Energy dominates any conversation on India’s interests in Iran.

In the last two years, however, there is a second bilateral pillar that has taken centre stage—transit cooperation. The idea here is that we move our goods to Afghanistan, Central Asia and Europe through Iran, bypassing Pakistan. What sets this sector apart in Iran is the fact that, in an otherwise almost entirely sanctionable environment, it is slightly more easier to navigate.

There is a clear alignment of Indo-Iranian interests in this space. In January, Prime Minister Narendra Modi reiterated his commitment to develop the Chabahar port in Iran after the cabinet cleared an investment of around $90 million. Iran’s president Hassan Rouhani has rallied for his country to become a big transit corridor and desires greater participation of Indian firms on this front.

Presently, the projects under discussion fall into three buckets.

The first (and most important set) places Afghanistan at the centre of its strategy. Both India and Iran agree that connecting the landlocked country through trade and commerce is crucial to its future stability. The three governments reactivated talks on the Chabahar port at the sidelines of the 2012 Non-Aligned Movement summit.

Chabahar, in Iran’s Sistan and Baluchestan province, will be Iran’s first deepwater port and India’s first foreign port project. Once operational, it will take the pressure off Iran’s oldest and only other commercial port, Bandar Abbas. Today, a significant portion of goods shipped to Iran are first unloaded in Dubai before making their way to Bandar Abbas. The port project was first discussed during the Atal Bihari Vajpayee administration when Iranian president Mohammad Khatami visited India in 2003. More than a decade later, the cabinet has given the green light and a memorandum of understanding is expected to be signed soon.

What makes this investment even more interesting is that about 72 nautical miles east of Chabahar lies Gwadar, Pakistan’s deep-water port constructed with Chinese assistance. If India capitalizes on the reduced threat perception in Iranian Baluchestan (vis-à-vis Gwadar in the restive Pakistani Balochistan province), the already delayed port can become a reality sooner than later.

The second lot focuses on bolstering India’s land connectivity to Europe, Russia and Central Asia. This includes the International North South Corridor with India, Iran, Oman and Russia being key signatories. The commerce ministry expects the cost of shipment to Russia and the Commonwealth of Independent States to fall by 40% via this road route.

A third and recent thread relates to project exports from India to Iran in the railway sector. Encouraged by the nuclear sanctions relief, New Delhi is in talks with Tehran for over $5 billion worth of project exports, including rail routes connecting Chabahar to Afghanistan. Iranians are also interested in engaging India’s technical expertise to construct railroads and rail wagons. Last year, the Steel Authority of India (SAIL) bagged an export contract with Iran Railways to supply about one lakh tonnes of rails. SAIL has more recently proposed to set up an integrated steel plant in Iran, potentially India’s first major investment.

When it comes to India and Iran, it is not just about energy any more. Low oil prices continue to work against Iran. As one analyst put it bluntly, “What’s 1.5 million barrels of (Iranian) crude per day, in a world that’s currently over-supplied by 2 million barrels per day?" He declined to be named.

Regardless of the mixed signals from the ongoing Iran-P5+1 (US, Russia, China, France, the UK and Germany) nuclear negotiations, New Delhi needs to make the most of the extended sanctions relief window that expires on 1 July. Prioritizing and expediting transit projects is key to realizing our regional ambitions.

In the short-term, the India-Iran relationship revolves around picking the proverbial low-hanging fruit. Transit is that one area and India must act now.

Sumitha Narayanan Kutty is a research scholar at the Takshashila Institution, an independent public policy think-tank.

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