Why India is trying to expand trade with Iran

As the United States isolates Iran by pushing countries to cut oil purchases and other commerce with the Islamic republic, India is building new trade ties there, saying Iran is its path to building the influence it needs in Central Asia and Afghanistan.

Prior to partition, the Indian subcontinent enjoyed trade and political links with Central Asia and onward into Russia and Europe. The creation of Pakistan cut India's access to the region and India has long eyed Iran as a workaround. 

India's government is hosting a 14-nation conference this week to help build a new shipping network, the International North-South Corridor, that will use Iranian ports, highways, and railroads. The project aims to connect India to parts of Europe in half the time required by current trade routes through Egypt's Suez Canal. 

The shipping conference comes three weeks after an Indian government-backed trade delegation returned from Iran, announcing new possibilities for trade. And last week, Indian export groups said Iran had made new purchases of animal feed and was looking for wheat, sugar, and tea – all as the US is pushing India to cut back its Iranian ties.

India's outreach to Iran poses a dilemma to the US. While Washington has been a champion of India's rise as a regional power and welcomed its aid effort in Afghanistan, Iran's nuclear program remains an overriding foreign policy concern. Secretary of State Hillary Clinton told Congress in February during congressional testimony that the US was holding “very intense and very blunt” conversations with India and other countries, such as China and Turkey, to stop oil imports from Iran.

But Indian officials have remained defiant. Given India’s geopolitical position with Iran, economic and security interests in Afghanistan, and tumultuous trading relations with nuclear-armed Pakistan, India sees Iran as a critical long-term partner.

“The United States is only looking at short-term advantages,” says Gen. Dipankar Banerjee, a senior fellow at the Institute of Peace and Conflict Studies. “We understand the US interest to get Iran to give up nuclear weapons, but we have to look at India’s strategic interests in having security and trade in the region beyond 2014 when US forces withdraw from Afghanistan.”

With an estimated $3 trillion in untapped minerals in Afghanistan, a stable trade route through the country would provide needed resources for India’s economic development. Banerjee believes it could also help stabilize the Afghan economy and act as a buffer against radicalization.

Beyond trade, India has signed on to train Afghan security forces in India and pumped in $2 billion in development assistance since the fall of the Taliban. India recently used the port of Chabahar in southeastern Iran for the first time – after helping build the port a decade ago – to transport 100,000 metric tons of wheat to Afghanistan as part of its humanitarian aid to the war-torn country.

However, Afghanistan's economic development and stabilization rests on far more than India's involvement and the difficulties created by US sanctions on Iran. 

“The sanctions towards Iran are a complicating factor in the economic strategy towards Afghanistan. But, they are not by any stretch of the imagination the only complicating factor,” says Ellen Laipson, President and CEO of the Stimson Center, a Washington-based public policy institute.