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EXECUTIVE SUMMARY

Although freed from sanctions after Implementation Day in January 2016, India and Iran have not managed to make good on their long-standing ambition to transform their modest bilateral relationship into a grand, strategic partnership. They are yet to take advantage of their complementary energy resource needs and Iran’s geographic position as a gateway to Afghanistan and Central Asia.

Prime Minister Modi and President Rouhani have repeatedly shown interest in developing deeper ties. Indeed, several negotiations for large projects are underway. While they may come through in the coming months, the reticence India has shown toward Iran and Iran’s impatience toward India reveal underlying tensions and constraints for the relationship. Domestic politics, oversupplied hydrocarbons markets, Iran’s continuing precarious position, and India’s delicate balance of relations in the broader Middle East all dampen expectations.

On the surface, this sputtering may look acceptable for the United States – many in Washington continue to see Iran only for its negative impacts on the region or in light of the nuclear deal. Yet, a close look at U.S. interests in India, Iran, and their surrounding region suggests that the implications of a realized strategic relationship between India and Iran would benefit the United States. To continue to grow its economic output at the current rapid pace, India needs energy and geographic access to new markets. Iran is more likely to comply with the Joint Comprehensive Plan of Action if it sees quick tangible economic gains, which India can help provide.

While potential geopolitical ramifications include violence or less cooperation from Pakistan or Saudi Arabia, who could react negatively to cooperation between rivals, the new dynamics of the region – namely the increased involvement and weight of China and India – make it possible to avoid the zero-sum ties that have long been sources of friction.

Recommendations

Given the large advantages but potential drawbacks, I recommend that the United States pursue a strategy that supports the India-Iran relationship while hedging against both Iran’s uncertain trajectory and regional perceptions of encirclement. To do this, the United States should double down on relations with India and broaden political dialogue on Afghanistan to involve all stakeholders.

To support the relationship, the United States should:

  • Assist with project financing and assessments for the private sector.
  • Clarify its position on secondary sanctions.
  • Invite Iran to regional Afghanistan talks.

To hedge against Iran’s uncertain political trajectory and Pakistan’s sense of encirclement, the United States should:

  • Sell LNG to India at a competitive price to increase energy ties in the case of snapback sanctions.
  • Support a continued comprehensive dialogue between India and Pakistan.

This report’s ultimate aim is to point Washington back toward the relationship between New Delhi and Tehran, and show, against conventional wisdom, that a significant deepening of their relations could in fact be a boon for U.S. national interests.

CONTINUE READING.  Part I: India-Iran Bilateral Relations