Tehran Talks Tough with India

The Minister of Foreign Affairs of the Islamic Republic of Iran Mr. Mohammad Javad Zarif calling on the Vice President, Shri Mohd. Hamid Ansari, in New Delhi on February 28, 2014.

by Sumitha Narayanan Kutty

Iran’s state-run Press TV ran this unusual headline recently: “Indians relent on Iran rail deal after threat.” The editorial slant here is unusual because the media outlet is generally appreciative of India’s continued engagement with Iran despite sanctions.

The “rail deal” mentioned here is a contract signed by the Steel Authority of India (SAIL) last year to export rail tracks to Iran Railways (IRIR). The “threat” was that Tehran would “snap the contract” if the price of the tracks were not renegotiated to a lower amount. Iranian negotiators claimed that they now had lower offers from several countries, including Turkey. Taking the cue, another Indian firm Jindal Steel and Power Ltd. also cut prices in its contract with Iran.

Emboldened by prospects of a nuclear deal, Iranian negotiators are demanding that Indian firms renegotiate various existing contracts. The new tactic has taken New Delhi by surprise.

“It’s Your Fault, Not Ours”

The Iranians, sensing a nuclear deal or a thaw at the very minimum, have in recent months become more assertive in their dealings with India. This toughening stance is most visible in sectors poised to attract tremendous foreign investment (particularly European) if sanctions are lifted.

For Indian companies hoping to engage with Iran on energy, particularly upstream, recent months have been tough.

The Iranian government first withdrew its long-standing offer to an ONGC Videsh Ltd (OVL)-led consortium to develop the Farzad B gas field. It cited plans to auction the block because of a 14-year delay on the Indian side due to American coercion.

India was taken aback. Although the Iranian media unanimously reported that the offer had been “scrapped,” an Indian delegation that had only just returned from Iran (led by Jt. Secretary Ashutosh Jindal, minister of petroleum and natural gas) insisted that they “continue to be engaged” on the issue, going so far as to hint that the Iranian reports were merely a pressure tactic.

An unapologetic Iranian Ambassador to India Gholamreza Ansari argued, “If you stop your efforts, that’s your fault, not ours. Today, anything happens, blame Iran for it. Farzad-B, blame Iran. Stopping the pipeline, blame Iran. It’s unfair.”

Tehran is clearly betting big on the return of European (and ultimately American) oil majors if the nuclear deal comes through. Eni SpA, Total SA, and Royal Dutch Shell Plc. have all demonstrated keen interest in returning to Iran if the sanctions are lifted this year. Tehran has pulled out all stops to woo them. Bloomberg reports that the Iranians are prepared to offer lucrative terms resembling production-sharing contracts (PSCs), since traditional PSCs are banned under Iran’s constitution. Drafts were purportedly circulated among the companies in the run-up to this month’s OPEC meeting at Vienna.

It was similar preferential treatment that the Indian consortium also sought for the development of the Farzad B block, where it began exploration work as a service contractor. The previous Ahmedinejad government, desperate for investment, first extended such an offer to the company in 2013. Today’s investment climate has greatly altered Iranian calculations.

Second, “source-based” reports in the Indian media suggest that the National Iranian Oil Company (NIOC) may stop offering free shipping to India—a freebie Iran tossed in to keep India buying its crude in 2013. The same reports, however, differ on whether that would be the case in the immediate short run or if and when sanctions are lifted.

Another setback for India was the aforementioned Iranian demand to renegotiate two major rail contracts with Iran Railways (IRIR).

India Keeping Interests “Alive”

Throughout this time, the Indian government has maintained that its interest in oil and exploration projects remains “alive” and its commercial interactions with Iran are independent of American interests as well as the nuclear negotiations.

The signing of the MoU for the development of the Iranian port of Chabahar in April was a step taken to prove the same. Iranian president Hassan Rouhani, who advocates that Iran become a “big corridor” for transiting goods, personally met the visiting Indian Minister for Transport Nitin Gadkari and hailed a “new chapter in relations.”

India has increasingly prioritized the Chabahar port project in order to bypass Pakistan and gain access to Afghanistan and Central Asia’s markets. One key reason for this push is the development of the Chinese-funded economic corridor in rival Pakistan—a megaproject that terminates at the strategic Gwadar port situated at the mouth of the Persian Gulf.

There is still skepticism about whether the Chabahar port project will be fully realized if the nuclear talks fail. But for now, New Delhi, which is set to invest about $85.2 million, is keen to push the port project forward despite the setbacks on other fronts.

In a bid to not lose further influence, the pace of diplomacy has also accelerated. Indian External Affairs Minister Sushma Swaraj has announced her visit to Tehran in July to attend the 17th Non-Aligned Movement ministerial summit. Foreign Secretary S. Jaishankar, tasked with smoothing trade ties, made a visit earlier this month.

Though Prime Minister Narendra Modi accepted Iran’s invitation to visit the country after he won the elections last year, he has yet to announce any dates. He will however be in the neighborhood next month touring the five Central Asian nations, skipping Iran.

To be fair, the India-Iran relationship is complicated at best. In the past, Tehran has reneged on deals and renegotiated others in the energy sector when unhappy. This was particularly evident after India’s vote against it at the IAEA in 2009, forcing New Delhi to reduce its dependency on the country.

Given the ongoing nuclear talks with the P5+1, much is made of how Iranians negotiate like they are in the bazaar. Seeing an opportunity, the country may now be playing hardball with New Delhi. Lest we forget, however, the Indians are no strangers to the bazaar either.

Photo: Indian Vice President Shri M. Hamid Ansari (right) meets with Iranian Foreign Minister Javad Zarif (left)


Sumitha Kutty

Sumitha Narayanan Kutty is an Associate Research Fellow at the S. Rajaratnam School of International Studies (RSIS) in Singapore. Her work focuses on India’s foreign and security policies toward the Middle East, particularly Iran. She has contributed to numerous publications and broadcast programs including The Washington Quarterly, Asia Policy, Bloomberg, CNBC, Channel News Asia, Business Standard, Mint, Al-Monitor and IranWire among others. Sumitha holds a master’s degree in security studies from Georgetown University, Washington DC and degrees in journalism from the Asian College of Journalism (ACJ) and St. Aloysius College in India. She has a working knowledge of Persian, Hindi, Malayalam and elementary skills in Arabic and Tamil.



  1. If the Iranians have reneged on business deals what makes the US so certain they will not do so on a nuclear deal?

  2. Does it have anything to do with the recent cozying up of India with Israel?

    “Since Modi took power this summer, India has purchased a whopping $662 million worth of Israeli arms”

    “Narendra Modi to become first Indian PM to visit Israel – BBC “

  3. India had the opportunity to enter Iran market while Iran was under sanction now that chance is gone

  4. Modi is well known for his anti-Moslem views! He also has some Moslem blood on his hands from his actions in the past and of course his trip to Israel didn’t set well with the Iranians! The other reason for Iranian commercial stance is perhaps a message to one of the biggest bullies and blood sucking bastards who have been taking advantage of the economic sanctions of the west against Iran for nearly 35 years! Of course one may argue that the Iranians are biting the hands that help them in tough times but at what price?

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