In a historic move with far-reaching geopolitical implications, India recently signed a landmark deal with Iran, to operate the strategic port of Chabahar.
On 13 May, Delhi and Tehran inked a 10-year agreement that allows India to develop and operate Chabahar – Iran’s only oceanic port – and a vital transit hub for trade with landlocked Afghanistan and Central Asian countries.
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Chabahar is geo-strategically unique for India – it is the only Iranian port having direct access to the Indian Ocean and lies close to Afghanistan, Pakistan,as well as India.It is 650and 936 nautical miles away from India’s Kandla and Mumbai portsrespectively, and well connected to resource-rich Central Asia through the Chabahar-Zahedan railway (scheduled to open in 2025) and the India-built Delaram-Zaranj highway.
It opens up new opportunities and markets for India’s exports and energy supply chains, while countering China’s growing influence in the region.Yet, the deal also comes with its own set of challenges.
Geopolitical significance
In addition to connecting India directly to Afghanistan and Central Asia, Chabahar is also geopolitically unique in countering China’s belt and road initiative (BRI) in the region.
China has invested heavily in Pakistan’s Gwadar port, which lies barely 170km east of Chabahar. Gwadar has been a key BRI project for China.
Beijing acquired control of Gwadar port in 2013 for a duration of 43 years. Construction of the port had already started in 2001, lasting 72 months and costing a total of $248 million.Plans are on to extend the port further with additional cargo capacity, a floating LNG (liquefied natural gas) terminal, a desalination plant, and a special economic zone – costing an additional investment of $1.62 billion.
Gwadar is also significant in China’s plans to strengthen its military foothold in the region. Therefore, China views India’s Chabahar development as a direct challenge and is likely to respond by intensifying investments and strategic partnerships in Pakistan and beyond.
For India, Chabahar port is also a strategic alternative to Western-dominated trade routes. It can empower not just India but also Global South countries to pursue more independent economic policies. Enhanced connectivity through Chabahar is expected to spur regional cooperation, economic growth, and attract foreign investments.
Geographically, Chabahar’s unique location gives India easy access to Afghanistan, Central Asia, and Europe.
In Persian, Chabahar means ‘four springs’. It is a deep-water port in Iran’s Sistan Baluchistan province and is located in the open sea, providing an easy and secure access for large cargo ships. In fact, it was described as an “entry point to the subcontinent” by 10th century Iranian scholar Al Baruni, being close to the Gulf of Oman as well as the Strait of Hormuz, which is an important shipping route linking West Asia to Asia, Europe and North America.
Economic impact
Chabahar’s unique geographical location is intricately connected to the economic benefits it will bring to India.
Pakistan has denied India overland trading rights withAfghanistan through its territory by restrictingthe movement of Indian goods to Afghanistan. The Af-Pak Trade andTransit Agreement allows Afghan trucks to carry cargo to Pakistani portsbut the trucks are not allowed to transport Indian goods through Pakistanto Afghanistan.
Therefore, Chabahar’s development is expected to reducecosts by almost one-third and increase the potential transaction value of tradebetween India, Afghanistan and Central Asia.
India’s current bilateral trade with Afghanistanis $1.5 billion (2019-20) and this is expected to rise substantially with the Chabahar port deal.
New Delhi is set to invest about $120 million in equipping Iran’s Chabahar port and has also offered Tehran a credit window of $250 million with the aim of improving project-related infrastructure, taking the total contract value to $370 million.
The landmark deal replaces a 2016 pact that was being renewed on an annual basis.In fact, Prime Minister Narendra Modi’s visit to Iran and hispledge to invest $500 million to develop the Chabahar port actually added momentum to the deal.
In 2018, the Shahid Beheshti terminal of the port became operational following an investment of $25 million by India.In fact, India had sent its first wheat shipment via Chabahar to Afghanistan in 2017.
In 2018, the India Ports Global Limited (IPGL) assumed control of the Chabahar Port through its fully owned subsidiary, India Ports Global Chabahar Free Zone (IPGCFZ).
Since then, Chabahar Port has not only handled over 8.4 million metric tonnes of bulk and general cargo and over 90,000 TEUs (twenty-foot equivalent units) of container traffic but has also been a lifeline in times of crisis.
During the COVID-19 pandemic, the port facilitated the transhipment of 2,000 tonnes of pulses and 2.5 million tonnes of wheat from India to Afghanistan, providing essential food supplies. This humanitarian role, particularly in times of crisis, also underscores the port’s significance beyond its commercial success.
According to trade experts,the Chabahar port will now allow India to reduce its trading shipment cost and time by as much as 50%.
Chabahar is also part of the multimodal transport route – the International North-South Transport Corridor (INSTC), which is proposed to link the Indian Ocean and Persian Gulf to the Caspian Sea via Iran and to northern Europe via Saint Petersburg.
According to industry estimates, shipments through the INSTC route will take 15 days less compared to the Suez Canal route.
From Chabahar, there is a road which goes up to Zaranj in Afghanistan. This more than 200-km road built with India’s support, will give access to four major cities – Herat, Kandahar, Kabul, and Mazar-e-Sharif.
Once fully operational, it will also be an easier way to connect to Turkmenistan and Kazakhstan.
Risk of US sanctions
Within hours of the India-Iran deal announcement, the United States warned India of possible sanctions.
“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,” warned Vedant Patel, Spokesperson of the US State Department.
US, a crucial ally of India, has hostile ties with Iran, and has already imposed more than 600 sanctions against Iran-related entities in the last three years.
But India has urged the US not to take a “narrow view” of the situation. “This is actually for everyone’s benefit. I don’t think people should take a narrow view of it,” Foreign Minister S Jaishankar said at a recent event in Kolkata.
India could be downplaying tensions with the US with New Delhi keen to “communicate the benefits” of the port deal to Washington. But India’s growing ties with Iran at this point in time could become contentious. Tehran’s support to Palestine in the Israel-Gaza conflict has invited even more US sanctions, and this could put New Delhi in a tight spot.
Another issue is that of the Taliban government in power in Afghanistan. In 2016, when the initial pact was signed, the US did consider Chabahar’s larger relevance but at that time, Afghanistan had a friendly government under President Ashraf Ghani and the Chabahar pact was seen as a way to help the war-torn nation reach the world outside.
Now with the Taliban ruling over Kabul – the government is not recognized by the US –Washington could be re-evaluating whether to allow India to continue routine operations at Chabahar for the next 10 years.
This would also deter other countries interested in using the port as the threat of American sanctions could loom over them as well.
In a nutshell, India has to convey to Americans that if India is not present in this port, then they would be risking the Iranian government’s stronger gravitation toward China.
Playing the China card
The US has been sticky of China’s growing influence in West Asia. The Iranian regime heavily relies on China as its primary oil customer. And despite being only the 38th trading partner for China, Iranian authorities are often said to give big concessions to China – the latest being possible permissions to Beijing to even build housing units in Tehran.
Therefore, India can definitely play the China card in convincing US to waive off Chabahar deal from sanctions.
India’s access to Iran is of good utility to the US. Analysts believe that the Americans would rather have the Indians in Chabahar than have the Chinese come in and become the main operator of Chabahar, which would be a geopolitical loss for Washington.
Washington also wants New Delhi to compete with Chinese economic activities in the Central Asian countries, which port of Chabahar is supposed to service.
For the US administration, the bigger geopolitical prize would be to keep China from dominating ports in Iran, and to help India compete with China in Central Asia.
India-Iran ties in spotlight
India-Iran ties have taken a hit amid decreased energy tradeand India’s growing ties with Israel and Saudi Arabia. In that regard, the Chabahar deal serves as a well-timed confidence building measure for India and Iran.
The two countries have also surveyed the possibilities of settling trade transactions in rupee-rial orthrough a barter system. There has also been a long-standing demand of Iran to establish a banking mechanism with India.
With the recent death of Iran President Ebrahim Raisi, who played a crucial role in sealing the Chabahar port deal, the two countries are keen to continue the status quo in bilateral ties.
Bilateral trade ties between the two nations had improved after Raisi was elected President in 2021. In 2022-23, Iran was India’s 59th biggest trading partner, with bilateral trade reaching $2.33 billion.
According to a report, India’s trade with Iran increased by 21.77%- from $1.94 billion in 2021-22 to $2.33 billion in 2022-23.
The Chabahar port project is crucial to India-Iran ties. Despite US sanctions on Iran, India has managed to operate Chabahar through ad hoc measures. Balancing its interests between Iran and the US, India would be able to maintain the project’s momentum.
The Chabahar port is a landmark deal in India-Iran ties and represents a strategic and economic milestone.
It also seals the long history of relations between the two countries not just from an economic perspective, but also on political, historical, and cultural planes.