Grafts are hard: India resists US government pressure to negotiate with Iran

The sudden death of Iranian President Ebrahim Raisi in a helicopter crash has not only created a power vacuum in Iran but also raised questions about the future of Iran's foreign policy, especially with regard to the strategic port agreement with India over Chabahar. This unexpected event comes at a critical time for Iran, which is embroiled in regional conflicts and facing serious economic challenges.

A power transition with First Vice President Mohammad Mokber stepping in on an interim basis will have significant implications for Iran's international engagement, especially with regard to its important partnership with India.

The Chabahar port, located in the Gulf of Oman, is a key element in Indo-Iranian relations. It provides Delhi with a strategic base in the region and a direct route to Afghanistan and Central Asia, bypassing Pakistan. The port will not only serve as India’s gateway for humanitarian assistance to Afghanistan but will also facilitate vital trade and transportation.

Moreover, Chabahar Port is strategically located to be integrated into the International North-South Transport Corridor (INSTC) stretching from Russia to India.  INSTC is a joint project of India, Russia, Iran and 10 other Central Asian countries. This multi-modal transport corridor will seamlessly connect rail and maritime transport, making it an alternative to China’s Belt and Road Initiative (BRI) and China-Pakistan Economic Corridor (CPEC). India’s economic interests in Chabahar Port revolve around improving its trade, connectivity and strategic position in the region.  So far, Chabahar port has facilitated the transshipment of 2.5 million tonnes of wheat and 2,000 tonnes of pulses from India to Afghanistan.  India also delivered 40,000 litres of environmentally friendly insecticide Malathion to Iran through the port in 2021 to combat locust infestation. The recently signed 10-year contract between India Ports Global Ltd (IGPL) and Iranian Ports and Maritime Organization (PMO) highlights the importance of the project for both countries.

Under the contract, IPGL will invest around $120 million in port operations and facilities. Cooperation in Chabahar is expected to continue beyond this period. India has also proposed a Rs 250 crore loan facility for a joint project to improve the port's infrastructure.

Political instability following Raisi's death has created uncertainty, but there are strong indications that the Chabahar port deal remains a priority for Iran.Supreme Leader Ayatollah Khamenei, who holds ultimate control over the Iranian state and foreign policy, remains in power, suggesting that fundamental aspects of the country's foreign policy remain intact despite the turmoil. Presidential elections due to take place within the next 50 days will be a key factor in whether Iran continues or changes its approach to the bilateral agreement. However, India's significant investment in Chabahar port could be at risk. The US has repeatedly warned of possible sanctions against countries that trade with Iran, which could complicate India's efforts to secure the necessary technology and investment. As US State Department spokesman Vedant Patel noted, these sanctions could also block international companies from participating in the Chabahar project and hinder its development.

In response to the warning, Indian External Affairs Minister Subrahmanyam Jaishankar exposed the US's "parochial view" of the deal. "They have not done anything like this in the past. So if you look at the US attitude towards Chabahar port, you can see that the US appreciates the fact that Chabahar is more important," he said. However, it is noteworthy that on November 8, 2018, India succeeded in obtaining a waiver from the US for the Chabahar project on the grounds that it needed access to Afghanistan.

Furthermore, fluctuations in Iran's rupee reserves, which are already affecting trade in goods such as rice, tea, and medicines, may be further exacerbated by political instability. A weakened Iranian economy is likely to reduce purchasing power, which will directly impact Indian exports and bilateral trade volumes. Thus, Iran will be unable to afford to import many goods from India, which may lead to a decline in trade.  In May 2018, under the Trump administration, the US withdrew from the Joint Comprehensive Plan of Action (JCPOA). As a result, imports of Iranian crude, which account for nearly 12 percent of India's total oil demand, have effectively halted. But the rail link connecting the Chabahar port to Afghanistan remains exempt from U.S. sanctions, allowing India to maintain its strategic investments and regional connectivity.

Chabahar port is central to India’s strategy to balance Chinese influence in the region, particularly through the development of Pakistan’s Gwadar port. It is just 72 km east of Chabahar and is a key part of the Belt and Road Initiative. The project, which serves as the terminal for CPEC, is a 3,000-kilometer infrastructure project in Pakistan backed by the Chinese government that connects China’s Xinjiang province with the Persian Gulf.

Any disruption in Chabahar’s development could weaken India’s strategic position and allow China to gain a stronger foothold in the region. India’s commitment to the port, as evidenced by recent long-term agreements, underscores India’s strategic patience and vision for regional connectivity. However, US sanctions, as well as perceived risks related to political instability in Iran, may deter Indian companies from further investments and stall key projects. These risks could be related to political instability in Iran, regional conflicts and economic uncertainties.

The US response to Iran's new leadership will play a key role in determining the future of the Chabahar port deal. The US government has so far adopted a tough stance towards Iran due to concerns over nuclear proliferation and regional security. However, Raisi's death could be an opportunity for the US to rethink its approach, especially if Iran's new leadership shows a willingness to dialogue.  If Washington enforces sanctions strictly, it could severely impact India’s engagement with Chabahar port and hinder the country’s broader regional strategy. However, given the port’s role in supporting the Afghan economy, its significant regional trade advantage, and countering Chinese influence, the United States may take a more nuanced approach, balancing policy objectives and strategic considerations.

A sudden change in the Iranian presidency could have significant implications for stability in the Middle East, affecting the operational security and economic viability of Chabahar port. Its proximity to the volatile Strait of Hormuz, through which a large portion of the world’s oil passes, increases its vulnerability in the event of regional instability.

India must navigate this new geopolitical context carefully to ensure that its strategic interests are protected. This includes closely monitoring Iran's domestic political dynamics, taking diplomatic steps to strengthen bilateral partnerships, and adapting to changing circumstances to maintain momentum for the Chabahar project.

Despite Iran's political turmoil, the foundations of its foreign policy, particularly its relationship with India over the Chabahar port, are not expected to waver. The strategic motivation behind the Chabahar agreement goes beyond individual leadership and is rooted in the broader geopolitical and economic interests of both countries. Regardless of the outcome of Iran's upcoming elections, the continued strategic importance of the Chabahar port suggests that the bilateral agreement with India will remain a key part of Iran's foreign policy.

India is likely to once again strategically engage with the United States to maintain the exemption for Chabahar port, highlighting its broader regional interests and wider implications for regional prosperity. As S. Jaishankar pointed out, this forward-looking strategy will not only serve India's interests but will also go beyond parochial interests to foster a broader vision of regional growth and cooperation.