China's $400 billion deal with Iran comes at a time when the US is showing little signs of lifting the sanctions imposed on Iran. This is not good news for India

by Seshadri Chari

The 25-year economic cooperation agreement between China and Iran should give India a number of reasons to be concerned about and also rethink its policies towards countries in the region. China’s $400 billion deal with Iran, inked in Tehran on 24 March, lays the foundation for strengthening the existing camaraderie between the two authoritarian States.

The deal comes at a time when the US is showing little signs of lifting the sanctions imposed on Iran. The Joe Biden administration was expected to reverse the policies of Donald Trump and follow a conciliatory approach towards Iran without compromising on what the US considers core issues such as the nuclear programme.

India Needs Iran, US Can’t Be A Barrier

India has repeatedly conveyed its concerns regarding the US sanctions on Iran. The strategically placed Bandar Abbas port overlooking the Strait of Hormuz, which handles maximum cargo for India, was closed to Indian business, increasing the trade cost manifold. Iran happens to be the third-largest energy supplier to India and the sanctions have blocked these supplies, adding to a spurt in the oil prices and throwing trade balance off the track.

Following the US’ withdrawal in 2018 from the nuclear deal with Iran (Joint Comprehensive Plan of Action), further sanctions were imposed on Iran with total ban on imports while only six months’ waiver was granted to eight countries including India. The waiver expired in May 2019. Although Iran’s share in India’s oil import, before the sanctions kicked in, was about 10 per cent of the more than 80 per cent requirement, there are many other factors that go against New Delhi’s strategic and security interests. The 60-day trade credit, lucrative discounts on freight and insurance charges, and rupee payment facilities are only few of the advantages that Iran gave to India.

India is likely to start operation in the Chabahar Port very soon, which will enable us to enter Afghanistan without having to depend on an antagonistic Islamabad. US policymakers should take this factor into consideration if they are serious about withdrawing from Afghanistan without losing their strategic military advantage in the strife-torn areas. By using the good offices of New Delhi in creating facilities for the ground forces, the US will largely reduce their dependence on Pakistan and need not be at the mercy of the Pakistan Taliban, which is brokering deals with the Afghan Taliban for the US at a very high price.

Iran also happens to be the entry point for India for trade with the Central Asian countries where India’s geographical approach is limited. Unlike the eastern areas, which have a number of regional institutions for trade and security, Central Asian nations have very few linkages with multilateral organisations, one of them being the Shanghai Cooperation Organisation (SCO). It is extremely important for India to take the lead in creating an institutional structure — with Iran and Afghanistan in it — for the Central Asian countries and seriously pursue the Turkmenistan–Afghanistan–Pakistan–India (TAPI) gas pipeline project to ensure energy security.

But all this is possible if New Delhi is able to convince the US that it will be futile and against India’s regional security architecture to keep Iran out of its engagements.

China-Iran’s Old Friendship Presents New Challenges

China’s multi-country Eurasian infrastructure projects, under the umbrella of Belt and Road Initiative (BRI), are now being extended to Iran. This will not only give Beijing a bigger foothold in Iran but also make China an important decision-maker in the region. The China-Russia-Turkey-Iran axis is no doubt fraught with multiple contradictions, but China loosening its purse strings will probably take care of the major irritants. Besides, these are the same countries that, at one time, considered the US as the uninvited hegemon in the region and in the Indo-Pacific. With the salience of the concept of Indo-Pacific increasing and with India’s role in the new security architecture of the Quad being recognised, a 25-year strategic partnership between China and Iran will have to be studied and analysed with greater clarity.

This deal is more or less a stamp on the partnership that has been in place between China and Iran since 1979 when the Shah of Iran, Mohammad Reza Pahlavi, was overthrown and Ayatollah Ruhollah Khomeini, the spiritual leader of the Islamic revolution, returned after 15 years of exile to take control. Around the same time in China, after the death of Mao, Deng Xiaoping was busy recalibrating Beijing’s foreign policy, dismantling the bamboo curtain, retracing from the Cultural Revolution, and forging new alliances with countries considered friendly.

According to a 2013 report prepared for the US-China Economic and Security Review Commission, China and Iran have developed a robust partnership over the past 30 years. The Chinese defence industry found a ready market in Iran, which was actively engaged in the Gulf wars and the protracted Iran-Iraq war of the 1980s. China needed a steady supply of oil to fuel its manufacturing sector. So it was a partnership of convenience. Besides, China was also instrumental in restarting Iran’s nuclear programme after the 1979 revolution. Chinese support during this period was, strategically and technically, an important element in Tehran’s quest for a “Shia bomb” and power posturing. China reportedly sold to Iran “uranium hexafluoride feedstock for enriched uranium and HY-2 ‘Silkworm’ anti-ship missiles”.

The renewed deal is a challenge to the new incumbent in the White House. It is a different matter how the new policy makers deal with it. For India, the perils of dismissing the China-Iran pact as another international agreement may prove to be costly if it is not alert to act prudently and with speed.