Iran and India: Belt and Road by Another Name

by Tom Luongo

Ex: https://tomluongo.me

Don’t tell the Iran hawks in D.C., isolating Iran won’t work.  Iranian President Hassan Rouhani met with his Indian counterpart Narendra Modi this week and the two signed a multitude of agreements.

The most important of which is India’s leasing of part of the Iranian port of Chabahar on the Gulf of Oman.  This deal further strengthens India’s ability to access central Asian markets while bypassing the Pakistani port at Gwadar, now under renovation by China as part of CPEC – China Pakistan Economic Corridor.

CPEC is part of China’s far bigger One Belt, One Road Initiative (OBOR), its ambitious plan to link the Far East with Western Europe and everyone else in between.  OBOR has dozens of moving parts with its current focus on upgrading the transport infrastructure of India’s rival Pakistan while Russia works with Iran on upgrading its rail lines across its vast central plateaus as well as those moving south into Iran.

India is investing in Iran’s rails starting at Chabahar and moving north.

Just Part of the Much-Needed Rail Upgrade Iran Needs to Connect it to India

Chabahar has long been a development goal for Russia, Iran and India.  The North-South Transport Corridor (NSTC) was put on paper way back when Putin first took office (2002). And various parts of it have been completed.  The full rail route linking Chabahar into the rest of Iran’s rail network, however, has not been completed.

The first leg, to the eastern city of Zahedan is complete and the next leg will take it to Mashhad, near the Turkmenistan border.  These two cities are crucial to India finding ways into Central Asia while not looking like they are partaking in OBOR.

Also, from Zahedan, work can now start on the 160+ mile line to Zaranj, Afghanistan.

The recent deal between Iran and India for engines and railcars to run on this line underscores these developments.  So, today’s announcements are the next logical step.

The U.S. Spectre

As these rail projects get completed the geopolitical imperatives for the U.S. and it’s anti-Iranian echo chamber become more actute.  India, especially under Modi, has been trying to walk a fine line between doing what is obviously in its long-term best interest, deepening its ties with Iran, while doing so without incurring the wrath of Washington D.C.

India is trapped between Iran to the west and China to the east when it comes to the U.S.’s central Asian policy of sowing chaos to keep everyone down, otherwise known as the Brzezinski Doctrine.

India has to choose its own path towards central Asian integration while nominally rejecting OBOR. It was one of the few countries to not send a high-ranking government official to last year’s massive OBOR Conference along with the U.S.

So, it virtue signals that it won’t work with China and Pakistan.  It’s easy to do since these are both open wounds on a number of fronts.  While at the same time making multi-billion investments into Iran’s infrastructure to open up freight trade and energy supply for itself.

All of which, by the way, materially helps both China’s and Pakistan’s ambitions int the region.

So much of the NTSC’s slow development can be traced to the patchwork of economic sanctions placed on both Russia and Iran by the U.S. over the past ten years.  These have forced countries and companies to invest capital inefficiently to avoid running afoul of the U.S.

The current deals signed by Rouhani and Modi will be paid for directly in Indian rupees.  This is to ensure that the money can actually be used in case President Trump decertifies the JCPOA and slaps new sanctions on Iran, kicking it, again, out of the SWIFT international payment system.

Given the currency instability in Iran, getting hold of rupees is a win.  But, looking at the rupee as a relatively ‘hard’ currency should tell you just how difficult it was for Iran to function without access to SWIFT from 2012 to 2015.

Remember, that without India paying for Iranian oil in everything from washing machines to gold (laundered through Turkish banks), Iran would not have survived that period.

Don’t kid yourself.  The U.S. doesn’t want to see these projects move forward.  Any completed infrastructure linking Iran more fully into the fabric of central Asia is another step towards an economy independent of Western banking influences.

This is the real reason that Israel and Trump want to decertify the Iran nuclear deal.  An economically untethered Iran is something no one in Washington and Tel Aviv wants.

The Fallacy of Control

The reason(s) for this stem from the mistaken belief that the way to ensure Iran’s society evolves the right way, i.e. how we want them to, is to destabilize the theocracy and allow a new government which we have more control over to flourish.

It doesn’t matter that this never works. Punishment of enemies is a dominant neoconservative trait.

When the truth is that the opposite approach is far more likely to produce an Iran less hostile to both Israel and the U.S.  Rouhani is the closest thing to a free-market reformer Iran has produced since the 1979 revolution.  Putting the country on a stronger economic footing is what will loosen the strings of the theocracy.

We’re already seeing that.  Rouhani’s re-election came against record voter turnout and gave him a 57% mandate over a candidate explicitly backed by the mullahs.

That said, there is no magic bullet for solving Iran’s economic problems, which are legion, after years of war both physical and economic.  Inflation is down to just 10%, but unemployment is at depression levels.  It will simply take time.

The recent protests started as purely economic in nature as the people’s patience with Rouhani’s reforms are wearing thin, not because they aren’t for the most part moving things in the right direction, but because they aren’t happening fast enough.

And you can thank U.S. and Israeli policy for that.  Trump’s ‘will-he/won’t-he’ approach to the JCPOA, the open hostility of his administration has the intended effect of retarding investment.

The country’s current economic problems come from a woeful lack of infrastructure thanks to the U.S.’s starving it of outside investment capital for the past seven years alongside a currency collapse.

With the JCPOA in place the investment capital is now just beginning to make its way into the country.  It’s taken nearly three years for the fear of U.S. reprisal to wear off sufficiently to allow significant deals to be reached, like these.

Last summer President Trump began making noise over the JCPOA and John McCain pushed through the sanctions bill that nominally targeted Russia, but actually targeted impending European investment into Iran’s oil and gas sectors.

It didn’t and France’s Total still signed a $4+ billion exploration deal with Iran.  European majors are lined up to do business with Iran but the sanctions bill is stopping them.  And Trump is too much of a mercantilist to see the effects.  Iran is evil and blocking them is good for our oil companies.

Full Stop.

Don’t forget last year’s announcement of a new Iran to India gas pipeline, in a deal facilitated by Russia’s Gazprom to ensure a part of India’s future energy needs.  This was a pipeline project delayed for nearly two decades as the U.S. (and Hillary Clinton) tried to bring gas down from Turkmenistan, the TAPI pipeline, and cut Iran out of the picture.

Both countries have not benefitted from this mutually-beneficial energy trade for more than fifteen years because of U.S. meddling.

India’s Future Is Iran’s

What this summit between Modi and Rouhani ultimately means is that despite all attempts at intimidation and control, self-interest always wins.  There are too many good reasons for India and Iran to be allies economically.

And despite our increased military presence in both Afghanistan and Syria beyond all rationality, designed to surround and pressure Iran into submission, in the end it won’t work.  India imports 60% of its energy needs.

And while the two countries have been sparring over particulars in developing the important Farzad-B gas field in the Persian Gulf, Rouhani and Modi seem to have created a framework where the two can get a deal done.

On Farzad-B, [Indian Oil Minister] Pradhan said both sides agreed to reove “all the bottlenecks on capex, return (on indina investments) and timeline. We have decided today to reopen and re-engage on all three issues again.”

The oil deal appears to be the most crucial breakthrough since India had reduced Iranian crude imports by a quarter in retaliation for, what officials described as, Iran’s flip-flop over sealing a deal over Farzad-B.

Those words came after Iran cut a better deal for oil exports to India, up to 500,000 more barrels per day, more than doubling 2017’s 370,000 barrels per day.

If Rouhani’s visit can nail down these deals and build further trust between the two countries, he will have moved the ball way down the field for Iran as it pertains to its improving regional relationships with Russia, Turkey and even China.

Because, by getting India to help stabilize Iran’s energy industry and build its transport infrastructure in the east it’s assisting Russia and China’s goals of opening up the former Soviet ‘Stans as well as give them more leverage to craft a security deal in Afghanistan between the Kabul government and the amenable parts of the Taliban.