Strategic Continuity: Why India Holds Steady on Chabahar

Image Source: Wikipedia

“Consistent with [the US President Donald] Trump’s maximum pressure policy to isolate the Iranian regime, [the United States] has revoked the sanctions exception issued in 2018 under the Iran Freedom and Counter-Proliferation Act (IFCA) for Afghanistan reconstruction assistance and economic development, effective September 29, 2025.” This announcement by the United States (US) Department of State has expectedly sparked a storm of reactions among the Indian media outlets and experts, further adding to previous steps taken by the Trump administration that have harmed Indian economic interests. While the waiver withdrawal is undoubtedly unpleasant, it is premature to claim that this move is “a strategic blow to India”. In fact, the situation surrounding Chabahar is unlikely to change significantly, with or without an exemption.

Situated on the northern coast of the Gulf of Oman with direct access to the Arabian Sea, the port is outside the Strait of Hormuz chokepoint, making navigation easier for vessels.

The Port and its Specifics

There are two terminals in Chabahar: Shahid Kalantari and Shahid Beheshti. The former is an old port with limited waterfront and a draft of 7-8 meters to accommodate feeder vessels. The latter is a deep draft port (16.5 meters draft, suitable for large-capacity vessels) developed in four phases and possessing geographical advantages. Situated on the northern coast of the Gulf of Oman with direct access to the Arabian Sea, the port is outside the Strait of Hormuz chokepoint, making navigation easier for vessels. Unlike the congested port of Bandar Abbas, ships are not subject to long waiting times at Chabahar. Also, Chabahar is part of a free economic zone, which simplifies customs and taxation procedures.

As the first phase has been completed, the capacity of the Shahid Beheshti Terminal is around 8 million tonnes, with plans to expand it further to 18 million tonnes during the second phase. Since 2018, the port has handled over 450 vessels and more than 134 thousand TEUs (twenty-foot equivalent units) of containerised cargo, as well as over 8.7 million tonnes of bulk and general cargo. Container handling has seen a significant uptick during FY2023-24, with 60,059 TEUs transhipped compared to 9,126 TEUs in FY2022-23. With 9,973 TEUs handled in the first two months of FY2025-26, signalling a 10 percent increase year-on-year, container operations at the port are expected to grow further. At the same time, the bulk cargo traffic has not shown similar progression, fluctuating around 2-2,5 million tonnes over the past three years. 

The Duality of Exception 

India signed a Memorandum of Understanding (MoU) with Iran on Chabahar in May 2015, which was followed by a trilateral agreement with Iran and Afghanistan a year later. At that time, India-Iran trade was booming, as Tehran had received a considerable sanctions relief in exchange for strict limitations on its nuclear programme as part of the Joint Comprehensive Plan of Action (JCPOA). However, things changed drastically in 2018, following the first Trump administration’s shift to a maximum pressure policy on Iran. This included the US pulling out of the JCPOA, reimposing sanctions and placing an embargo on Iranian oil imports, all of which had implications for other countries trading with Iran. This move hit Indian interests hard, forcing New Delhi, after a cooling-off period, to bring its imports of Iranian oil down to zero.

Although well-intentioned, the waiver was somewhat half-hearted, lacked sufficient documentary evidence, and failed to facilitate the port development and its connectivity to the railway network.

The upside for India was that the US recognised the Chabahar’s vital role in the reconstruction of Afghanistan. Following intense diplomacy and “extensive consideration”, Washington granted “an exception” from the IFCA “with respect to the development of Chabahar Port and the construction of an associated railway [as well as] for the shipment of non-sanctionable goods through the port for Afghanistan’s use.” Although well-intentioned, the waiver was somewhat half-hearted, lacked sufficient documentary evidence, and failed to facilitate the port development and its connectivity to the railway network. According to former Indian officials,^[1] the document provided by the US was merely a letter complimenting the Indian government and describing Chabahar Port’s importance for the Afghan reconstruction. Without a formal general licence from the Office of Foreign Assets Control (OFAC), this letter has never been accepted by banks or foreign vendors as proof of exemption from sanctions.

The lack of clarity on the waiver left considerable room for overcompliance, making it impossible to do business as usual with Chabahar-related projects and hindering the procurement of port equipment. For example, India was unable to source Ship-to-Shore (STS) cranes, which are essential for loading and unloading containers, and therefore had to proceed with Mobile Harbour Cranes (MHC). While MHCs are more flexible in terms of cargo handling, they are less suitable for large-scale container operations. Even the delivery of MHCs has been a drawn-out process, with India being forced to have the cranes offloaded in Mumbai by the original foreign manufacturer before sending them on to Chabahar via a small shipping company insulated from sanctions.

Regardless of the waiver, India had to be meticulous with sanctions. Firstly, only authorised items were sent through the Shahid Beheshti terminal, including humanitarian supplies, wheat, maize, pharmaceuticals, and medical equipment, mainly destined for Afghanistan. Secondly, Indian-flagged vessels avoided calling at Iranian ports, including Chabahar, since trade operations were predominantly conducted with ships under open registry state flags.

Potential Developments

The US decision to revoke the exemption for Chabahar comes at a time when port activity has begun to pick up. In May 2024, India Ports Global Limited signed a decade-long contract with Iran’s Ports and Maritime Organisation to equip and operate the Shahid Beheshti Terminal. As part of the agreement, India committed to granting US$120 million to cover the cost of equipment, as well as providing a US$250 million credit line in rupee equivalent for port development. The update of the status does not bode well for the port development. However, it is unlikely to spell the demise of Shahid Beheshti’s terminal.

As shipping via Chabahar is the only viable way to avoid relying on Pakistan for trade with Eurasia, India will be eager to retain its control over the port, regardless of the sanctions threat.

India has invested significant effort in advancing the project and has achieved positive momentum despite the challenges it encountered. Beyond a lifeline to Afghanistan, the port has always been part of a broader goal of connecting India with Central Asia. Although this does not fully align with the scope of the US waiver, Chabahar has been perceived in Central Asian states, such as Uzbekistan and Turkmenistan, as a gateway to the Indian Ocean. The Chabahar working group within the India-Central Asia dialogue and the India-Iran-Uzbekistan trilateral are cases in point, demonstrating a growing focus on utilising the port for India’s trade with the region.

Second, abandoning the project will cede regional space for external actors, such as China. As shipping via Chabahar is the only viable way to avoid relying on Pakistan for trade with Eurasia, India will be eager to retain its control over the port, regardless of the sanctions threat. In a sense, as engagement with Iran has always been prone to risks for Indian stakeholders, termination of the waiver does not pose any new challenges. Banks, shippers, and insurers from outside the ‘close circle’ of those already engaging in economic activities with Iran will remain reluctant to get involved in any operations, compelling India to devise out-of-the-box solutions.

When the sanctions become functional, Chabahar operations, which have consistently evaded widespread public scrutiny, may further shift into a grey zone. India may even be tempted to take a leaf out of Russia’s playbook by closing off official statistics and information about tenders and procurements. However, beyond sharing its experience with getting around sanctions, Russia is not in a position to assist India with the Chabahar development. Russian companies are unable to supply the required equipment, such as STS or MHC cranes, as the Russian largest ports themselves rely on European and Chinese technologies.

The upcoming completion of railway connectivity to Chabahar presents an opportunity to integrate it with the INSTC eastern branch, thereby smoothing cargo flow.

Politically, Moscow has backed India’s proposal to connect Chabahar with key nodes of the International North South Transport Corridor (INSTC). The port, however, has not yet been formally integrated into the INSTC framework, and supplies along its routes have mainly gone through Bandar Abbas. Additionally, Russia’s investments in Iran have been focused on railway modernisation, including the construction of the Astara-Resht rail link and the envisaged development of a new broad-gauge railway corridor from Astara to Bandar Abbas, intended to avoid unnecessary transhipment. These plans effectively exclude Chabahar from Russia’s designs for the INSTC.

India appears capable of advancing independently, prioritising the acquisition of port equipment. If the port increases its throughput capacity and is marketed properly, businesses will find ways to incorporate it into their supply routes. The upcoming completion of railway connectivity to Chabahar presents an opportunity to integrate it with the INSTC eastern branch, thereby smoothing cargo flow.

While there is often a gap between geostrategic compulsions and business realities on the ground, in Chabahar’s case, India’s choice is clear. New Delhi will not back off from the project, as, beyond a strategic dimension, it is a vital node for India’s economic outreach to Eurasia. Between engaging with a sanctioned Iran or a non-sanctioned Pakistan, India is likely to choose the former.

Aleksei Zakharov is a Fellow – Russia & Eurasia with the Strategic Studies Programme at Observer Research Foundation (ORF). 

^[1] Author’s expert interview with an Indian official, March 2023.

• International Affairs
• India
• USA and Canada
• Chabahar port
• chabahar port development
• chabahar port iran
• india iran relations
• international north south transport corridor

The views expressed above belong to the author(s). ORF research and analyses now available on Telegram! Click here to access our curated content — blogs, longforms and interviews.

PREV NEXT