The Economics Of Iran Protests: Should India Be Wary?

While the world turned to a short period of rest for the Christmas-New Year holiday, Iran woke up on 28 December 2017 with the city of Mashhad on the boil. What started as sporadic demonstrations against the sudden rise of food prices turned into nationwide protests calling for the overthrow of both Ayatollah Ali Khamenei, the supreme leader of Iran, and the current government led by President Hassan Rouhani.

Interestingly, President Rouhani empathised with the protesters while Ayatollah Khamenei strongly condemned them as ‘foreign agents’ and ‘enemies of the state’. The protests went on for nearly two weeks and resulted in more than 20 deaths and the arrest of thousands. The full force of the Iranian security apparatus was used to quell the protests.

The current protests in Iran are starkly devoid of a strong leadership that could bring the rebellion to a successful conclusion. The nature of the protests, without any clear end-goal, and made up of a rainbow coalition of narrow interest groups, demonstrate the harnessing of genuine discontent from very diverse quarters merely for the purpose of chaos or regime change. While there has been speculation of external influence, there is a likelihood of an internal churning of discontent and power struggle in the various strata of official ranks of the current regime, similar to what happened in 2009.

Reactions to the protests from the rest of the world were much as expected: Iran watchers in the West were quick to point out that these protests were a harbinger of positive change. This optimism was led by prominent Iranian diaspora who proclaimed this unrest as a ‘spark that will light the fire’ to bring down the current Iranian regime.

However, on the ground, the protests were much smaller than the relatively well-led and organised Green Movement of 2009 against the results of the presidential elections. The current protests seemed disjointed and without a central theme. While some cities reported their grievances as political, in other places it was economic distress that led to the protests. Other than the reported arrest of former president Ahmedinejad for ‘inciting violence’ there is not much clarity on who led these protests.

That said, with the risk of sounding conspiratorial, one can’t rule out the hand of regional rivals in fanning these ‘spontaneous’ outbursts in order to deflect Iran from its war efforts in both Syria and Yemen. This assumption can be made based on the protesters’ listing of Iran’s support of the Assad regime in Syria and Houthi rebels in Yemen as a grouse.

Conspiracy theories aside, even a dispassionate observer would note that similar revolutions and people’s rebellions in the last couple of decades have not amounted to much. The man facing down the tank in Tiananmen Square or the young Arabs singing songs in Tahrir Square led to nothing better for their respective countries. In an antithesis to the rebellion’s objective, Tiananmen Square only led to a crackdown and brutal repression, while Tahrir Square resulted in the Muslim Brotherhood, and by extension, Salafi Islam having its hands strengthened.

In the light of these developments, we explore the implications of political instability in Iran for India’s economy and foreign policy.

The Sunken Cost Of Political Unrest

India has an effective non-interference policy for countries it has official relationships with. However, one cannot deny that a change of government brings with it turmoil that affects us in politico-economic ways. It impacts our entrenched assets in the country and causes expensive delays in collaborative projects. We have seen this in Iraq, Libya and in the attempted regime change in Syria. For instance, an Indian company, Punj Lloyd, is still working on recovering dues worth Rs 1,300 crore from the Sirte Oil Co in Libya following a project that got delayed by the civil war there.

In the case of Iraq, during the long years of Saddam Hussein’s rule, the Indian government assiduously built up contacts and assets. This was expected to fructify when the economies eventually opened up. However, this never happened due to the second Iraq war. To provide a buffer from the vagaries of the energy market, Indian energy PSUs aim to have a physical presence in the Middle East, also helping India gain strategic foothold in the region. This goes a long way towards energy security and is critical to an aspirant global power. However, ONGC Videsh’s unsuccessful attempt in 2016 to acquire the Halfaya oil field in Iraq shows that India must start rebuilding its network with the new Iraqi regime.

Keeping The Pipelines Secure

The current regime of Iran is friendly towards the Indian government with overlap in strategic interests and abundant energy resources within a close distance to India. Supply of Iranian crude oil to India which amounted to more than 20 million tonnes in 2017 has almost doubled from 2016. In the eventuality of sanctions against Iran being removed, this is likely to increase in the future. It appears that these Iranian crude supplies are part of a negotiated term contract; considering crude oil prices were at their lowest in 2016, they are clearly beneficial to India.

In the event of supply disruption in Iran, Indian oil companies, majority of whom are state-owned PSUs, will have to buy from the spot market at higher crude prices, which incidentally went up following the start of the protests in Iran.

The Geopolitical Anchor

India’s most strategic investment in Iran is the Chabahar port which is being co-developed in partnership with both Iran and Afghanistan. This port serves both economic and political interests for India.

From a geo-political standpoint, Chabahar gives India access to Afghanistan without having to pass through Pakistan or inhospitable mountains. More importantly, it is an Indian counterbalance to Gwadar port, which is just a 100 miles to the east. It gives superior physical proximity and leverage to India in Balochistan. There is a significant Baloch population in Iran and the Baloch people are quite well-disposed to India.

From the logistical standpoint, Indian companies will be able to participate in export related development projects in Afghanistan as well. An example of this would be the development of the Hajigak iron ore mine in Afghanistan and the export of the ore or finished products to India via the Chabahar port. This could also wean Afghanistan away from China which has shown signs of wanting to extend the China Pakistan Economic Corridor (CPEC) into Afghanistan.

Chabahar port is a key node in the International North–South Transport Corridor (INSTC), a multimode logistics network that was established in 2000 by India, Iran and Russia. With the operationalisation of Chabahar port, the INSTC effectively comes to life. It is a corridor that can open Indian goods to a market of 11 countries. At the same time, India can access energy supplies such as oil and gas from countries such as Azerbaijan, Russia, Kazakhstan and Turkmenistan. Azeri oil could be transported via rail while gas from Turkmenistan and Russia can be brought to Chabahar via pipeline and then supplied to Afghanistan and India. Moving gas from Chabahar to India could present India with the opportunity to develop its own natural gas liquefaction capabilities in partnership with Japan, which is the world leader in the technology.

Instability in Iran affects energy supplies to India and increases the cost of doing business in Iran. A new regime brought on through these protests would be a client of different entities and thus, India could lose its strategic high ground, as it did in Iraq and Libya.

India’s Role: Spectator Or Partner?

Since the mid-2000s, regime change anywhere in the world has become more and more of a costly affair in terms of lives and socio-political instability. Thus, rivals of a regime now play a longer game, with protests aimed at creating instability and keeping the opposing government in charge of a society on the boil.

The protests have been doused for now, however, it is fair to expect spurts of instability in the coming years, depending on the outcome of the US-Iran deal with a likelihood of re-imposition of economic sanctions and the consequent stress it will cause on people’s livelihoods.

Considering its stakes in energy and strategic foreign policy, India needs to be prepared for the coming years. We can safely assume that a drastic regime change is unlikely, so in order to strengthen its position, India would be well-advised to invest more robustly in terms of energy infrastructure and not restrict itself to negotiating energy trade deals and logistics. With a firm foot in Iranian soil, as a stakeholder in the Chabahar port as well as the country’s energy production and processing, India will have built a buffer against any political instability, however unlikely. Having India as an economic partner that owns and operates significant assets such as ports, power plants, refineries, gas plants and such would be in favour of any regime and be a stable force in itself.

As we rule out change of regime, but foresee a period of economic stress, it is time for India to assert its role as a strong economic partner and help Iran navigate through these troubled times, thereby cementing India’s strategic presence and significance in the region.