India-Iran Relations, Area of Cooperation, Significance, Challenges

India-Iran Relations share one of the oldest civilisational relationships in the world, rooted in centuries of cultural exchange, trade and political interaction. The connection dates back to the Indus Valley and Mesopotamian civilizations when maritime trade flourished across the Persian Gulf and Arabian Sea. Over time, diplomatic engagement, energy cooperation, and strategic connectivity projects have strengthened ties.

India-Iran Relations

India-Iran Relations formally began after India’s independence with the establishment of diplomatic ties on 15 March 1950. Since then, cooperation has expanded across trade, energy, connectivity, and regional security. Political visits, agreements such as the Tehran Declaration, and strategic projects like Chabahar Port and the INSTC have strengthened bilateral engagement despite occasional geopolitical constraints.

India-Iran Relations Area of Cooperation

India-Iran Relations cooperate across multiple strategic sectors including politics, energy, trade, culture, connectivity, and regional security frameworks.

• Political Engagement: India and Iran formally established diplomatic relations on 15 March 1950. High-level political exchanges strengthened ties over decades, including Prime Minister Narasimha Rao’s visit to Iran in 1993 and President Rafsanjani’s visit to India in 1995. The relationship advanced significantly during Prime Minister Atal Bihari Vajpayee’s Tehran visit in April 2001, when the “Tehran Declaration” was signed outlining cooperation areas and emphasizing dialogue among civilizations.
• Strategic Partnership: The “New Delhi Declaration” further articulated a long term strategic partnership framework between the two countries. Prime Minister Manmohan Singh attended the 16th Non-Aligned Movement Summit in Tehran in 2012. In 2016, Prime Minister Narendra Modi visited Iran and released a joint statement titled “Civilizational connect, contemporary context,” reaffirming the depth of bilateral ties.
• Agreements during Iranian President Hassan Rouhani’s Visit: During Iranian President Hassan Rouhani’s visit to India in February 2018, both sides signed nine agreements covering several sectors. These included avoidance of double taxation, easing visa norms, cooperation in traditional medicine, and an extradition treaty. The countries also concluded a lease agreement related to Phase-1 of Shahid Beheshti Port at Chabahar.
• Trade and Commercial Relations: Economic engagement has traditionally revolved around India’s import of Iranian crude oil. During 2016-17, bilateral trade reached about USD 12.89 billion. India imported around USD 10.5 billion worth of goods mainly crude oil while exporting about USD 2.4 billion. Major Indian exports included rice, tea, iron and steel, pharmaceuticals, electrical machinery and organic chemicals.
• Oil Trade Dynamics: Before international sanctions intensified, Iran was among India’s largest energy suppliers. In 2018-19 India imported crude oil worth about USD 12.11 billion from Iran. Earlier, during April-June 2018, India was the second largest buyer of Iranian crude after China. Iran was also the second largest crude supplier to India during that period.
• Currency Settlement Mechanism: To address payment challenges arising from international sanctions, the Reserve Bank of India and Iran’s central bank introduced a currency swap arrangement allowing India to pay for Iranian oil using the Indian rupee. This mechanism reduced reliance on US dollar transactions and helped India preserve foreign exchange reserves while maintaining trade flows.
• Energy Cooperation and Investment: Indian companies expressed willingness to invest nearly USD 20 billion in Iran’s oil, gas, petrochemical, and fertilizer sectors. India has also explored the possibility of establishing petrochemical plants and fertilizer units in the Chabahar Special Economic Zone to strengthen long term energy collaboration.
• Farzad-B Gas Field: The Farzad-B gas field in the Persian Gulf was discovered by an Indian consortium led by ONGC Videsh Limited in 2008. Negotiations have continued over its development, and discussions were pursued by Indian officials during visits to Iran. The gas reserves in Farzad-B are believed to be significantly larger than many gas reserves discovered within India.
• Chabahar Port: Chabahar Port in southeastern Iran is located in Iran’s Sistan-Balochistan province on the Gulf of Oman. It is Iran’s only oceanic port with direct access to open seas. In May 2016, India and Iran signed a historic agreement allowing India to develop and operate two terminals and five berths of the port for ten years.
• Chabahar-Zahedan Railway Project: Alongside port development, India committed to provide services and financing support worth about USD 1.6 billion for the Chabahar-Zahedan railway line. This rail corridor is intended to connect the port with Iran’s inland transport network and improve access toward Central Asia and Afghanistan.
• International North-South Transport Corridor (INSTC): India, Iran and Russia signed the INSTC agreement in 2000 to develop a 7,200 kilometre multi-modal transport network combining ship, rail and road routes. The corridor aims to connect Mumbai with cities such as Tehran, Baku, Astrakhan and Moscow. It is expected to reduce cargo transit time from around 40 days to nearly half while lowering transport costs by roughly 30%.
• Ashgabat Agreement: India’s accession to the Ashgabat Agreement strengthened connectivity with Central Asia through a multimodal transport corridor involving Iran, Oman, Kazakhstan, Uzbekistan and Turkmenistan. The agreement facilitates transport of goods between Central Asia and the Persian Gulf region.
• Cultural Exchanges: Cultural centres operate in both countries including an Indian Cultural Centre in Tehran and Iranian cultural institutions in Delhi, Hyderabad and Mumbai. A Hindi language chair was established at Tehran University. Institutions such as the National Archives of India and the National Library and Archives Organisation of Iran have also entered collaborative arrangements to preserve historical documents and research materials relating to shared heritage.
• Counter-Terrorism Cooperation: Both countries face threats from extremist organisations such as Al-Qaeda and the Islamic State. Security cooperation therefore includes dialogue on counter-terrorism strategies and regional stability, particularly regarding developments in Afghanistan and West Asia.

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India-Iran Relations Significance

The India-Iran Relations carries major strategic importance in energy security, regional connectivity, geopolitical balance and economic engagement.

• Iran occupies a crucial geographic position connecting South Asia with the Middle East, Central Asia and the Caucasus region. Through Iran, India can access landlocked Central Asian republics and Eurasian markets. Connectivity projects linking the Indian Ocean to the Caspian Sea allow India to expand trade routes beyond traditional maritime channels.
• Chabahar Port provides India an alternative route to Afghanistan and Central Asia that bypasses Pakistan. Pakistan does not permit Indian goods to transit through its territory to Afghanistan. By using a sea-land corridor through Chabahar, India can transport goods efficiently to Afghan and Central Asian markets.
• The distance between Kandla Port in Gujarat and Chabahar Port is shorter than the distance between Delhi and Mumbai. This geographic proximity provides logistical advantages for trade operations. Reduced transportation costs and faster shipping make Chabahar a strategically valuable trading gateway for India.
• China is developing the Gwadar Port in Pakistan under its broader regional infrastructure strategy. Gwadar lies less than 100 kilometres from Chabahar by sea. India’s presence in Chabahar strengthens its strategic visibility in the Arabian Sea and helps balance Chinese maritime influence in the region.
• The INSTC provides a faster and cheaper trade route linking India with Russia and Europe through Iran and the Caspian region.
• Iran possesses the world’s second largest reserves of natural gas and substantial oil reserves. For India, cooperation with Iran provides an opportunity to diversify energy sources. 
• India has used Iranian crude oil supplies to strengthen its Strategic Petroleum Reserves. Maintaining reserves equivalent to around 90 days of consumption helps India manage supply disruptions and energy security risks during geopolitical crises or market volatility.
• The proposed undersea gas pipeline project connecting Iran to India through the Oman Sea and Indian Ocean is expected to transport approximately 31.5 million standard cubic metres of gas per day.
• India is one of Iran’s major suppliers of basmati rice. Other important exports include tea, pharmaceuticals and agricultural products.
• Both India and Iran have shared concerns regarding extremist groups operating in Afghanistan. Cooperation between the two countries has previously included support for the Northern Alliance during the 1990s. Continued engagement can contribute to regional security and stability in Afghanistan.
• Through projects like INSTC and the Ashgabat Agreement corridor, India can access markets across Eurasia by connecting to cities such as Moscow, Tehran, Baku and Astrakhan.
• India is one of the world’s largest economies with a vast consumer base and demographic advantage. For Iran, economic cooperation with India provides access to a large nearby market for energy exports and investment partnerships.

India-Iran Relations Challenges

Despite strong historical ties, several geopolitical and economic factors continue to create difficulties in the bilateral India-Iran Relations.

• Impact of US Sanctions: The United States withdrew from the Iran nuclear agreement in May 2018 and re-imposed sanctions. These measures forced India to stop importing Iranian crude oil after May 2019. The sanctions significantly disrupted energy trade and affected India’s access to an important supplier.
• Banking and Payment Difficulties: Financial sanctions complicated payment mechanisms between the two countries. Earlier, India used the Asian Clearing Union system for payments, but the Reserve Bank of India discontinued it in 2010 citing lack of transparency. Alternative banking channels also collapsed due to European Union sanctions, creating payment delays.
• Accumulated Trade Debt: Because of payment restrictions, Indian companies accumulated nearly USD 5 billion in unpaid oil bills to Iran during the early 2010s. Negotiations were required to settle these liabilities gradually and restore commercial confidence between the two countries.
• Iran-Pakistan-India Gas Pipeline Issues: The proposed Iran-Pakistan-India pipeline was designed to transport gas from Iran’s South Pars field to both countries with a capacity of about 60 million standard cubic metres per day. India withdrew from the project in 2009 due to concerns about security, pricing and transit through Pakistan.
• Delay in Farzad-B Gas Field Development: Although Indian companies discovered the Farzad-B gas field, Iran has not yet awarded the development rights to ONGC Videsh Limited. Instead, Tehran entered preliminary discussions with Russia’s Gazprom for exploration. This has created uncertainty regarding India’s future participation in the project.
• Chabahar Railway Project Disagreement: Iran decided to proceed independently with the Chabahar-Zahedan railway project due to delays in Indian financing and implementation. This decision temporarily slowed progress in the connectivity initiative linked to the Chabahar port project.
• Regional Geopolitical Rivalries: India maintains strong relations with Gulf countries such as Saudi Arabia and the United Arab Emirates while also engaging with Iran. Rivalry between Iran and Gulf states complicates India’s diplomatic balancing in West Asia, particularly during conflicts affecting shipping routes and energy markets.
• Iran-Israel Dynamics: India enjoys close strategic relations with Israel, whereas Iran has been strongly critical of Israeli policies. Managing relations with both countries requires careful diplomatic balancing to ensure that cooperation with one partner does not adversely affect ties with the other.
• Iran’s Strategic Partnership with China: Iran has strengthened economic and strategic relations with China, including a long term cooperation agreement linked to the Belt and Road Initiative. India has opposed certain aspects of China’s infrastructure initiatives, creating potential competition in regional connectivity projects.
• Statements on Kashmir Issue: Iran’s leadership has occasionally made statements regarding the situation in Jammu and Kashmir, including comments by Supreme Leader Ayatollah Khamenei. Such remarks have been viewed critically by India, which considers Kashmir an internal matter and rejects external commentary.
• Decline in Bilateral Trade Volumes: Due to sanctions and financial restrictions, India’s imports from Iran dropped sharply from about USD 13.53 billion in 2018-19 to roughly USD 1.4 billion in 2019-20. 
• Rupee Reserve Depletion Issue: Iran’s rupee reserves accumulated in Indian banks have reduced significantly, affecting its capacity to import Indian goods such as basmati rice and tea. This issue has highlighted the need for more stable financial arrangements to sustain trade relations.
• Dependence on Global Political Environment: India-Iran Relations are heavily influenced by international politics, particularly sanctions regimes and nuclear negotiations. Changes in the global diplomatic environment often determine the pace and depth of economic engagement between the two countries.