On March 4, Iranian President
Mahmud Ahmadinejad received the Indian Minister
for New and Renewable Energies, Farooq Abdullah.
The public agenda for their conversation was
straightforward. Ahmadinejad pointed out that Iran
raises "no restriction in expanding comprehensive
ties including trade, joint investment,
scientific, cultural and tourism with India".
Abdullah concurred, saying, "The Indian government
seeks an expansion of cooperation in all fields."
The tenor of the meeting suggests a buoyancy in
relations between India and Iran.
There
are three reasons why this meeting was so
amicable.
1. Finalized rupee payment
mechanism: On Friday, March 2, Rafeeque
Ahmed, president of the Federation of Indian
Export Organizations (FIEO), released an
unexpected statement to the press. "The payment
problem with Iran has been resolved with the
operationalization of
rupee payment mechanism through UCO Bank." A team
from the Iranian Central Bank was in New Delhi
over the weekend. They sorted out most of the
pragmatic problems with the new payment mechanism.
India's deal with Iran responds to an
aggressive two-year process led by the United
States and the European Union (EU) to isolate
Iran's oil industry. In December 2010, the Reserve
Bank of India left the Asian Clearing Union (ACU)
mechanism through which Indian firms paid for
Iranian oil. Arrangements through the Turkiye Halk
Bankasi and the Germany-based Europaisch-Iranische
Handelsbank AG provided short-term means for
Indian firms to reach Iran, but under EU and US
pressure these paths were closed down last year.
Current EU pressure on the SWIFT network for
financial messages seeks to further isolate Iran
from its commercial partners.
Over the
past two months, the Indian and Iranian
governments have been working on a mechanism to
sidestep the pressure from the US and the European
Union. The March 2 announcement was the
culmination of this process. India and Iran will
conduct their trade in rupees.
Indian law
requires that sales to a non-resident seller must
withhold a tax, raising the total liability of
doing business with India to 42%. The Indian
government continues to debate whether this
withheld tax can be exempted. Iran's Parsian Bank
has opened an account at Kolkata-based UCO Bank,
and will now accumulate its rupees there.
2. 'Huge' Indian trade mission to
Iran: Barriers to trade between India and
Iran have been lifted 10 days before an Indian
trade mission heads to Tehran. This is precisely
why FIEO's Ahmed noted that the trade delegation
"will now be able to negotiate new contracts
diversifying and expanding exports". Anand Seth of
FIEO expects that the mission, which will be in
Iran from March 10 to 14, will be "huge".
The main areas of interest are sales of
Indian iron and steel, pharmaceuticals, rice, tea,
and wheat. A government official at the Indian
Commerce Ministry told me that there is hope that
India will close deals worth US$30 billion, which
is considerably more than the current sales of
$2.7 billion.
"There is a great deal of
interest in the ministry to take advantage of the
situation. Many of Iran's previous trade partners
are being skittish as a result of the sanctions.
India should be ready to fill in where need be,
not for any political reason but because we have a
commercial interest here," he pointed out.
The Commerce Ministry official is honest
in his statement that India is not motivated by
any political desire to break the EU/US sanctions.
Economic interests seem to be at the forefront.
Overall trade data from January 2012
reveal that Indian exports to the rest of the
world grew by only 10.1% from a year earlier to
$25.35 billion, while imports increased by 20.3%,
to $40.10 billion, leaving a trade deficit of
$14.7 billion. With a shaky eurozone and slack
demand in US, this trend might be a harbinger of
the future. Pointing to these figures, FIEO's
Ahmed notes, "Iran is an emerging destination for
Indian exports. During last financial year,
despite banking uncertainties, our exports [to
Iran] went up by about 50% to touch $2.71
billion."
With the rupee payment mechanism
solved and the trade mission ready to leave for
Iran, Ahmed envisages India's sales to Iran to
rise "exponentially".
3. A maritime
caravanserai: One of the least commented
aspects on the India-Iran relationship is Chabahar
(or Chah Bahar) port in southeastern Iran. When
China began work on the Pakistani port of Gwadar
in Balochistan, the Indians threw in their lot
with the Iranians to refurbish the ancient port of
Chabahar. Slow work on the port has been speeded
up over the last year, with the Indian government
putting in resources toward the construction of a
railway line to connect the port to Afghanistan's
iron ore regions of Hajigak (in Bamyan Province)
and its copper mines of Zabul Province.
The Chabahar port is India's answer to
China's 21st century Suez Canal, allowing Indian
industry to access Afghan and (eventually) Central
Asian resources.
The Indian Border Road
Organization spent $136 million to assist the
Iranians in linking up Chabahar to Afghanistan's
main ring-road highway, and so to all its major
cities. India, Iran and Russia signed the
Inter-Governmental Agreement on the International
North-South Transport Corridor in St Petersburg in
September 2000 to link India to Central Asia
through Iran's ports and Afghan roads.
The
Afghan War since 2001 set back this endeavor but
it did not stop it. In January 2003, the
governments of Afghanistan, India and Iran met in
Tehran to sign the Development and Construction of
the Transit and Transport Infrastructure
memorandum. Based on this, they worked on
improvement of the road from Chabahar to Delarm
and Zaranj in Afghanistan.
These massive
transportation networks mimic those that are being
built in Myanmar (the Chinese-built port at Ramree
and the Indian-built port at Akyab). These massive
infrastructure projects dwarf the language of war.
Since the Indians helped build Chabahar,
use of the port and transaction of goods will be
largely tariff free. In the first week of March,
Indian ships docked at Chabahar and unloaded
100,000 tonnes of wheat headed for Afghanistan.
This shipment was of humanitarian aid, and so made
it harder for the US State Department to make any
unpleasant noises about it. It was also, however,
a test for future commercial shipments into the
port.
In mid-February, the presidents of
Afghanistan, Iran and Pakistan met for their third
trilateral summit in Islamabad. Two weeks later,
the Pakistani government announced that it would
ease restrictions on trade with India, as well as
that it would not back down from its trade with
Iran.
India hopes to use the Wagah border
crossing to send goods into Pakistan and into
Afghanistan. The land route is fraught with
political tension, as is the 2,700 kilometers
"peace pipeline" that India, Iran and Pakistan
were to jointly develop so as to carry Iranian
natural gas to the markets of India. The tension
between India and Pakistan has kept this pipeline
on the backburner.
The land routes are the
ideal way to link India to the markets of Central
Asia, but political considerations have raised the
opportunity costs of land transport. Hence
Chabahar.
India and Iran seem to have
built at least one tunnel to circumvent the
attempted embargo by the EU and the US. Other
mechanisms are in play, including using Central
Asian banks to settle payments for trade between
the two countries. These three events indicate
that India is under no compulsion to join the
embargo against Iran.
On the contrary,
India has its own economic and geo-strategic
reasons to continue to trade with Iran. Tough talk
in Washington, Brussels and Tel Aviv is not being
echoed east of Chabahar. In Beijing, Islamabad,
Kabul, and New Delhi, the discussions are about
percentages and payments rather than strategic
strikes and sabotage.
Vijay
Prashad is Professor and Director of
International Studies at Trinity College,
Hartford, United States. This spring he will
publish two books: Arab Spring, Libyan Winter
(AK Press) and Uncle Swami: South Asians in
America Today (New Press). He is the author of
Darker Nations: A People's History of the
Third World (New Press), which won the 2009
Muzaffar Ahmed Book Prize.
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