Energy cooperation, connectivity, development of Chabahar Port with involvement of Japan, and return of Indian companies to hydrocarbon projects are some promising areas, explains RAJARAM PANDA
As India reaches out to Iran following the removal of sanctions, it has provided a good opportunity for us to partner with Japan to develop a strategic partnership beyond purely bilateral, and towards Central Asia and Afghanistan as a means to checkmate China’s determined move to extend its strategic space in an aggressive manner.
Prime Minister Narendra Modi’s visit to Tehran aims to consolidate further the bilateral ties for which the necessary groundwork was prepared by the visits by Petroleum Minister Dharmendra Pradhan on April 9-10, followed by External Affairs Minister Sushma Swaraj on April 16-17. This also indicates that both India and Iran are willing to work together closely on a host of issues in the context of the changing geo-political situation with the strategically important West Asian nation.
CHABAHAR PORT
The development of Chabahar Port in the Gulf of Oman is a key project in India-Iran relations. Its development is likely to go on the fast track mode with the backing of Japan because of the understanding that India and Japan have developed and also because of Japan’s own strategic considerations.
Japan has its own problems with China and, like other smaller Asian nations, is critical of China’s expansionist design in much of Asia. For Japan, partnering with India for the development of the strategically located Chabahar Port could be a good move to counterweight China’s presence at Gwadar in Pakistan’s Balochistan province.
The progress in the development of the port became slow as Iran came under sanctions because of its alleged nuclear programme. In the post-sanction Iran, the project has now received serious attention to fast track it. The MoU for the project was signed in 2003 but progress slowed down because of sanctions. Development of this port makes huge economic and strategic sense for India as it wants to bypass Pakistan, which does not allow transit of Indian goods through its territory. The use of Chabahar Port in Iran shall facilitate the transport of Indian goods further by roads and rail to Afghanistan and onward to Central Asian nations.
As a long-term strategy to further its economic interests, India has already built the Delaram-in Zaranj Highway on Afghanistan border to facilitate movement of goods from Chabahar. India sanctioned around $35 million for the construction of two berths at Chabahar and the development of a container terminal. This was a response to Pakistan’s Gwadar port built with Chinese assistance. India also hopes to build the Chabahar-Zahedan-Mashhad railway line and wants to supply rail tracks, rolling stocks, signalling and other equipment. No wonder that Iran President Hassan Rouhani sought cooperation in the development of Chabahar Port, for which a lot more work needs to be done. Rouhani appropriately called the project a “defining partnership which has the potential of connecting the entire region”.
According to state-run Oil and Natural Gas Corporation, India is ready to invest $20 billion in the development of Chabahar Port and has requested Iran to allocate adequate land in the Chabahar Special Economic Zone. The port will cut transport costs and time for Indian goods by a third. Iran plans to turn the Chabahar Port into a transit hub for immediate access to markets in the northern part of the Indian Ocean and in Central Asia.
The port of Chabahar in southeast Iran is central to India’s efforts to circumvent Pakistan and open up a route to landlocked Afghanistan where it has developed close security ties and economic interests. India has already built a 220-km road to the port from Afghanistan. Chabahar is along the coast from Gwadar Port in Pakistan that is being developed with China’s help. India’s involvement in the development of the Chabahar Port has, therefore, a strategic element.
During his visit, Prime Minister is expected to sign a commercial contract for the Chabahar Port as well as modalities for India extending a $150 million line of credit. The Union Government approved provision and operationalisation of credit line in February 2016. As per the MoU signed in 2015, India will equip and operate two berths in Chabahar Port.
What seems interesting and significant from a larger perspective is that the Japanese have evinced interest in this port’s development. Being an energy deficient country, Japan is largely dependent on the Gulf region for its energy imports. Japan’s energy dilemma is further accentuated after all its nuclear reactors were shut down following the Fukushima accident in March 2011. The Japanese interest to join India for this port development has come at an appropriate time.
There are also reports that Japan shall be exploring the possibility to build an industrial complex in Chabahar. Japanese Prime Minister Abe Shinzo is also likely to visit Iran in August 2016, and if that happens, that would be after 38 years that a Japanese PM has ever visited Iran. Its significance cannot be missed. looking for more market to invest, Iran could be an attractive location for Japan in view of securing energy supplies but also integrating the economies of the two countries.
In this India-Japan-Iran trilateral cooperation, all three stakeholders would find themselves in a win-win situation. This trilateral cooperation shall not only serve as a check on the Chinese footprint in Gwadar, but also hone the potential of making Chabahar a larger shipping hub. Once the Chabahar Port is fully developed and becomes operational, China’s strategic encirclement of India by taking over the operational control of Gwadar from Pakistan and Hambantota from Sri lanka would have been considerably dented.
ENERGY COOPERATION
Cooperation in the energy sector is also mutually beneficial. During Pradhan’s visit, both countries signed agreements on crude oil imports. India also wants rights to develop Farzad-B gas field in the Persian Gulf discovered by OVl. A deal for the field could not be made during Pradhan’s visit as Iranian Parliament, Majlis, is yet to approve the new Iran Petroleum Contract (IPC) under which the Farzad-B field is to be given to the OVl-led consortium.
True, India has already lined up a $20 billion investment in oil and gas as well as in petroleum and fertiliser sectors in Iran. But it has to cope with competition with other powers in that country that have stakes both economically and strategically. For India, Iran is important for its energy security as well as to get access to oil and gas-rich Central Asian nations. India imports close to 12 million tonnes of crude oil from Iran and it is looking at increasing it. There is also scope for cooperation in the banking sector.
As per the earlier agreement between the two countries, Iran had agreed to ship crude oil to India for free and agreed to receive half of the payment in rupees. Iran terminated this three-year-old agreement. This issue figured during Swaraj’s talk with her counterpart Mohammad Javad Zarif. Iran is now insisting on being paid in Euros for the oil it sells to Indian refiners. It also wants refiners like Essar Oil and Mangalore Refinery and Petrochemicals ltd to clear nearly $6.5 billion of past dues in Euros. This issue had also figured during the discussion Pradhan had with his counterpart.
WHAT lIES AHEADIJ
Another test for Modi would be how India navigates the Shia-Sunni prism as he reached out to Saudi Arabia, the leader of the Sunni-Muslim world, as his first choice of visit to a Gulf country. But he also sent two senior ministers of his Cabinet to woo Iran, the leader of Shia-Islam, the same month in quick succession and visited the country himself next month. Modi also needs to keep in mind the interests and safety of eight million Indians who live and work in the Gulf. The remittances they send back home each year also contribute to the country’s foreign exchange reserve.
What one can expect from Modi’s visit is that there shall be greater push to the ongoing projects and feasibility of newer ones will be gauged. Energy cooperation, connectivity, development of Chabahar Port with involvement of Japan, and return of Indian companies to hydrocarbon projects are areas where one can expect some concrete outcome. The envisaged India-Iran-Japan trilateral cooperation in the development of Chabahar Port has its strategic significance, which would be worth watching.
The writer, an alumnus of JNU and former Senior Fellow, IDSA, is a Delhi-based security analyst with focus on Japan, Korea, Oceania and larger Asia