Iran’s Nuclear Agreement and Its Ripple Effects on South Asia

Iran’s Nuclear Agreement and Its Ripple Effects on South Asia

As we may have expected, the historic agreement reached between Iran and the P5+1 group of world powers at Vienna in the mid-July has already begun creating ripple effects on the geopolitics of South Asia. Although the relief from sanctions afforded to Iran won’t come into full effect until later in 2015 or early 2016, when Iran meets its obligations under the deal, the economic and strategic opportunities opening up with Iran’s reintegration into the global economy is a prime concern for the countries in the region. And these countries will be looking to factor in the new development into their national policies. India and Pakistan, specifically, will be looking to readjust their policies with respect to Iran and each other to take into account the central role that Tehran can play in the region, not in the least as a potentially major trading partner and energy provider.

With regards to the latter, the dominant theme has been pipeline politics. The lifting of sanctions on Iran has been touted by Pakistan as boding well for progress on the much-trumpeted $7 billion Iran-Pakistan gas pipeline, a massive energy infrastructure project that can prove essential in easing Pakistan’s energy woes. This is despite recent statements by the U.S. State Department on the matter indicating that Pakistan shouldn’t bank on the project just yet, at least not until Iran has met its obligations under the agreement – “We do not consider Iran open for business yet,” said Mark Toner, a U.S. State Department Spokesman.

The pipeline, however, has already been completed on the Iranian side of the border, and now Pakistan aims to make good on its end of the project, which had come to a stall earlier. Speculation was that progress on the pipeline had slowed down with the coming into office of the Sharif government in Pakistan in the 2013 election, known for its close ties with Saudi Arabia. With the regional power struggle between Saudi Arabia and Iran, the Sharif government was looking to make sure it didn’t lose the strategic backing of the Saudis—the economic relief they could provide, especially in terms of energy. But now, if sanctions are lifted, it may be the case that the Sharif government is reweighing its options. This is true also in light of China’s interest in the project as a part of the China-Pakistan-Economic-Corridor. China has agreed to finance a major portion of the Pakistani side of the pipeline’s construction, and work has already begun on the portion of the pipeline connecting the endpoint in Sindh, Nawabshah, to the port city of Gwadar.

The project had initially started off as the Iran-Pakistan-India pipeline, although India’s involvement had waned under US pressures on New Delhi to moderate its ties with Tehran over the past decade. International pressures had instead focused on the Turkmenistan-Afghanistan-Pakistan-India (TAPI) Pipeline project, which bypasses Iran. However, with sanctions being lifted, this may be the less feasible option, given that it has to pass through an unstable Afghanistan and the Balochistan province of Pakistan, which is prone to separatist insurgencies. With little progress having been made on TAPI, it come as no surprise that recent reports suggest New Delhi’s renewed interests in renaming the Iran-Pakistan pipeline project to include India as well.

This would be part of a larger bid on the part of India to reinvigorate its relationship with Iran. “Iran is central to India’s connectivity and energy security plans in Central Asia” said the Indian ministry of external affairs spokesperson Vikas Swarup. On 18th July, in a meeting with President Narendra Modi, Iranian counterpart Hassan Rouhani invited India to invest in the $8 billion-worth connectivity projects, including the strategic port of Chabahar, and the Farzad B. Gasfield. India will be given first priority in these projects, according to Iranian Ambassador Gholamreza Ansari. Chabahar is the originating point of the Middle East to India Deepwater Gas Pipeline (MEIDP), a $4.5 billion state-of-the-art infrastructure project that aims to supply 1.1billion cubic feet of gas per day. The MEIDP would double India’s natural gas imports, helping it to diversify its fuel sources and obtain cleaner energy. It would also allow it to bypass the long stalled Iran-India-Pakistan gas pipeline, which would be strategic given the instability and regular hostility within the Indo-Pak relationship. All this is to not even mention the potential oil imports that India can benefit from Iran.

At the same time, Iran also promises to be a potentially large market for refined products from both countries. But geopolitical and strategic considerations also come into play here. Iran and India are already considered to have aligned strategic and security interests, given the Pak-Saudi alignment. With India’s aim to play a greater role in the region alongside China, Iran also provides India with an access point to Central Asian states, to which India is denied a transit route through Pakistan.

Pakistan, for its part, seems to be looking to tread carefully, especially given Saudi Arabia’s suspicions and its battle with Iran for influence in the Middle East. Special adviser to the Prime Minister, Sartaj Aziz, announced that Iran’s reintegration into the region will bring “political advantages” and “peace and security” in the region and promote unity among Muslims, ostensibly hinted toward the sectarian tensions that are embodied by the power struggle between Iran and Saudi Arabia. But the lifting of sanctions provides an opportunity for both countries that Islamabad will not want to lose out on, especially given the aggressiveness with which India seems to be willing to pursue relations with Iran. Recently the Iranian ambassador, Alireza Haghihian, called for increased efforts to boost the bilateral trade between Pakistan and Iran, from $200 million to $5 billion over the next 5 years, at least on paper. The ambassador even went as far as to say that Iran is ready to meet all of Pakistan’s energy needs.

However, while India and Pakistan scramble to compete with each other to take advantage of the lifting of sanctions, they must remember that they aren’t the only players in the game. European business leaders are also looking to make inroads to take advantage of the nuclear deal and the massive economic opportunities it will open up. Iran knows this, and the South-Asian rivals need to bear it in mind. In the words of Iranian Ambassador Gholamreza Ansari, “If they drag their feet, the market will not wait.”

Amjad Khan is a PhD student at the Economics Department at GWU, and recipient of Sigur Center summer field research grant in 2015 for his research in Pakistan. His current research looks at the political economy issues revolving around religious, ethnic and class identity in developing countries.