments for energy imports can be made in rupees and the same can be used for Iran paying for imports of rice, tea, and other commodities from India.

“However, even this is not free from risks given the threat of secondary sanctions from the US. Hence, finding a fool-proof mechanism will be a major challenge,” Quamar underlined.

During the first one-to-one meeting with President Ebrahim Raisi in September, Prime Minister Narendra Modi said his country was opposed to the imposition of sanctions by one nation against another.

In June, India's top diplomat Jaishankar slammed the West for squeezing “every source of oil” that India earlier had access to, including from Iran and Venezuela.

Indian investment in Chabahar port was also affected after the US unilaterally left the Iran nuclear deal in 2018. New Delhi and Tehran have been jointly developing the Shahid Beheshti terminal at Chabahar since 2016, when Prime Minister Narendra Modi earmarked $500 million for the port’s development during a visit to Tehran.

“Hopefully the JCPOA will be finalized and re-operationalized soon, which should normalize the oil trade too. There are greater opportunities in gas imports as well as connectivity through Chabahar for alternate routes be it to Central Asia, Afghanistan or for that matter International North-South Transport Corridor,” Trigunayat concluded.