Iran: A geopolitical jigsaw puzzle

In an interview with Hardnews, Dr Sujata Ashwarya, a prominent academic and noted expert on the Middle East, talks about the various implications of Iran’s rehabilitation in the international pecking order, the impact of the US presidential elections on Iran and the long-term consequences of the Chabahar deal between India and Iran

Sanjay Kapoor Delhi  

How do you see the return of Iran in the international order after the signing of the P5+1 deal? Will it aggravate contestation with Saudi Arabia and Israel?

The nuclear deal has reinforced Iran’s capacity to pursue its regional ambitions more aggressively, and even aspire for a global role. Iran’s regional influence has been growing steadily since the Iraq War in 2003. Saddam Hussein’s downfall removed the proverbial ‘gatekeeper of the Arab east against the revolutionary regime in Persia’, to the great trepidation of Saudi Arabia and other Arab Gulf countries. Shia ascendance in Iraq shaped the arc of Iranian influence from Baghdad to Beirut. Iran is assisting Baghdad in taking on the Islamic State (IS), and along with its proxy Hizbullah, Tehran is helping President Assad fight the rebels and the IS in Syria – via logistic support and training as well as supply of weapons. The nuclear deal has also empowered Iran to stretch its sphere of influence and change the situation in Yemen by making the war costly, both in material and human casualties, for Saudi Arabia and its allies. Iran’s assistance to the Houthis (who belong to the Zaydi sect, also known as Fivers, of Islam) in Yemen, right on the Saudi doorstep, brings the Iranian arc of influence full circle, both literally and figuratively. Therefore, normalisation of Iran has come in the wake of unprecedented Iranian influence in the entire region, much to the chagrin of both Saudi Arabia and Israel, who have opposed the nuclear deal.

The Saudis are apprehensive of the strategic leverage and latitude it would give to Iranian pursuits, when the tag of a ‘pariah state’ is gone and the dividend from sanctions relief takes effect. Israel, or in any case, the current dispensation there, is convinced that Iran will rescind and cheat somewhere along the line, diluting the Jewish state’s regional military supremacy.

In view of Arab failings, starkly evident in the events of the Arab Spring, the P5+1 deal is also indicative of America’s recognition of Iran as a player and partner in organising the chaotic region, or at least a part of it. The Saudis would like to strike Iran and have a clear edge in the changing regional balance of power. They hope the Israelis can do what they are unable to do and break the momentum of the Iranian ascent. In this context, news of Saudi-Israeli support for the Kurdish Democratic Party of Iran (KDPI), fighting the Iranian forces in Erbil, or Israeli provision of medical treatment for the Syrian rebels in Golan, are games of powerplay, a complex balancing act in the quest of the three states for regional preeminence.

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Syria is the battleground where the rivalry between Iran and Saudi Arabia will play out in all its dimensions. The Syrian civil war is a manifestation of the historic Shia-Sunni sectarian rivalry: Iran is supporting the heterodox Alawi regime against the Saudi-supported Sunni rebel groups. Iran has enormous interests in the survival of the Assad regime, a lifeline for Hizbullah’s survival in Lebanon, and a critical link for Iran’s continued pressure on Israel. After years of living with the Assad regime’s quietist policy on Golan, Israel has given up the comfort of the status quo to support the Saudis in Syria, in order to undercut the possibility of enhanced Iranian influence on its northern border, should the balance of forces favour Iran in the Syrian civil war.   

Do you think the P5+1 deal with Iran is enduring and will not be impacted by the US presidential election? Many of the detractors of this deal are waiting for the election to be over before they work towards taking a concrete position.

The P5+1 deal with Iran has several positives, which the US administration, regardless of who is at the helm, cannot ignore. According to the agreement, it pushes back the development of Iran’s nuclear capability by 10-15 years. Further, the arrangement for regular monitoring by the IAEA fortifies the core concept of the deal, specifically, to prevent Iran from becoming a threshold nuclear power through a surreptitious programme.

An agreement is successful only when the contending parties see clear benefits accruing from it. The Iranians are already complaining that the maze of financial and trade restrictions produced by the multiplicity of US sanctions is hampering international investment and commercial transactions. When the deal with Iran was signed in July 2015, international sanctions related to Iran’s nuclear programme were lifted, permitting non-US banks and enterprises to operate in Iran. However, the restrictions stemming from terrorism and human rights concerns, which date back to the 1990s, forbade US banks from doing business with Iran. So, many European firms and banks have been wary of doing business with Iran,  under the remaining American sanctions. They fear that US prosecutors and independent regulators might adopt a stricter interpretation of the rules than the government’s stance on Iran.

The remaining American sanctions also debar Iran from the US financial system and prohibit transactions in US dollars – the world’s premier business currency and the currency of choice in the global oil market. It is the lack of clarity and uncertainty surrounding what is permitted and what is not that is making international banks and forms reluctant to process Iranian-linked transactions and is contributing to businesses’ reluctance to restart or launch relationships with Iran.

The nuclear deal with Iran is a triumph of diplomacy, an attempt to institute a rule-based order, after years of America’s disastrous policy in the region. However, keeping the deal on track is not an easy affair, politically. In the cacophony of voices of the conservatives on both sides against the agreement, two imperatives stand out. First, a continuous need for management of the process of sanctions relief to ensure that Tehran gets the support pledged to it in the nuclear deal, and, second, a rigorous monitoring of its nuclear-related activities to prevent regresses that can fundamentally undermine it. 

Can you elaborate on Iran’s role in fighting the IS in Iraq and support to Bashar al-Assad’s regime in Syria?

In Iraq, the Iranian Revolutionary Guard (IRG) is training and fighting alongside the Shia militias. When the Iraqi military collapsed during the summer of 2014, former Prime Minister Nouri al-Maliki created the Al-Hashid al-Sabi or the ‘Popular Mobilisation Front’ to combat the Islamic State. The IRG’s prominent role in Iraq in training the local Shia militias of the Al-Hashid al-Sabi, which numbers around 100,000 volunteers, has made the latter a powerful force to reckon with. It was successful in defeating the ISIL in many places – Tikrit, Ramadi and Amerli – fighting in the forefront of the battle lines. After ejecting the Islamic State, the Shia militias raided villages in the surrounding areas in reprisal attacks against the Sunnis. The Shia militia front is led by Abu Mahdi al-Muhandis, a former adviser to Qassem Soleimani, who heads the Quds Force, the external operations wing of the Iranian Revolutionary Guards Corps. Soleimani himself was reportedly in Fallujah in May 2016, helping direct operations for the militias taking part in fighting the IS.

Syria is a priority for Iran, the task being to keep the Syrian regime afloat so that it does not lose a strategic ally that guarantees continuous supply of arms, including strategic ballistic missiles to the Hizbullah proxy. Hizbullah’s Syria command, which has been a priority for Iran, has shown no sign of financial hardship and is defending Bashar al-Assad’s regime well. In effect, it is opposing Saudi policy in Syria, having intervened on the side of Assad, whom the Saudis are hoping to see overthrown. The Iranians through the Hizbullah have managed to shore up the Syrian government where the Syrian Army could not. 

What is the Iranian connection to the civil war in Yemen?

The nuclear deal has also empowered Iran and its proxy, Hizbullah, to stretch their sphere of influence and change the situation in Yemen by making the war costly, both in material and human casualties, for Saudi Arabia and its allies. Hizbullah is empowering the Houthis via logistical support and training as well as organising the flow of Iranian weapons, especially tactical missiles, across the long, porous Yemeni seashore. Iran’s role made the Houthi militias and Saleh’s forces absorb the massive bombardment and superior air power of the Saudis, and to take the initiative in some places by targetting the Saudi ground forces. In March 2015, Qassim Suleimani travelled to Yemen for the first time since the crisis began, a clear indication of Iranian ‘interests’ in the war-torn country – despite official Iranian denials – that Tehran was using the Houthis as proxies to extend its hand in the Arabian Peninsula. Hizbullah’s logistical knowhow has been transferred to the Yemeni militias, the aim being to make the war costly and long, as such a war of attrition. 

How is Saudi-Iranian rivalry playing out in the oil market?

Since the sanctions on Iran were eased in January 2016, Iran has been aiming to boost production and regain customers lost to Saudi Arabia and Russia, two other large suppliers in the crude market during the sanctions’ period.  Iran is initially targetting an increased volume to its pre-sanctions level of 3.7 million barrels per day (mbd), and later beyond this to above 4 mbd.

Facing an over-saturated oil market – ensuing from a record output and strategic price cuts by Saudi Arabia – Iran’s export strategy is to rely on exports to traditional and voracious energy consumers in Asia and introduce aggressive pricing vis-à-vis other crudes in the market. Iran has been steadily consolidating and increasing its export since January to China, India and South Korea, where the agreement for sales are already in place. The sharp rise in Iran’s oil exports has put the country in a better position vis-à-vis Saudi Arabia in the global oil market.

Determined to regain its market share, lost during the period of sanctions, Iran is also willing to handle low prices. In addition to production increases, Iran has introduced competitive pricing for its crude versus the Saudi variant. For instance, Iranian officials announced in February 2016 that Iran Heavy (IH), one of the country’s main export grades, would cost $1.25 a barrel less than Saudi Arabia’s most similar crude in March for the European region. With IH selling at $5.15 a barrel, Saudi comparable Arab Medium grade sold at $6.40 a barrel.

Seeking to ramp up output and exports, Iran declined to join other producers and Russia to freeze output at the OPEC April 2016 meeting in Doha. The talks, which Iran didn’t attend, collapsed after Saudi Arabia refused to limit production without the participation of all the members of OPEC, particularly its rival, Iran. Iran, which was OPEC’s second-biggest producer before sanctions, maintains the position that other member-producers should make way for its return to the global market after sanctions amid a glut and falling prices. 

The nuclear deal has enabled India to upgrade relations with Iran. In this context, how do you see the Chabahar deal? How will it enhance India’s reach in Afghanistan?

India considers Afghanistan a part of its proximate neighbourhood and crucial to the peace and stability of the subcontinent itself. For this reason, India has contributed about $2.2 billion towards the reconstruction of Afghanistan since 2001, making it the fifth largest bilateral donor. India is keen to deepen its presence in Afghanistan and increase bilateral trade, which has risen from $80 million in 2001 to $700 million in 2013. Deeply resentful of New Delhi’s presence in its ‘strategic neighbourhood’, Islamabad has refused to grant land transit to Indian goods bound for Afghanistan. Therefore, India is building an alternative route to reach Afghanistan through Iran’s Chabahar Port. India, Iran and Afghanistan have signed a trilateral agreement for the construction of transport infrastructures connecting Chabahar as a nodal point of a trade corridor linked with Afghanistan’s ring road system, also called Heart-Kandahar road or the ‘garland highway’. The garland highway – which encompasses the country and links its major cities to Kabul – forms a part of the wider Asian highway project, and branches out into border roads connecting Uzbekistan and Tajikistan to Afghanistan.

India will invest up to $100 million to augment Chabahar Port, from its current capacity of 2.5 million tonnes to 12.5 million tonnes a year, making it suitable to handle large cargoes. Iran has concomitantly declared the area surrounding Chabahar a free trade zone. When linked to the Chabahar Port, Afghanistan will have access to the warm waters of the Arabian Sea. That would eventually reduce Afghanistan’s dependence on the southern Karachi port of Pakistan for a maritime outlet. In addition, Indian goods headed for Afghanistan and Central Asia would receive preferential treatment and tariff reductions at Chabahar.

The Chabahar project has fuelled Pakistan’s suspicion and fear of encirclement by India and an India-Afghan-Iran economic plot to weaken Pakistan. It is hardly coincidental that Pakistan allowed China to develop the Gwadar port on the Arabian Sea, believed to have strong military possibilities, and transferred its operational control to Beijing’s Overseas Port Holding Company for 40 years. For India, the strategic significance of Chabahar Port will weigh equal to its commercial advantages in the near future. Chabahar is about 76 km east of Gwadar and could serve to counter China’s emergent maritime presence in the Indian Ocean region.

China has already made a big move to invest in Iran, including in a part of the Chabahar project; India is keen to act fast, especially as sanctions on Iran are lifted. Iran’s trade and investment profile is expected to soar and India wants to be in a firm position to take advantage of the new environment. 

What is the North-South Transportation Corridor? How is Iran central to the project?

A major commercial venture between India and Iran is the International North-South Transportation Corridor (INSTC), a multimodal trade route that would connect India to Central Asia, Russia and Northern Europe through Iran. Basically, two routes are envisaged under the INSTC Project – the Caspian Sea route and the Caucasus Route via Azerbaijan.

The Caspian Sea Route, when fully operational, would permit reduction in cargo transportation time and in the transaction cost between India and Central Asia, Russia and northern Europe. Goods would move from the western ports of India to the southern Iranian port of Bandar Abbas, from where they would transit through Iran via rail to the Caspian Sea ports of Bandar Anzali and Bandar Amirabad (and the port at Astara, opened in April 2013) to move onward to the Russian and the Central Asian sectors. In Russia, the route would extend along the Volga river via Moscow into northern Europe. While the transportation of goods through the Suez Canal and the Mediterranean takes 45-60 days, the North-South Corridor is expected to take 25-30 days. It will also reduce freight cost by 30 per cent.

The Caucasus route would require building of the 375-km crucial Qazvin-Rasht-Astara (Astara borders Azerbaijan) rail link in Iran that will serve as a bridge connecting the railways of Iran, Azerbaijan, Georgia, Armenia and Russia. Except for Iran, the Caucasus and Russia have an interconnected Soviet-era railway network. Cargo would move from India to Iran by ship; from Iran to Azerbaijan, Armenia, and Georgia by rail and road; and from Georgia to Russia and Europe.

Iran has already completed the construction of the railway section from Qazvin to Rasht as of September 2015 and the Rasht-Astara section will be constructed in the next three years. The volume of cargo transportation through the Caucasus corridor is estimated to be six million metric tonnes in the initial stage and will reach about 15-20 million metric tonnes in time. India has offered to provide consulting services through Rail India Technical and Economic Services (RITES) to complete the project. Bearing in mind the sanctions slapped by the United States and the European Union on Russia for backing Ukrainian separatists, India is eager to boost export of items Moscow usually buys from the two sectors.

India considers Iran as the pivot of these trade corridors, given that much of the road and rail connectivity to CARs, Russia and northern Europe will be routed through Iranian territory. Its port, Bandar Abbas, is the proposed hub and transhipment point of trade activities along the North-South corridor. Saeed Jalili, Secretary of the Supreme National Security Council of Iran, termed the INSTC one of the most ‘strategic projects’ for India’s relations with Iran.

A dry run between Nhava Sheva (Mumbai) and Bandar Abbas (Iran) and Baku (Azerbaijan) and Nhava Sheva to Bandar Abbas to Amirabad (Iran) to Astrakhan (Russia) via the Caspian Sea conducted in August 2014 by the Indian Ministry of Commerce, through the Federation of Freight Forwarders’ Association of India (FFFAI), showed the viability of the transportation links along the proposed routes of the INSTC Project.

There are two options to choose from: a combination of the rail and road route or the dedicated road route. The road route, being a barricaded transport corridor, is preferred, which makes the movement of goods facile and unimpeded in addition to significant reduction in costs of transportation. India has decided to use the existing road link between Iran and Azerbaijan to get easier access to the lucrative markets of Russia, Caucasus and Central Asia.

The INSTC Project requires the building of road and rail links and the development of intermediate ports along the way with streamlined customs and other procedures to make it economically viable and efficient. Once fully functional, the INSTC will connect three oceanic regions—the Indian Ocean, Persian Gulf and Caspian Sea—around the Iranian pivot, with India, Russia, northern Europe and Central Asia as the spokes of the potential trading and commercial circle.