India was enjoying good relations with Iran, especially, from the perspective of sanctions, India was allowed to trade with Iran. Availing this opportunity, India was purchasing Iranian oil at concessional prices and exporting its products to Iran without any completion. India got many projects from Iran on favorable terms.
The Chabahar port was India’s flagship project in Iran. The US has kept its eyes closed on India while imposing sanctions on Iran. India was enjoying a trade surplus with Iran and was the beneficiary of sanctions.
However, the recent China–Iran 25-year economic cooperation deal signed on March 27, 2021, is expected to bring rapid geo-economics and geopolitical changes in the Middle East. Iran was desperately waiting for such a miracle to happen due to the US sanctions imposed on it. China was also looking forward to increasing its share in the Iranian oil market for its production. The deal will make Iran a part of China’s Belt and Road Initiative (BRI). Hence, the accord brings Iran into China’s BRI project that stretches from East Asia to Europe. The project will enhance Beijing’s economic and political influence in the region, creating anxieties for both the US and India. Iran appears to be delighted with the Chinese investment; the Iranian Foreign Minister Mohammad Javad Zarif termed China “a friend for hard times”.
Chinese US$280 billion investment in the Iranian oil and energy sector determines that India will be deeply affected by the massive investment, and the latter would be halted from importing the Iranian oil. China will get Iranian oil at a discount of at least 12% and Beijing will be able to denominate payment in “soft currencies”, including those of the Central and African states. It further enables China to recycle its foreign exchange reserves from its trade surpluses, eschewing the US dollar and its dominated International Payments System.
International politics, at the current juncture, witnesses the growing rivalry of an established power US and a rising power China. Both players strive to promote their ideologies and political clouts by leaps and bounds. The US is trying to promote its democratic values through rein-forcing Quad known as the Quadrilateral Security Dialogue composed of the US, India, Japan, and Australia. China, on the other hand, is committed to promoting an “alliance of autocracies” attributed to countering the Quad. Beijing seeks to form a Quad-type system named the “trans-Hima-layan Quad” group consisting of Afghanistan, Pakistan, and Nepal. However, India and Iran in the prevailing great power competition face divergence in their core interests.
New Delhi suits well within Quad in the promotion of the US democracy, while Iran is categorized in China’s alliance of autocracies. Iran, apparently, is disinclined towards India and tilts more towards an emerging alliance of five nations such as China, Russia, Pakistan, Turkey, and Iran for the stability, peace, and progress of the region. An alliance of five nations was previously proposed by Tehran that may pose a national security challenge to India in the future.
The China–Iran deal, arguably, will bring Iran and Pakistan closer. Tehran is likely to participate in CPEC in the future. Tehran’s participation in CPEC will irritate Pakistan’s archrival India which never wants cordial ties of Islamabad with Tehran. To bring peace and stability to the Middle East, China is ready to host direct talks between Israel and the Palestinians. China gives a vivid message to the Middle Eastern countries to not solely rely on the US, instead, Beijing is ready to solve the outstanding issues of the region. The US pivot to Asia-Pacific serves Chinese interest in the Middle East. China reckons the US in the Middle East is in an irreversible decline, seeing itself as a benign power of the 21st century, enhancing its foothold in the region.
China and India give a great deal of importance to energy in the Middle East, increasingly becoming dependent on the oil and gas of the region. For both countries, Saudi Arabia and Iran remain their major suppliers. In order to compete with each other, both states have stimulated their state-owned companies to obtain “equity oil contracts” at premium prices to manipulate the prices and production. So far in the competition, Chinese companies, due to technological advancement have stolen a march on the Indian companies resulting in the loss of several Indian contracts. Above all, Iran has considerable influence in Iraq, Syria, and Yemen, playing an extensive role to ease China’s hardships in the aforementioned countries.
The China–Iran deal is likely to have overwhelming ramifications for New Delhi in Chabahar Port in Iran. Chabahar Port, undoubtedly, is an essential port for India, giving access to Afghanistan and the Central Asian states. The development of the port stopped twice, first in November 2018 and then in May 2019, against the backdrop of the US sanctions on Iran. Though New Delhi 2019 got a waiver from Washington, the project witnessed frequent delays that caused consternation for Tehran. India is unlikely to sustain the US pressure and will remain unable to construct the Chabahar Port, consequently creating a vacuum for Beijing.
Cordial ties between Tehran and Islamabad under the Chinese umbrella would jeopardize the Indian interest in the region. Iran’s presence in the Chinese bloc will further strengthen the security of CPEC, as prior to the deal India was alleged to be using Iranian soil against CPEC. China–Iran deal is interestingly
Ongoing to cement China’s maritime security in the Indian Ocean, its presence in the Strait of Hormuz in the Indian Ocean in the future could enable Iran to play the card of the Strait of Hormuz thereby causing a dilemma for both the US and India. India may not be able to counter or compete with China in respect of its relations with Iran. The challenge is huge and India may lose not on economic fronts but also on political fronts too.