Iran-India relations will remain constrained in the near future

Bilateral dealings between the nations have been hampered by many factors, some of them external.

As the diplomatic dance continues between Iran and the United States, the rest of the world is keen to work out the implications of a possible rapprochement between Tehran and Washington. One of the countries that is looking very closely at the possible realignment is India.

Like many other states, India will not remain immune from the consequences of the trajectory of US-Iranian ties. New Delhi has long pursued a careful balancing act between its relationships with Tehran and Washington. A potential US-Iran rapprochement will likely ease a lot of the existing diplomatic and economic pressure on India.

But while this will certainly open up new possibilities for Indo-Iranian ties, it is unlikely to resolve all the problems in the Delhi-Tehran relationship.

Despite all the hype surrounding India’s ties with Iran, they remain largely underdeveloped. Also, India’s significant stake in the Arabian Peninsula is often overlooked.

The reality that faces New Delhi in the Middle East today is that India has far more significant strategic interests with the Arab Gulf states than with Tehran. And as tensions rise between the Sunni Arab states and Iran, India’s larger stake in the Arab world will continue to inhibit Indian-Iranian ties.

At the same time, New Delhi’s outreach to Tehran will remain circumscribed by the internal power struggle within Iran, growing tensions between Iran and its Arab neighbours and Iran’s continued defiance of the global nuclear order.

Even with a possible decline in Iran-US tensions, a number of issues will continue to complicate the India-Iran relationship. This was exemplified this month when Iran released an Indian tanker – MT Desh Shanti, owned by the state-run Shipping Corporation of India – along with its 32 seafarers. The ship had been detained for 24 days at Bandar Abbas port on the allegation of pollution.

Iran detained the ship carrying crude oil from Iraq to India on Aug 13, saying it was polluting Iranian water, discharging wastes and water mixed with crude near Iran’s Lavan island. India denied the allegation and underlined that the vessel was not in Iranian waters when it was detained. New Delhi took this incident very seriously and has filed an appeal with the Indian Ocean Memorandum of Understanding on Port State Control – a 16-nation grouping of maritime nations – calling for a review of Iran’s action.

India’s rapid growth and development have drastically heightened its need for energy resources and security, thus attaching urgent importance to relations with countries possessing and producing energy resources. It is largely in this context that India has moved closer to Iran, a country heavily sanctioned by the US throughout the last decade due to its lack of cooperation with international nuclear regulations. Wary of any international support for Iran, the US has pressured India to curb its relations with Tehran and significantly cut its level of oil imports from Iran.

Actions by the US and the European Union have noticeably complicated transactions between Iran and importing nations, particularly India, which has been one of the largest recipients of Iranian oil exports. These complications were well illustrated by the EU sanctions banning European companies from insuring tankers that carry Iranian energy resources anywhere in the world. With nearly all tanker insurance based in western nations, Indian shipping companies are reportedly left to turn to state insurance, which covers tankers for only $50 million (Dh183 million) as opposed to the estimated $1 billion coverage typically offered by European agencies, thus taking greater risk in transportation.

Additionally, western efforts to undermine financial institutions in Iran have complicated payments for Iranian oil exports. An executive order issued by the White House in November 2011 authorises the US secretary of state to impose financial sanctions on any entity failing to satisfactorily curb support of the Iranian market according to American terms. This has pressured countries such as India to reduce imports supporting the Iranian economy.

In an attempt to avoid threatened US sanctions, countries such as India and China are believed to be bartering food products, consumer goods and local currencies for oil – a system that may prove insufficient in meeting the payments necessary to maintain current levels of oil imports. As a result of these pressures, Iran no longer figures among India’s top oil supplies.

The relationship between India and Iran will face challenges in coming years, notwithstanding what happens on the US-Iran front. The two nations have little to bind them together in the current circumstances.

An Iranian-western rapprochement might allow India to expand its economic and energy ties with Tehran and to develop a more productive relationship on Afghanistan. But that is all in the long term. In the short-to-medium term, there are numerous challenges that the two nations will have to navigate.

Harsh V Pant is a reader in international studies at King’s College London