Iran’s trade with India fell 24% during the first three months of 2023 compared with the same period of last year to stand at $510 million, latest data released by the Indian Ministry of Commerce and Industry show.
Iran’s exports stood at $188 million during the period, registering a 11.75% year-on-year fall.
The exported goods mainly included petroleum products worth $65 million, dye intermediates worth $46 million and fresh fruit worth $46 million.
Iran’s imports from India during the period stood at $322 million, registering a year-on-year fall of 36.81%.
The imports mainly included rice worth $203 million, fresh fruit worth $15 million, tea worth $10 million and organic chemicals worth $10 million.
Bilateral trade grew around 48% in 2022 compared with the year before to stand at $2.5 billion with Iran’s exports standing at $653 million, registering a 59.57% rise compared with the previous year. Iran’s imports from India stood at $1.84 billion last year, registering a year-on-year rise of 43.86%.
Economic Relations and Geopolitical Hurdles
Iran and India have historically maintained friendly and cooperative relations, and as the world moves toward a multipolar order, these two countries are poised to play a crucial role in shaping the new trade and connectivity patterns across Eurasia, Emil Avdaliani, a professor of international relations at the European University in Tbilisi, Georgia, and a scholar of the Silk Road said in an article. Excerpts published by India Briefing follow:
Geopolitical developments in the region, such as the reimposition of US sanctions on Iran, have had a significant impact on Iran-India economic ties. Despite these challenges, both countries are actively exploring ways to boost their trade and investment relations, which could have a significant impact on the economic landscape of the region.
In 2021, India exported goods worth $1.28 billion to Iran, primarily consisting of rice ($662 million), tea ($96.8 million), and bananas ($46.1 million). Iran, on the other hand, exported goods worth $379 million to India, with the major items being nuts ($100 million), ammonia ($58.2 million), and apples and pears ($48.3 million). Additionally, Iran also exported small quantities of products such as methanol, toluene, pistachios, dates, almonds, crude oil, liquefied butane and propane, bitumen and mineral base oil, stone and mineral salts such as marble and clinker cement.
Between 1995 and 2021, Iran’s exports to India have been on a declining trajectory, with an average annual decrease of 1.08% from $502 million to $379 million during the period. Indian exports to Iran have also been on a similar declining trend, with a decrease in value from INR 10.57 billion in January 2023 to INR 7.88 billion in February 2023.
The decreasing trend in trade between Iran and India has had a negative impact on their bilateral commerce.
In FY 2022, India-Iran trade amounted to $1.91 billion, registering a drop of around 9% compared to total trade value of $2.10 billion in FY 2021. Furthermore, a closer analysis of long-term trade trends reveals an even more significant decline, as trade between Iran and India had reached $18 billion before the US withdrawal from the Joint Comprehensive Plan of Action (JCPOA). However, the re-imposition of US sanctions on Iran led to India prioritizing its relationship with the US, causing economic and investment ties with Iran to stagnate.
Primary Obstacles to Economic Cooperation
External factors have had a significant impact on India-Iran relations, resulting in several geopolitical setbacks. India halted the purchase of Iranian oil following the US withdrawal from the JCPOA, and the Chabahar Port and railroad project’s long-term investment agreement faced significant delays.
India is apprehensive about the growing strategic partnership between Iran and China, particularly after the signing of a 25-year agreement. Beijing’s plan to expand its maritime trade network and gain access to shipping routes has created a clash with India’s aspirations.
US sanctions on Iran have curtailed Iran’s ambitions to become a significant energy supplier to India. Since the sanctions were reimposed, Arab products have replaced Iranian goods such as oil and petrochemicals. India is likely to maintain its policy of avoiding sanctions violations due to the fear of economic repercussions. For example, when an Indian company purchased oil from Iran in September 2022, the US imposed sanctions. This will continue to be a major constraint on the expansion of investment ties and economic relations between Iran and India.
India’s relations with Iran’s rivals, Israel and the United States, pose another complication for bilateral ties. Despite efforts by New Delhi and Tehran to separate their relationship from US and Israeli factors, this strategy has not been successful. Israel is critical to India because it is one of India’s largest military suppliers. India also values its ties with the US, which it considers a counterweight to China’s Indo-Pacific ambitions, despite occasional tensions.
Solutions for Improving Trade Ties Amid US Sanctions
To address the decline in trade, the Reserve Bank of India (RBI) – India’s central bank – announced in July 2022 that it will use the rupee payment mechanism to facilitate business transactions with countries, including Iran and Russia, that are under economic sanctions. The RBI has also established a mechanism that allows for instant payment options to facilitate international trade in rupees.
Another way to enhance bilateral commercial ties is to lower India’s high tariff on Iranian agricultural goods. This could be achieved through special economic mechanisms like signing preferential trade agreements between New Delhi and Tehran. An alternative could be to establish an agreement similar to the 25-year investment deal signed between China and Iran. India has expressed interest in such an agreement, but concrete steps have not been taken yet.
Iranian and Indian officials and experts concur that the most effective means to enhance their relationship is by promoting mutual investment, reducing tariffs and expanding cooperation in the pharmaceutical and production sectors. They propose cooperation in areas such as the production of herbal medicines, Indian investment in Iranian oil downstream projects and petrochemicals aimed at the Indian market.
Unfortunately, much of this is impeded by the primary geopolitical obstacle of US sanctions reimposed on Iran in 2018.
