Earlier this week, India and Iran signed a 10-year development and operation contract for Chabahar Port in southeastern Iran, on the Gulf of Oman. Under the bilateral contract, signed between India Ports Global Ltd (IPGL) and Ports and Maritime Organisation (PMO) of Iran, IPGL will invest $120 mn in developing Chabahar Port's Shahid Beheshti Port Terminal, and MEA will further extend a $250 mn credit line to bolster infrastructure connectivity around Chabahar and augment its role as a regional connectivity hub.
The landmark agreement replaces the 2016 operation agreement that was renewed annually. The new contract is aimed at strategically augmenting and diversifying value chains for India and Iran. The Iranian port is not only a flagship project of the India-Iran bilateral but also a key maritime node in the International North-South Transport Corridor (INSTC), a 7,200 km-long multimodal connectivity project that connects India to Europe through the Caucasus, Iran, Russia and Central Asia.
INSTC is projected to reduce transit time between India and Europe by 40% and transit costs by 30%. It has gained renewed significance in the wake of the evolving Red Sea crisis.
In his 2016 state visit to Tehran, Narendra Modi announced investments worth $500 mn for equipping and operating the Shahid Beheshti terminal.
India-Iran cooperation in developing Chabahar Port dates back to 2003. But talks formalised after 2015, when the US lifted sanctions against Iran. This enabled India to push investments into the strategically important port. Subsequently, in his 2016 state visit to Tehran, Narendra Modi announced investments worth $500 mn for equipping and operating the Shahid Beheshti terminal.
Modi's visit culminated in an annual operation contract between India and Iran to operationalise Shahid Beheshti. It was agreed that IPGL will equip and begin operating the terminal in 2019. Since then, Chabahar Port has handled 90,000 TEUs (twenty-foot equivalent units) of container traffic and more than 8.4 MMT (million metric tonnes) of bulk and general cargo.
Chabahar is also geostrategically unique for India. It is 885-odd km and 1,265-odd km from Kandla and Mumbai ports, respectively. It's also a critical maritime node on the INSTC's eastern route. It's also well connected to resource-rich Central Asia and Afghanistan through the Chabahar-Zahedan railway (scheduled to open in 2025) and the India-built Delaram-Zaranj highway, thus opening up new markets for India's exports and energy import destinations for diversifying its energy supply chains.
Also, this agreement counters China's Belt and Road Initiative (BRI) in the Indian Ocean region. Developing Chabahar Port reduces India's dependence on Pakistan's Gwadar ($1.2 bn) and Karachi ($3.5 bn) ports in the long term. Gwadar is managed by China Overseas Ports Holding Company (COPHC), and both Gwadar and Karachi have received total Chinese investments worth $4.7 bn between 2016 and 2023 as part of BRI's Maritime Silk Road (MSR) strategy in the region.
India hasn't imported heavy Iran crude since 2018, and couldn't circumvent sanctions to financially assist construction of the Chabahar-Zahedan railway in 2020.
Currently, Chinese state-owned companies manage seven ports in South Asia, and 17 ports in the Indian Ocean region. Investing in strategic ports like Chabahar can result in efficient diversification of supply chains, essential in an increasingly turbulent geopolitical environment.
Yet, investing in Chabahar comes with its challenges. US sanctions have slowed development in the region over the years. India hasn't imported heavy Iran crude since 2018, and couldn't circumvent sanctions to financially assist construction of the Chabahar-Zahedan railway in 2020. Energy trade was the bedrock of India-Iran relations for decades, and resulted in a temporary slump in bilateral relations.
In 2018, Chabahar Port development was exempted from sanctions, thanks to Indian lobbying and US interest in Chabahar's instrumentality for Afghanistan. However, after the deal was signed on Monday, the US State Department reiterated that countries deepening economic cooperation with Iran open themselves to future economic sanctions, even as it respects India's independent foreign policy and relations with Tehran.
The State Department also emphasised the uncompromising nature of its Iran economic sanctions policy, and that the India-Iran port deal was not exempt from the scope of sanctions. Given Iran's role in the West Asian crisis, Washington has hardened its stance on economic sanctions.
India's ability to successfully execute this agreement showcases New Delhi's continuing ability to manoeuvre in a geopolitically fragmented world. Chabahar is also the first overseas port an Indian company is managing, making it all the more important. The Chabahar engagement presents a strategic opportunity for India to gain a foothold in a geostrategically unique maritime node, even as US sanctions pose a risk that will have to be navigated.
This commentary originally appeared in The Economic Times.
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