India’s trade could be boosted by joining the Eurasian Economic Union — but US sanctions on Iran may hamper progress

India’s entry to the Eurasian Economic Union (EAEU), spurred by Russia, could help expand South Asia-Eurasia trade, but there’s a potential glitch. The US would need to allow a waiver for New Delhi to transship goods through Iran.

With talks ongoing about a possible India-EAEU free trade agreement (FTA), Moscow has also been pushing for New Delhi to join the EAEU — currently consisting of Russia, Armenia, Belarus, Kazakhstan, and Kyrgyzstan.

Such a move could open new trade opportunities between the South Asian and Eurasian regions via the International North-South Transport Corridor (INSTC) — a 7,200km ship, rail and road trade network that cuts across Central Asia, beginning in Iran and ending in the southern Russian city of Astrakhan.

Yet, fresh US sanctions on Iran could stand in the way — unless Washington is willing to grant New Delhi a waiver to work with Tehran.

India - Iran: A new route to Afghanistan

Initiated in 2002, the INSCT project is a trilateral effort of Russia, Iran and India. New Delhi had sought to connect the INSCT to its strategic project at Port Chabahar in Iran in order to build a strategic transit route bypassing its neighbour and arch-rival Pakistan. Keen also to promote an alternative route to Afghanistan, the US afforded India a waiver from US sanctions on Iran — and in a landmark moment, India shipped its first consignment of wheat from Port Kandla in west India to Afghanistan via Chabahar in 2017.

However, the sanctions imposed after the killing of top Iranian General Qassem Soleimani by the US in January could change everything. 

US President Donald Trump signed an executive order introducing the new punitive measures after Tehran retaliated against the assassination of its general by firing missiles at bases used by the US military in Iraq. The measures were aimed against individuals or entities operating in the construction, manufacturing, textiles, or mining sectors of the Iranian economy — or indeed anyone assisting those who engage in sanctioned business.

Impact of new sanctions

The latest sanctions could certainly have an adverse impact on India’s trade — and not just in terms of its investments in Chahbahar, but also its opportunities for trade with Central Asia and Russia. Access to the EAEU countries through the INSCT route could offer India companies producing goods like tea, canned vegetables, fruit, rice, spice, herbs coffee, generic medicines and other consumables access to a massive market of more than 173 million.

The EAEU has also signed FTAs with Serbia and Singapore and is currently working on improving trade ties with the Association of Southeast Asian Nations (ASEAN), which means the US sanctions could even impact those states.

Another waiver for India?

The US has been keen to promote strategic partnerships with Indian in the Indo-Pacific region to counter rapidly-growing Chinese influence. To that end, it has so far been lenient when it comes to India’s ‘transgressions’ regarding US sanctions.

For instance, it has seemingly overlooked New Delhi’s decision to go ahead with the procurement of Russia’s S-400 surface-to-air missile systems, which some expected might earn the wrath of Washington and invite new sanctions 'to punish' both Russia and India.

Meanwhile, Turkey – a NATO ally – which also procured the S-400 systems from Russia – faced punitive actions from the Trump administration resulting in the cancellation of the the delivery of around 100 fifth-generation F-35 Lightning II fighter aircraft from the US.

So far, it’s unclear whether India will manage to extract further concessions from Washington to continue to do business with Iran over the INSCT, improving connectivity with Afghanistan and allowing it to make inroads into the EAEU markets — but the question will likely figure prominently in upcoming discussions between Indian Prime Minister Narendra Modi and Trump when he visits New Delhi later this month.

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