What Iran’s SCO Entry Means For India And Its Trade Ties With Tehran
With Tehran a full SCO member now, India & Iran could give the International North-South Corridor the required boost as both countries want to connect South Asia and Europe through it.
After sitting on the sidelines for nearly two decades, Iran finally joined the Shanghai Cooperation Organization (SCO) officially last week at the just-concluded summit of the grouping held in Uzbekistan’s Samarkand. Uzbek President Shavkat Mirziyoyev made the announcement of Iran's full membership in the SCO as it joined China, India, Kazakhstan, Kyrgyzstan, Russia, Pakistan, Tajikistan and Uzbekistan. An ‘observer state’ since 2005, Iran’s full membership had been a long time coming.
Afghanistan, Belarus, and Mongolia are the other three observer states of SCO, which also has six “dialogue partners” — Armenia, Azerbaijan, Cambodia, Nepal, Sri Lanka and Turkey. Most of these countries were present at the 22nd SCO summit held in Samarkand.
As connectivity projects gain momentum with the soaring economic growth of Central Asia, this particular grouping has become significant in recent years. While China is aggressively pursuing its Belt and Road Initiative (BRI), the International North-South Corridor (INSTC), which is a 7,200-km-long network of sea, rail, and road routes to move freight between India, Iran, Russia, Azerbaijan, Central Asia and Europe, is big for the countries involved. Then there is the Indian-operated Chabahar Port in southeastern Iran, which aims to establish a politically sustainable connectivity between India and Afghanistan and better economic ties between the two countries.
India-Iran Trade Ties
The relations between India and Iran that shared a border until 1947 — or the creation of Pakistan — date back several centuries as the Persian Empire and Indian kingdoms shared close ties. With the land route through Pakistan out of bounds for India, Iran provides an alternate connectivity route to Afghanistan and the republics of Central Asia for trade.
Major Indian exports to Iran include rice, tea, fresh fruits, sugar, drugs/pharmaceuticals, artificial jewellery and electrical machinery, the major Indian imports from Iran are dry fruits, glass and glassware, inorganic/organic chemicals, natural or cultured pearls, leather, gypsum and precious or semiprecious stones.
The economic and commercial ties between India and Iran were traditionally sustained by the Indian import of Iranian crude oil. In 2018-19, India imported crude oil worth $12.11 billion from Iran. However, India suspended the import of crude after the the Significant Reduction Exemption (SRE) period ended on May 2, 2019, the Ministry of External Affairs says on its website, according to which the bilateral trade of $4.77 billion during 2019-20 saw a decrease of 71.99% as compared to the $17.03 billion trade in 2018-19. The Indian exports to Iran between 2011-12 and 2019-20 have, however, grown by 45.60%, the government claims.
According to reports, the value of Iran’s exports to India, mainly food items, increased by 35% in the first seven months of 2022, compared to the corresponding period in 2021 — from $267 million to $361 million. At the same time, India’s export to Iran rose 54% to $1.243 billion between January and July 2022, against $807 million during the same period of time in 2021.
Iran had earlier this year said the two countries are trying to expand bilateral trade by diversifying the channels of payments.
When Prime Minister Narendra Modi met Iranian President Ebrahim Raisi last week on the sidelines of the SCO Summit, they reviewed the progress on the development of Chabahar Port. Though there were reports that a discussion on the resumption of oil trade between New Delhi and Tehran would be on the agenda, no official comment came on the matter. Foreign Secretary Vinay Kwatra, however, told the media during a special briefing in Samarkand that energy security remains a key pillar in the India-Iran bilateral relations.
Both Modi and Raisi, meanwhile, called for promotion of cooperation in various fields, such as commerce and connectivity.
Iran’s Entry Into SCO
Iran’s full membership in the SCO could mean a boost to India’s Eurasian outreach, a report in Economic Times said, quoting sources who also said this would ensure India, Iran and the Eurasian states besides Russia see a “seamless coordination”.
With India taking on the SCO presidency next year, all eyes are on the changes that are likely to be seen with Iran’s inclusion as a full member. Since both India and Iran want to connect South Asia and Europe through the INSTC, observers feel the SCO membership could put focus on connectivity through Chabahar.
The INSTC aims to drastically reduce the transit time of goods, but the countries have not been able to tap its full potential due to the sanctions on Iran. With Tehran a full member now, both India and Iran could give INSTC the required boost to reap the benefits of trade it will facilitate.
Focus Chabahar
India has invested over $85 million in the Chabahar Port project, according to reports. The development of the port is high priority for India due to its strategic importance — it will allow India to access Afghanistan and the Central Asian markets, bypassing Pakistan.
The trilateral Chabahar Agreement, between India, Iran, and Afghanistan, was signed in May 2016 when PM Modi visited Tehran. It aimed to develop Iran's Chabahar port as a shipping hub with rail links that would connect India to Afghanistan through Iran. The agreement had something for all three countries to benefit economically — Iran was getting investments that it was in dire need of after years of global sanctions; landlocked Afghanistan was getting access to global shipping routes; and India was getting to bypass Pakistan in its eyed the West.
The port has proved to be a more affordable route, besides being a commercial transit hub for Central Asia and Eurasia. It was in 2017 that India sent the first shipment of goods — 1.1 miillion of wheat, to be precise — to Afghanistan through Chabahar. Two years later, Afghanistan sent its first shipment of exports — cargo of five containers, each carrying 22 tonnes of mung beans — to India, bypassing Pakistan. In 2021, Union Minister for External Affairs S Jaishankar proposed that the Chabahar Port be included in the INSTC for larger connectivity.
Speaking at the press briefing after the SCO Summit in Samarkand, Foreign Secretary Kwatra reiterated this, saying the port would not only improve connectivity with Central Asia, but also beyond the region.
“Chabahar port is an important element of the regional connectivity pillar...and this figured extensively and in some detail in [the] Prime Minister’s discussion with the President of Iran and of course with the President of Uzbekistan who are deeply interested in ensuring that the connectivity between India and the Central Asian countries improves,” he was quoted as saying.
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