The historical and cultural ties between Indians and Iranians form a robust foundation for both economic and civilizational relations that span thousands of years. While bilateral trade between Iran and India experienced fluctuations over the past decade, it achieved a significant milestone in the 2000s with the establishment of a “strategic partnership” between the two nations.
India’s economic strength, sizable population, military capabilities, nuclear power status, and its membership in BRICS have garnered Iran’s attention. In line with its “Look East” roadmap, Tehran is increasingly prioritizing the enhancement of ties with India. From Iran’s perspective, multilateral organizations like the BRICS bloc and the Shanghai Cooperation Organization play a pivotal role. Recently, Iran’s trade with BRICS member countries reached a substantial US$34 billion.
At the same time, as India continues to navigate geopolitical challenges, its dedication to fortifying trade relations with Iran remains resolute. By actively engaging in strategic dialogues and exploring avenues of cooperation, India aims to forge a mutually beneficial and resilient business environment that transcends external pressures.
It’s important to note that India and Iran do not view each other as geopolitical rivals. Iran’s approach of multiple commitments and pursuit of a multipolar world, alongside the reconstruction of alliances among global powers, has fostered a new phase in the New Delhi-Tehran relationship.
India and Iran have witnessed a notable surge in bilateral trade, with exports and imports between the two countries experiencing significant growth. Despite facing challenges such as sanctions and import restrictions, both nations recognize the immense potential for economic cooperation.
India’s foreign trade policy (FTP) 2023 outlines key objectives, including strengthening exports, promoting growth, and transforming India into a leading commercial trade center. Emphasizing the use of the Indian rupee in cross-border trade and deepening trade relations, the policy document highlights the rupee as a potential global currency in the years to come. These goals hold considerable relevance for trade with Iran.
The value of India’s exports to Iran saw a remarkable increase in 2022, reaching US$1,847 million, representing a substantial increase of 44 percent. At the same time, India’s imports from Iran experienced a significant rise of 60 percent, totaling US$653 million. The notable growth in bilateral trade was largely driven by India’s rice exports to Iran, which reached an impressive value of US$1.098 billion, demonstrating a remarkable growth rate of 52 percent.
The signing of the Joint Comprehensive Plan of Action (JCPOA) had initially propelled trade relations between Iran and India to reach an impressive volume of US$18 billion. However, the subsequent withdrawal of the United States from the JCPOA in May 2018 and the imposition of multi-layered sanctions on Iran presented formidable challenges to bilateral trade.
While trade between the two nations experienced a decline between 2018 and 2021, the financial year (FY) 2021-2022 witnessed a significant resurgence. Bilateral trade between Iran and India reached US$2.5 billion in 2022, reflecting a notable increase of 48 percent compared to the previous year’s figure of US$1.693 billion.
Currently, agricultural products and fruits constitute a significant portion of trade between India and Iran. Mutual investment support, expanded cooperation in medicine and pharmaceutical raw materials, and stronger bilateral and multilateral trade agreements can further enhance economic ties.
Iran’s major export goods to India predominantly include petroleum products, which experienced a four-fold growth in 2022. Other notable export goods from Iran to India include paint raw materials and fruits.
Moreover, the trade potential between the two nations extends to a wide range of products such as fruit, tea, sugar, fresh fruits, drugs/medications, soft drinks, industrial machinery, meat, minerals, organic chemicals, fertilizers, plastics, glass, leather, almonds, pistachios, dates, and saffron. Furthermore, non-oil trade opportunities encompass goods, services, investment, tourism, education, and hold immense potential for exponential growth in the medium and long term.
Despite facing hurdles such as import restrictions on Iranian oil and reduced Indian involvement in projects like the Chabahar port, energy, and infrastructure, both countries recognize the substantial potential of their economic cooperation. The vast hydrocarbon reserves in Iran and India’s energy needs have served as a solid foundation for their economic collaboration over the past decades.
In 2022, the export of Iranian oil products to India experienced remarkable growth, reaching US$175 million, quadrupling the previous year’s figure.
Moreover, Iran’s abundant gas reserves, which rank second globally, present opportunities for fuel diversification, decarbonization, and increasing the share of gas in India’s energy mix until 2030. Submarine pipelines offer a viable means for transferring Iranian gas to India, and reviving the Iran-Pakistan India gas pipeline (IPI) remains a possibility.
Furthermore, investment and infrastructure collaborations present opportunities for New Delhi to re-engage with Iran. Areas such as the development of offshore gas fields like Farzad B, as well as the petrochemical and fertilizer industries, hold potential for cooperation between India and Iran.
India and Iran have been engaged in discussions and plans for a potential long-term agreement, similar to the 25-year agreement between Iran and China. This agreement, if materialized, would have significant implications for trade between the two countries.
India is determined to fortify its trade relations with Iran without succumbing to Western pressure, despite remaining vigilant about the comprehensive strategic cooperation agreement between Iran and China.
In 2021, Indian Foreign Minister Subramaniam Jaishankar became the inaugural foreign guest of Iran’s newly-elected president, Ebrahim Raisi. Over the past year, there has been a significant expansion of efforts to revive economic relations between the two countries. Iran’s Foreign Minister, Amir Abdollahian, held meetings with India’s Prime Minister, ministers, and businessmen, stressing the importance of developing a roadmap to enhance the comprehensive and extensive strategic relations between India and Iran.
While India has made progress in signing Free Trade Agreements (FTAs) with its trading partners, it is important to note that Iran is not a member of the World Trade Organization (WTO).
Negotiations for the Indo-Iran Bilateral Preferential Trade Agreement (PTA) are underway, aiming to diversify trade portfolios by including sectors such as manufacturing, services, pharmaceuticals, and mutual investment promotion. This agreement would bring about reduced tariffs and expanded business opportunities.
A significant step towards expanding joint trade was taken with the signing of a joint cooperation statement between India and Iran. This statement encompasses various fields and includes the establishment of a joint working group, leveraging new technologies for financial transactions, organizing joint commission meetings, and facilitating financial exchanges using local currencies (rials and rupees).
In July 2022, the Reserve Bank of India (RBI) launched a system for the settlement, billing, and payment of exports and imports in Indian Rupees (INR). This mechanism has played a crucial role in facilitating trade transactions with Iran, representing notable progress in overcoming one aspect of the challenges faced in bilateral trade.
Leaders and officials from both countries are accelerating discussions to expand relations, particularly in the economic and commercial spheres. These efforts aim to solidify the foundation for stronger collaboration. Recent discussions between India and Iran have focused on crucial matters such as dollarization and the removal of sanctions, leading to the signing of a joint cooperation statement aimed at increasing trade and transportation participation.
Iran plays a crucial role for India in expanding trade with Central Asia and Eurasia, as well as countering China’s influence in Pakistan’s Gwadar region. The formation of multilateral economic collaborations, including potential tripartite partnerships such as India, Iran, and Armenia, or cooperation between Russia, Iran, and India, are on the rise.
New Delhi is actively leveraging various variables and policies, such as the Ashgabat Agreement of 2018, the establishment of the India-Central Asia Trade Council, and the International North-South Transport Corridor (INSTC), to bolster trade with Eurasia through Iran.
Established in September 2000 by Iran, Russia, and India in St. Petersburg, INSTC is a 7,200-kilometer corridor of sea, rail, and road routes provides India with a direct link to the Caspian Sea, Russia, and Northern Europe through Iran, facilitating trade between the Caucasus, Central Asia, and the Caspian Sea regions.
Despite challenges such as the Ukraine crisis, the INSTC remains an attractive option for bolstering trade between India, Iran, and Russia while significantly reducing transportation time and costs between Eurasia and the Indian Ocean.
Furthermore, India’s strategic collaboration with Iran extends to the development of the Chabahar port. The cooperation agreement signed in 2003, along with a memorandum of understanding in 2016, demonstrates New Delhi’s continued focus on the port’s progress. The Chabahar port offers advantages such as enhanced security and access to affordable gas. Negotiations between India and Iran are underway to fulfill obligations related to equipment installation in Chabahar, increasing cargo movement through the Chabahar route, and encouraging investments by Indian companies in the Chabahar Free Zone. Additionally, both countries are actively working on long-term agreement contracts for Chabahar.
Capitalizing on the Chabahar Free Trade Zone is another priority for New Delhi, which seeks to maximize its benefits. Previously, India was one of the largest purchasers of Iranian oil. Given India’s rapid economic growth, limited domestic resources, emphasis on diversified energy imports, and energy security concerns, the Chabahar port assumes significant importance for India’s trade and strategic interests.
In recent years, the trade relationship between India and Iran has faced significant hurdles, including challenges related to money transfers, sanctions, and political tensions. Bureaucracy, tariffs, legal barriers, and ambiguous business procedures have further complicated trade relations. However, the potential revival of the JCPOA offers hope for overcoming these barriers and strengthening economic ties between the two countries.
To address these challenges, it is crucial to prioritize the establishment of preferential trade agreements that align the economic and geopolitical interests of both India and Iran. This strategic approach would focus on key areas such as transit, energy, and trade.
With the prospects of the JCPOA revival and the potential lifting of sanctions, Iran could rapidly increase its oil production. This development presents an opportunity to revive the extensive trade relations that existed between India and Iran in the past.
Revitalizing trade relations would not only support the development of infrastructure at the Chabahar port but also encourage mutual investment and the activation of important corridors. Tripartite cooperation involving India, Iran, and Russia could play a crucial role in fostering multilateral collaboration in the Makran region.
Additionally, India’s investment in Iranian oil and petrochemicals, along with the development of sea lines and the export of technical and engineering services, would contribute to expanding trade between the two nations.