Iran Makes a Play in South Asia - Foreign Policy

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South Asia Brief: Iran Makes a Play in South Asia

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Welcome to Foreign Policy ’s South Asia Brief.

The highlights this week: Iranian President Ebrahim Raisi visits Pakistan and Sri Lanka, India’s national election enters its third week with a couple new developments, and the International Monetary Fund approves a final tranche of funding for Pakistan.

Iranian President Ebrahim Raisi spent much of last week in South Asia. He visited Pakistan from Monday through Wednesday before traveling on to Sri Lanka for a one-day trip —the first to the country by an Iranian leader since 2008.

Both visits were important to the host countries. Pakistan and Sri Lanka have each faced some of the region’s worst economic stress in recent years, and each hopes to benefit from cooperation with Iran. Security was also a critical agenda point for Islamabad, which is keen to work with Iran on their shared border, where the two countries exchanged cross-border strikes in January.

Meanwhile, Raisi’s trip offered Iran an opportunity to show the world that it remains diplomatically active despite ongoing instability in the Middle East. This recent diplomacy also reflects a notable geopolitical trend: Like fellow U.S. rivals China and Russia, Iran is deepening engagements in South Asia. But Tehran is more often using its forays in the region to push an anti-Western and anti-Israel agenda.

China’s activities in South Asia are well known. Fueled in great part by infrastructure investments and vaccine diplomacy as well as soft power tools , Beijing has made a major impression in the region. In addition to its long-standing friendship with India, Russia is a key energy investor in Bangladesh and potentially in Nepal . It has also increased diplomatic and military engagement with Bangladesh, and last year, it began supplying oil to Pakistan.

Iran’s footprint in the region isn’t as deep, but that may be changing. In a call with Bangladeshi Prime Minister Sheikh Hasina last April, Raisi expressed an interest in expanding trade with Dhaka. A few months later, the Maldives reestablished formal ties with Iran after a seven-year gap. Raisi’s visits last week—which produced a pledge with Pakistan to finalize a free trade agreement and included the inauguration of an Iran-backed hydropower project in Sri Lanka—showcase successful Iranian outreach.

India-Iran relations have lapsed a bit due to reduced Indian energy imports from Iran and more recently the current Middle East crisis, which has seen India back Israel in its war with Hamas and face major threats from Iran-sponsored attacks on commercial ships in the Red Sea. However, that didn’t stop Indian External Affairs Minister S. Jaishankar from traveling to Tehran in January to discuss how to expand cooperation.

Two recent geopolitical events could further bolster Iran’s prospects in South Asia. Last year’s Saudi-Iranian rapprochement deal should give South Asian capitals more diplomatic space to engage with Tehran. And Iran’s growing ties with China, thanks to a 2021 strategic agreement , create opportunities for partnership in a region where Beijing is the most powerful outside actor.

However, while China and Russia have mostly refrained from criticizing U.S. policies in South Asia, with some exceptions , Iran has so far taken a different tack. Tehran has used its engagement with South Asian capitals to lash out at the West and its allies. In Sri Lanka, Raisi declared that Israel should be brought to justice for its actions in the Palestinian territories and excoriated the West for its “colonialism and arrogance.”

In Pakistan, Raisi went a step further, threatening to destroy Israel if it launched another attack on Iran. Such rhetoric isn’t new: During last year’s call with Hasina, before the Israel-Hamas war, he lambasted Israeli aggression. But this approach could backfire. It could play well in South Asia’s Muslim-majority countries, but not necessarily elsewhere—including Sri Lanka, which enjoys friendly ties with Israel and also seeks good relations with the West.

Iran’s investments and other assistance in South Asia are relatively modest, meaning that it lacks the leverage to get states in the region to tolerate its strident anti-West rhetoric. Tehran may have more success navigating its ties to South Asia by keeping the focus on bilateral relations rather than its global agenda.

India election update. India has completed voting for the first two phases of its national elections, which began on April 19. Five additional phases will occur over the next month, with final results expected on June 4. A few developments hint at some possible hiccups for Indian Prime Minister Narendra Modi, whose Bharatiya Janata Party (BJP) is widely expected to win.

Turnout in the first two phases was lower than during the 2019 election, with 65 and 64 percent of voters showing up this year for each phase, respectively, compared to 69 and 70 percent in 2019. Many Indian political analysts attribute this to a serious heat wave, but the opposition could point to it reflecting unhappiness or apathy with Modi’s policies. Additionally, recent economic data highlights persistently high inflation—significantly higher than the national average—across a few Indian states during the current fiscal year.

None of these issues is likely to stop a BJP victory, but they give a weak opposition opportunities to exploit and serve as a reminder that the BJP’s goal of a supermajority may not be easy to pull off.

IMF signs off on funds for Pakistan . On Monday, the International Monetary Fund’s (IMF) executive board approved the disbursement of $1.1 billion to Pakistan, the last tranche of a package finalized last year. This development, along with recent modest increases in Pakistan’s foreign reserves and declining inflation, point to some stabilization for one of South Asia’s worst-performing economies in the past few years.

However, Pakistan’s economy remains weak and stressed, which will likely compel Islamabad to pursue another financing agreement—and the IMF has repeatedly signaled its concerns about the lack of structural economic reforms in the country. It could condition a new deal on tangible proof that Pakistan is making headway with these changes, from increasing the tax base to privatizing debt-ridden public companies.

In Pakistan, economic reform can be politically damaging, because it entails austerity and risks upsetting vested interests that benefit from the status quo. The current government, which a sizable portion of the public rejects, has some incentive to hold back. But economic necessity and the powerful military’s support for a reform agenda give Islamabad reasons to push ahead.

India implicated in U.S. assassination plot . A Washington Post report this week revealed new details about a foiled plot to assassinate a Sikh separatist in New York, first made public last year in an unsealed U.S. indictment . The Post reporting points to India’s direct involvement, naming for the first time an Indian intelligence official believed to have orchestrated the alleged plot. It also claims that India’s then-intelligence chief, Samant Goel, knew about the plan.

If the plot was executed by rogue intelligence officers not acting on formal orders, it seems that India would be prepared to conduct a credible investigation. But direct Indian government involvement would lower the chances of such a probe—and the Post report indicates that U.S. officials have not been happy with the progress of New Delhi’s inquiry so far.

The first episode of Shark Tank Bangladesh aired last Friday. The popular show has spawned more than two dozen different versions around the world, including in India, Nepal, and Sri Lanka.

Bangladesh’s pilot featured entrepreneurs pitching organic food, skincare products, and environmentally friendly wood, among others. The show’s judges made their biggest investment in the skincare product. Whether Shark Tank actually helps contestants’ long-term business prospects is up for debate, but the show comes at a fortuitous time for Bangladesh, which has enjoyed ample economic growth for years but recently showed signs of a slowdown .

Its start-up industry, while promising, struggles from problems with access to capital. Shark Tank Bangladesh may have the potential to at least deliver a short-term shot in the arm.

In the Print , academic Rajesh Rajagopalan argues that India’s regional policy should focus less on Pakistan and more on challenges tied to relations with its other neighbors in South Asia. “India suffers the critical weakness that afflicts all regional powers: they are much stronger than their neighbours, but not strong enough to force the smaller states to defer to them,” he writes.

A Dawn editorial praises Pakistan’s central bank for not reducing the country’s main interest rate, despite pressure from the business community. “Rather than succumbing to temptation or pressure for monetary easing, the bank has acted prudently to keep real rates significantly positive until domestic and global inflationary risks completely subside,” it argues.

Journalist Dasho Kinley Dorji highlights the success of a recent international conference in Bhutan focused on tiger conservation in Kuensel . “When politicians, bankers, sustainability specialists, multilateral and bilateral agencies, and activists strike a [chord], there is a convincing ring that things will work,” he writes.

Michael Kugelman is the writer of Foreign Policy ’s weekly South Asia Brief and a senior fellow for South Asia at the Atlantic Council. An analyst of the region for nearly two decades, he previously directed the South Asia Institute at the Wilson Center. X: @michaelkugelman

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