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EFSAS Commentary

India’s 10-year deal to develop Iran’s Chabahar port has both commercial and strategic significance


India and Iran last week signed a 10-year operational contract for India to develop the Shahid Behesti terminal at the Chabahar port. Conceived more than two decades ago, this project faced delays as it was mired in complex geopolitical challenges. Now, with the operationalization of this long-term investment, Chabahar has the potential to become an important hub to connect India with the landlocked countries of Central Asia and Afghanistan. Hence, the project is important for India not only in the context of China’s Belt and Road Initiative (BRI), but it offers manifold trade and strategic alternatives for accessing markets and regions in Asia and Africa. It is also expected to significantly enhance the global supply chain and save on time and transit costs.

Describing the signing, Vinod Rai a Distinguished Visiting Research Fellow at the Institute of South Asian Studies (ISAS), an autonomous research institute in the National University of Singapore (NUS), wrote, “India and Iran signed a 10-year contract on 13 May 2024 for the operation of the Shahid Behesti terminal at the strategically important Chabahar port in Iran. Chabahar is a deep water port in Iran’s Sistan-Baluchistan province. It is the Iranian port closest to India and is located in the open sea, providing easy and secure access for large cargo ships. Situated on the Gulf of Oman and initially proposed for development by New Delhi in 2003, it will serve as a crucial gateway for Indian goods to access landlocked Afghanistan and Central Asia… India Ports Global Limited (IPGL), the agency to implement the project, will invest approximately US$120 million (S$162 million) to equip and operate the port for the duration of the contract. India has also offered a credit window in rupees equivalent to US$250 million (S$337.5 million) for mutually identified projects to improve infrastructure related to the port”.

Elaborating on the chequered history of the project, Rai pointed out that “The New Delhi Declaration, signed in 2003 by then Iran President Muhammad Khatami and then Indian Prime Minister Atal Bihari Vajpayee, recognised that the countries’ growing strategic convergence needed to be underpinned by a strong economic relationship. For India, Chabahar held immense strategic and economic significance, as it provided a route to reach Afghanistan — land access to which had been blocked by a hostile Pakistan. The project, however, could not make much headway since India had begun to have close links with the George Bush administration in the United States (US)”, which “had discouraged the development of any strategic relationship between Iran and India… It was finally in April 2015 that India’s Prime Minister Narendra Modi and Afghanistan’s President Ashraf Ghani sought to work closely to make the port project a reality and to develop it as a viable gateway to Afghanistan and Central Asia. It was agreed that routes additional to the existing ones will provide a major impetus to Afghanistan’s economic reconstruction efforts”.

Rai recalled that “the project faced headwinds yet again with the Donald Trump administration taking a strident view against Iran. Nevertheless, with deft diplomatic negotiations, India managed to get a waiver from the US administration for the project, citing the strategic importance of the project as access to Afghanistan. The Indian cause was assisted by the fact that the Chinese government was actively pursuing the Belt and Road Initiative. After this diplomatic breakthrough, India set up harbour cranes and other port handling facilities to operationalise the port. Since December 2018, IPGL has handled more than 90,000 20-foot-equivalent units of container traffic and more than 8.4 million metric tonnes of bulk and general cargo since then”.

Speaking in Tehran after signing the contract, India’s Shipping Minister Sarbananda Sonowal underscored that “Chabahar Port’s significance transcends its role as a mere conduit between India and Iran; it serves as a vital trade artery connecting India with Afghanistan and Central Asian Countries. This linkage has unlocked new avenues for trade and fortified supply chain resilience across the region”. India’s External Affairs Minister S. Jaishankar said that the deal “will clear the pathway for bigger investments to be made in the port”. Iranian Urban Development Minister Mehrdad Bazrpash said “We are pleased with this agreement, and we have full trust in India”.

In an article for the New Delhi based think tank the Observer Research Foundation (ORF), Ayjaz Wani highlighted the regional push for the project and wrote that “New Delhi’s regional connectivity with Eurasia and Central Asia received a strategic boost in 2020 following a trilateral working group initiated by Uzbekistan with Iran and India for greater convergence on the Chabahar, INSTC (International North-South Transport Corridor) and Ashgabat Agreement of 2016. Similarly, during the first India-Central Asia Summit in 2022, presidents of five Central Asian countries stressed on adding the strategic Chabahar Port in the INSTC to facilitate more trade and commerce between the two geographies. Taking it forward in April 2023, India, Iran and Central Asia formed a joint working group (JWP) on the working of Chabahar Port to boost private sector participation. Given the apprehensions of the hegemonic nature of the BRI, the Central Asian countries and India have always stressed upholding the sovereignty and territorial integrity of participating nations”.

Explaining the geo-economic and geostrategic rationale of the project, Wani noted that “India currently stands as the world's fastest-developing economy and is set to become a US$ 5-trillion economy over the next two years. To maintain its growth momentum and make India the central global manufacturing hub by 2030, New Delhi needs to develop resilient, reliable and diversified supply chains and connectivity to transit across Eurasia to maintain its growth momentum. By 2030, India will have the potential to export more than US$ 1 trillion, which will require new robust linkages of connectivity with Greater Eurasia for sustained economic growth and prosperity. The Chabahar Port and its development will boost trade between India and Central Asia with a bilateral trade potential of more than US$ 200 billion”. Wani felt that Indian investors and shippers had thus far been reluctant to invest in the Chabahar port as India mainly used short-term agreements for port operations. However, signing the 10-year deal with Iran was expected to boost investor confidence.

Elaborating upon the strategic significance of the signing, Rai pointed out that “Positioned as a hub for transit trade between India, Iran and Afghanistan, the port offers an alternative route to the traditional Silk Road through China. With its strategic location near the Strait of Hormuz and the Indian Ocean, the port provides a vantage point across various regions such as West Asia, Indian Ocean and Africa”. He added, “The port provides a strategic alternative that can bypass China and Pakistan’s Gwadar Port. It will reduce transit time and significantly reduce freight costs. It will also enhance India’s role in the supply chain and provide an alternative entry point for humanitarian aid. The operationalising of this transit line will hugely strengthen India’s energy security by providing multiple options for trade routes. The benefits will accrue not only to India but to all other countries committed to a free trade and strategic environment”.

Rai was of the view that the commercial and strategic potential of the development of the port would be fully realized when it was integrated with the larger connectivity project of the INSTC, which is a multi-modal transportation project initiated by Russia, India and Iran, and is envisaged to link the Indian Ocean and the Persian Gulf to the Caspian Sea via Iran, and onward to northern Europe via Saint Petersburg in Russia. The INSTC envisages the movement of goods from Mumbai to Bandar Abbas in Iran by sea; from Bandar Abbas to Bandar-e-Anzali, an Iranian port on the Caspian Sea, by road; from Bandar-e-Anzali to Astrakhan, a Caspian port in Russia, by ship across the Caspian Sea; and onward to other parts of Russia and Europe by rail. The immediate prospects of the INSTC, however, do not seem bright given the international outlook towards both Iran and Russia.

S. Jaishankar had earlier said that the signing of a long-term agreement on Chabahar would clear the pathway for bigger investments to be made in the port by India. He had also emphasized the importance of linking the port to the INSTC, saying that, “It will see more connectivity linkages coming out of that port. We believe connectivity is a big issue in that part. International North-South Transport Corridor we are doing with Iran, Russia and Chabahar will connect us to that, also to central Asia”.

Soon after the signing of the port contract, US State Department Deputy Spokesperson Vedant Patel, when asked about it, responded that US sanctions on Iran were still in place and that Washington would continue to enforce them. He added, “Any entity, anyone considering business deals with Iran – they need to be aware of the potential risks that they are opening themselves up to and the potential risk of sanctions”. The US has imposed more than 600 sanctions on Iran-related entities over the past three years. Washington’s ties with Iran have further worsened due to Tehran’s support for Hamas since the Israel-Hamas war erupted last October.

US sanctions on Iran have affected the pace and scope of India’s ambitions in, and through, Chabahar. As Manoj Joshi, Distinguished Fellow at the ORF, noted, “Chabahar has long-term potential. But due to US sanctions on Iran, it has not turned out to be the gamechanger that India had hoped because private Indian companies have been and will be reluctant to use the port. There has been no real sharp rise in India’s trade with Central Asia”. However, he noted that Indian stakes in Chabahar also have strategic significance. Joshi stressed that “Where India is concerned, good ties with Iran are a pushback against Pakistan, which has a land blockade where India is concerned”. Chabahar is also seen as a counter to China’s development of the Gwadar port in Pakistan. Located close to Iran’s southeastern border with Pakistan, the deep water Chabahar port is less than 100 kilometers from Gwadar.

Responding to the US State Department’s remarks, Jaishankar stressed to reporters on 14 May that the Chabahar port project would actually benefit the region. He said, “I think it’s a question of communicating, convincing and getting people to understand that this is actually for everyone’s benefit. I don’t think people should take a narrow view of it”. The Minister added that in the past too, the US had been “appreciative of the fact that Chabahar has a larger relevance”. Pointing out that a long-term agreement with Iran was necessary to improve the port’s operations, he added, “And the port operation, we believe, will benefit the entire region”.

Experts do not anticipate sweeping US sanctions against India over the Chabahar deal.  They point out that since the end of the Cold War, India and the US have strengthened relations significantly, and today count each other as among the closest of strategic partners. Even though India officially does not recognise any sanctions imposed on nations unless they have been approved by the United Nations (UN), it has played along, for the most part, with US-led sanctions against Iran. As Gulshan Sachdeva of New Delhi’s Jawaharlal Nehru University (JNU) explained to Al Jazeera, “Sanctioning the Indian economy on such a minor issue is highly unlikely”.

For India, taking its Chabahar port ambition ahead has been a challenging and labored exercise due to the adverse sentiment of the US and the volatile situation in the region, but New Delhi’s persistence with its efforts has been in recognition of the immense geopolitical security and trade benefits that the project, once completed, can be expected to provide.