Since Iran signed the nuclear deal with world powers in July 2015, Tehran has seen a flood of foreign visitors. Nine heads of state, 16 foreign ministers and dozens of other senior-level officials from across the world have come looking for diplomatic deals and economic opportunities. Iran is open for business and, as of mid-May, Tehran had secured about $3.5 billions in foreign investment since the nuclear deal, and billions more are in the pipelines.
The Rouhani government views these foreign deals not only in terms of monetary and economic value but also with the aim of reducing Iran’s regional and international political isolation. The May 23 tripartite agreement between Iran, India, and Afghanistan is a prime example of this approach. At the heart of this deal sits two of Iran’s key strengths: it’s role as a geostrategic hub and a global energy powerhouse.
Tapping into its Strength
In the last few months, Asian heads of state have arrived in Tehran on a steady basis. The South Korean president arrived in early May, the first ever state visit to Tehran by a South Korean leader, and a pledge was made to triple annual trade to $18 billion.
In January, Chinese President Xi Jinping signed a number of deal while visiting Tehran, and an agreement was reached to increase trade 10-fold to $600 billion in the next decade.
Among the 12 agreements signed and discussions held between President Hassan Rouhani and Indian Prime Minister Narendra Modi in Tehran earlier this month, two issues stood out. First, India agreed to invest $500 million in Chabahar—Iran’s only deep-water port on the Indian Ocean. The development of the port is expected to provide Iran and India greater access to markets in Afghanistan and the Central Asian states, while circumventing Pakistani territory. The port is today arguably the most geopolitically sensitive project in West Asia, and its successful completion will bridge South and Central Asia with Iran as the lynchpin.
The other key issue discussed during Modi’s visit was India’s push for Iran to agree to let Indian companies operate Farzad-B, a major Iranian gas field that was discovered by an Indian consortium in 2008. Delhi argues that granting Indian firms operating rights will build a tighter strategic partnership between one of the world’s largest energy exporters and one of the world’s biggest energy markets. The Iranian constitution explicitly bans such concessions, but the business-focused Rouhani government is taking the Indian request seriously.
Energy as an Instrument of Power
Since coming to power in August 2013, officials in the Rouhani government have consistently argued that cooperation with neighboring states in the energy sector is a double win for Tehran: it provides immediate revenue in sales of oil and gas, and makes regional customers long-term stakeholders in the Iranian economy. In late 2015, Amir Hossein Zamani-Nia, Iran’s deputy oil minister for international affairs and trade, reiterated that Tehran’s plans to export natural gas to neighboring states, including Turkey, Pakistan, India, Armenia, and Oman, will be a key priority in the short-term. The policy of linking Iran’s energy sector to networks in neighboring states is not new, but the recent emphasis on energy cooperation appears to be heavily politically driven.
Zamani-Nia’s boss, Minister of Petroleum Bijan Zangeneh, was at first skeptical about the regional energy plans of the previous Ahmadinejad government. For instance, after returning to the oil ministry in 2013, Zangeneh threatened to cancel the multi-billion dollar natural gas “peace pipeline” to Pakistan. A fierce critic of Ahmadinejad, Zangeneh mocked the pipeline to Pakistan as an unwise commercial venture at that particular moment, given Islamabad’s inability to pay for the gas. In his first 18 months as oil minister, Zangeneh made little attempt to mark Iran’s neighbors as top-tier priorities and chiefly looked to Europe and East Asian markets.
However, in the last year, Zangeneh has become markedly more vocal about finding synergies with energy consumers in Iran’s immediate region and specifically in the realm of natural gas. India exemplifies such synergies, both as a market and as a country with considerable technical know-how in the energy sector.
Political Factors
Politically, the problem that Zangeneh and the Rouhani government will face as they move forward with major regional projects is one of mandate. In the last decade, the Islamic Revolution Guards Corps (I.R.G.C.), chief rival to the Rouhani government, has assumed the bulk of Iran’s operational foreign policy in key regional states.
This lack of policy control is likely the reason why the oil ministry under Zangeneh has deprioritized Iraq. Plans for gas pipelines to Iraq, which had been designed during the Ahmadinejad government, are to deliver exports to the holy Shiite city of Najaf and to Sadr City in Baghdad, two locations where Iranian political influence under the auspices of the I.R.G.C. is greatest. The Iranian gas is undoubtedly designed to generate goodwill among the Iraqi population, but the commercial rationale behind these plans is still in question at the oil ministry. And yet, Zangeneh has not picked up a fight with the I.R.G.C. over this issue. As is the case with the President Rouhani, Zangeneh picks his fights carefully and will direct his energy elsewhere, where his mandate to take action is less contentious.
As was clear during Modi’s visit, the Rouhani government’s call for more economic and energy cooperation with regional partners is therefore a two-pronged test. It involves the immediate goal of injecting more life into the Iranian economy as well as building political ties with key states, such as India, in order to prevent the kind of isolation that Iran experienced between 2006-2015 over its nuclear program.
At home, Rouhani and Zangeneh point to an immediate need to catch up with other energy exporters in terms of access to market share and technology. They point out, for example, that Iran has some 28 shared oil and gas fields with its neighbors and that, if Tehran does not act in a timely manner to attract investment, it will lose in an escalated race for production and market share. This point was on vivid display as Modi left Tehran for Doha—home to the world’s third-largest gas reserves after Iran and Russia—to hear counter-offers from the Qataris.
Given such realities, steady regional economic integration—case in point being the development of Chabahar—will remain a top priority for the Rouhani administration. Foreign Minister Javad Zarif has openly called for making Western companies stakeholders in the Iranian economy as a way of creating political influence in Western capitals. If there is space in Iranian economic planning for companies from former Western foes, then surely the likes of India should be able to get a foot in the door as Tehran moves to revive its economic fortunes.
