The two countries have a mutual interest in developing relations. While Iran seeks to use foreign investment as a buffer against fresh US pressures and to revive its economy, India hopes to utilize Iran’s transit potentials to embolden its connectivity footprints.
The Iranian port of Chabahar is best placed to cater to India’s strategic interest in the Persian Gulf as it provides India with direct access to Iran’s abundant oil and gas resources. It also allows India to reach Afghanistan and energy-rich Central Asia by land.
Before heading to India, Rouhani said on Thursday that transit from Chabahar and India's access to both Afghanistan and Central Asia through the Iranian port was one of the most important issues when it came to relations between Iran and India.
On Saturday, the two sides were expected to sign an agreement allowing India to run operations in the first phase of the Chabahar project which Iran opened in December. India has committed $85 million to operate two berths in the port on a 10-year lease.
Iran plans $1 billion of investment to fully develop Chabahar over the next 14 years and India has indicated interest to spend up to $500 million for the development of the port along with roads and railways linking it to Afghanistan.
Chabahar also gives India access to the International North-South Transit Corridor (INSTC) which is already developed, running by road and rail from Bandar Abbas in the Persian Gulf to the Caspian Sea shore in northern Iran and then by ship to Azerbaijan, Armenia and Russia.
Most of the trade flows from Dubai and other Arab states across the Persian Gulf, with the Russians already operating a commercial service to lease and transport containers from Bandar Abbas to Moscow and St. Petersberg.
Energy price differences
India also hopes to tap Iran’s massive energy potentials for investment in oil, gas and petrochemical industries, especially in view of oil, gas, electricity and transport prices which are much more cheaper in Iran than many places in the world.
However, the price issue has become a sticking point in negotiations between Iran and India which has been pushing for development of a major gas field known as Farzad B in the Persian Gulf.
New Delhi wants Tehran to award the field to an Indian consortium led by the state-run Oil and Natural Gas Corp which discovered Farzad B in 2008 but Iran says the terms are not profitable.
India’s National Aluminum Co. (NALCO) also planned to build a $3 billion aluminum smelter complex in Iran, with the project first mooted in 2014, but the company apparently ditched it later amid reported differences over electricity prices.
Iran is currently the third supplier of India’s crude oil after Saudi Arabia and Iraq. India’s Petroleum Minister Dharmendra Pradhan said last year his country’s state refiners would import less Iranian crude oil in 2018. The decision has been viewed as India’s retaliation to the Farzad squabble although the country’s officials have rejected it.
Reports citing tanker arrival data on Friday said Essar Oil, a key Indian client for Tehran, imported nearly 52 percent more oil from Iran in January than the previous month.
Essar shipped in about 204,500 barrels per day (bpd) of oil from Iran in January, compared with about 135,000 bpd in December, Reuters reported.
Relations between Iran and India have gradually been expanding since the lifting of sanctions on the Islamic Republic in early 2016 and bilateral trade stood about nearly $13 billion last year.
Iran’s Ambassador to India Gholamreza Ansari has said that the Islamic Republic offered India $8 billion worth of infrastructure projects, including a stake in Chabahar.
President Rouhani is currently visiting India to reciprocate Prime Minister Narendra Modi’s trip to Tehran in 2016 during which they signed a trilateral agreement on transit and transport between India, Iran, and Afghanistan.
India was one of the countries which maintained trade with Iran when Tehran came under intensified Western sanctions in 2012. As the Trump administration is threatening new sanctions on the Islamic Republic, it has yet to be seen how traditional trade partners such as India will react to the pressures.
Indian leaders already appear to be doing a difficult task of balancing act.
Prime Minister Narendra Modi became the first Indian leader to visit the Palestinian territories this month after hosting Israeli Prime Minister Benjamin Netanyahu in New Delhi in January. Last year, Modi made the first ever trip to Israel by an Indian prime minister, during which he skipped the Palestinian territories.
With India’s stakes also growing in the Arab countries which are leaning to Israel, New Delhi appears to be trying to "de-hyphenate" its ties with Iran and with the other sides, as Indian diplomats say.
Iran, on the other hand, has its own balancing act and is careful not to upset Pakistan and China which view India as a chief rival and adversary.