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The High Costs of India’s INSTC Ambitions

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The High Costs of India’s INSTC Ambitions

The country risks being pulled into the middle of ongoing tensions between the West and Israel on the one hand and Iran on the other. 

The High Costs of India’s INSTC Ambitions

On April 20, the first trilateral political consultations between the Ministries of Foreign Affairs of the Republic of Armenia, the Islamic Republic of Iran and the Republic of India were held in Yerevan.

Credit: Ministry of Foreign Affairs, Armenia

Last week, officials from Iran, India, and Armenia met for the first trilateral meeting between the countries. Although formally the meeting was a discussion of possible avenues of economic cooperation, such a summit comes with greater context. In early March, while the Armenian foreign minister was visiting India, a delegation of senior officials from the country emphasized Armenia’s importance in helping complete the International North-South Transportation Corridor (INSTC), a project India has been developing for almost a quarter century to more closely link itself to the markets of Europe. Although India has been pursuing this avenue of potential cooperation for several years now, this dialogue represents a new step in India’s pursuit of this relationship.

However, India’s interests here cannot be merely restricted to the strengthening of economic ties between the three countries. With the route of any Iran-Armenia transport connection crossing the Zanzegur corridor in the far south of Armenia, a subject of dispute between Azerbaijan, Turkey, and Armenia in the ongoing siege of Nagorno-Karabakh, India has not been shy in supporting Armenia with limited arms imports. India’s plans for the completion of the INSTC in fact hinge on such support. Without a robust defense of Armenia’s borders in the face of increasingly stiff outside pressure, India would likely have to complete the INSTC with the help of Pakistan-allied Azerbaijan. Even if India could swallow that bitter pill, it is not entirely clear that its partner Iran could. Thus, for India, the current orientation of its policy in the South Caucasus is relatively inflexible.

Left in this position, India’s pursuit of the INSTC forces them into an economic and security relationship with the other trilateral participants, Armenia and Iran. Although the INSTC may be an important goal for New Delhi, the question arises as to whether the rigid means by which India may accomplish this objective are really worth the costs associated with them.

European Markets

Naming aside, the INSTC is not merely a transportation link, but the integration of the manufacturing base of the region. This is hardly a facet of the INSTC that India ignores, either. In the construction of the Chabahar port in the Sistan-Baluchistan province of southeastern Iran, a key link in the project, India has developed manufacturing facilities right alongside the extensive multimodal transport facilities there.

For Iran, there is no expectation that India will merely use the country for transshipment. The Foreign Ministry in Iran has been careful to pursue the development of manufacturing relationships between the two countries. Although these particular projects are largely oriented toward the Indian Ocean, and not European markets, the overall aim of the initiative is to link the manufacturing base of India, and by extension Iran, to that of Europe. The INSTC, therefore, implies the exchange of goods between Europe and Iran, a fact that requires a relatively liberal trade regime.

Given the ongoing Western sanctions on Iran related to the protests there last year, as well as Iran’s further enrichment of uranium, India’s vision for integrating the two countries’ manufacturing industries with European markets is limited at best. It is possible that India could decide to repurpose the corridor to instead link it to Russia, providing a sanctions-proof means of reaching global markets, but this seems unlikely. India’s evasion of Western sanctions since the onset of the Ukraine invasion has been routinely condemned by both Brussels and Washington. Considering that this comes at a time when New Delhi is negotiating a trade agreement with the former and cooperating with the latter to contain China, deepening trade partnerships with Moscow could irreparably harm India’s relations with both.

All of this is to point out that for the INSTC to be successfully realized, India needs the EU to be relatively sanguine about removing Iranian sanctions, an outcome that currently looks unlikely.

U.S. Security Concerns

Even if India were able to persuade European leaders to remove Iranian sanctions, the existing SWIFT sanctions, which limit Iran’s access to dollar-denominated markets, would still be a major barrier to trade. The SWIFT sanctions on Iran were quite significant, amounting to nearly $60.4 billion, or more than 16 percent of Iran’s annual GDP. With these sanctions still in place, Iran’s ability to contribute constructively to the manufacturing supply chain along the INSTC would be severely dampened.

Even with the removal of EU restrictions on Iran, this would do little to counteract the effect of the sanctions, as the trade frictions would be too costly. Unfortunately, these sanctions are not the exclusive purview of EU leaders, but require the additional assent of the United States. That is to say, for the INSTC to actually accomplish its objective, it would need Washington’s support.

To that end, India would have to address concerns on both sides of the aisle in the United States that Iran’s regional ambitions, as much a justification for the current sanctions regime as its nuclear program, do not pose a threat. Although earlier attempts have been made by the Biden administration to revive the Iran nuclear deal, which might eliminate the SWIFT sanctions, the White House has since walked back these efforts. In light of the earlier strikes on a U.S. base in Syria, as well as the declining popularity of the nuclear deal, the prospect of Washington reversing its position on Iranian sanctions appears to be an unlikely outcome. Without such support, the successful implementation of India’s INSTC is again questionable.

Israel’s Iran Strategy

Presuming that India could secure the necessary prerequisites for the INSTC’s success by persuading Western regimes to remove sanctions on Iran, India’s Armenian policy would still be challenged by a potent regional power: Israel.

Israel has a vital interest in preserving its relationship with Azerbaijan, especially as a means of undermining Iran. This long-standing diplomatic and military relationship with the regime in Baku poses a direct threat to the continued stability of neighboring Armenia – stability that, as noted previously, is crucial to the completion of the existing INSTC. Should Israel feel isolated by some hypothetical detente between the West and Iran, it is likely that its impetus to undermine a regime in Tehran that opposes Israel’s very existence would be even stronger.

Given how important Azerbaijan’s interests are to Israel’s Iran strategy, a divergence of the interests of Israel and India in the South Caucasus would have further diplomatic impacts. Outside of the direct threat that an isolated Israel could pose to the INSTC, India’s relationship with Israel is hardly one that it can afford to cast aside. The arms trade between the two countries has amounted to over $2.4 billion over the last seven years, helping India develop new defense relationships away from an isolated Russia. The increasing business and diplomatic ties between the two countries, especially through the new I2U2 grouping, could give India an important set of allies in the Middle East at a time when China is expanding its influence in the region. Jeopardizing this important source of cooperation in the name of the INSTC, a project that faces many roadblocks, does not seem to be a cost commensurate with the likely benefits of India’s policies.


India’s policies in the South Caucasus threaten to place New Delhi both directly and indirectly in the middle of the ongoing tensions between the West and Israel alliance on the one hand and Iran on the other. Putting aside the technical difficulties of actually completing the INSTC link through Armenia, the diplomatic gauntlet that New Delhi would have to maneuver to realize the project fully are incredibly high.

This is not to say that the entire policy within the South Caucasus needs to be scrapped, as India has been able to capitalize on the discontent in Yerevan with its previous security partner, Russia. Rather, it is to say that absent a policy absolutely committed to the realization of the INSTC, New Delhi’s policies going forward in the region do not have to be as confined as they have been over the last several years.