India opens the door to Central Asia with ten-year Iran port deal

Chabahar on the Gulf of Oman is India's first overseas port. It has the handy benefit of bypassing Pakistan, which is currently a key Chinese trade hub. But will New Delhi now be hit by US sanctions?

Chabahar Port in a photo dated October 27, 2021.
Chabahar Port in a photo dated October 27, 2021.

India opens the door to Central Asia with ten-year Iran port deal

A ten-year deal signed last week between India and Iran for an Indian operator to run a key Iranian port along the Gulf of Oman has raised both eyebrows and hackles. It has also sent waves through the geopolitical pond.

The $370mn deal between Indian Ports Global Ltd (IPGL) and the Port & Maritime Organisation of Iran was heralded by Indian Prime Minister Narendra Modi and covers the Shahid Beheshti Terminal at the strategic Iranian port of Chabahar.

In Tehran for the ceremony, India’s Shipping Minister Sarbananda Sonowal said the 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 Asia”.

IPGL has been handling millions of tonnes of cargo at Chahabar for the Iranians since 2018, so on a practical level little will change, given the already-deep connection. India even organised a ‘Chabahar Day’ in Mumbai in March 2021.

India’s Foreign Minister Subrahmanyam Jaishankar said the country was currently running the terminal on an ad hoc basis but that the long-term arrangement would facilitate “bigger investments to be made in the port”.

Under the agreement, IPGL will equip and manage the port's general cargo and container terminals, invest $120mn in equipment, and make a further $250mn available for financing. Six mobile harbour cranes have already been supplied.

Rival trade routes

For the Indians, the deal will help them raise their global profile by accessing Central Asia and the resources of this landlocked region while fulfilling the strategic aim of bypassing big Pakistani port alternatives at Karachi and Gwadar.

India’s long-held ambition is for better transport and trade links with countries west of Pakistan, so the Chabahar deal goes beyond commercial considerations. Indian officials stress its “long-term” nature, with options for renewing after ten years.

The contract is emblematic of the warming relations and deepening ties between New Delhi and Tehran. It is also symbolic of an alternative trade route to the one favoured by China through Pakistan.

Chabahar is 1,450km southeast of Tehran, near Iran’s border with Pakistan. The huge Pakistani port of Gwadar on the Arabian Sea is only about 140km away, and it is a major hub in the China-Pakistan Economic Corridor (CPEC).

China wants to use Gwadar to access markets in the Middle East, Africa, and Europe and already exports a high volume of goods through the port.

India, by contrast, sees Chabahar as a component of the International North-South Transport Corridor (INSTC), a multi-modal network of rail, roads, and sea routes from Russia to India via Iran.

Threat of sanctions

The sanctions imposed on Iran by countries led by the United States will have been a factor for the Indians, whose construction firms, port operators, engineers, and banks involved in the Chabahar project may be affected.

A spokesman for the US State Department said: “Any entity, anyone considering business deals with Iran, they need to be aware of the potential risk that they are opening themselves up to and the potential risk of sanctions.”

Aware of the geopolitical sensitivity, negotiations were handled at the highest level of the Indian government, including the Ministry of External Affairs.

Chabahar is India's first overseas port, but ministers in New Delhi say the country "aims to replicate the Chabahar model in other strategic locations.

In 2018, the US exempted India from certain sanctions to allow the development of Chabahar, including a railway line connecting it with Afghanistan.

But the US's political calculus has changed since it pulled out of Afghanistan in August 2020, with knock-on effects for Washington's view of New Delhi's efforts to deepen its connectivity with Central Asia.

Washington has had plenty of time to get used to India's friendliness with Iran after Modi's visit to Tehran in May 2016 led IPGL to sign a contract with the Iranian maritime services firm Arya Banader to build two five-berth terminals at Chabahar.

A year earlier, there was an agreement to build two huge cargo and container terminals, while in Tehran in 2016, officials from Iran, India and the Afghan government of Ashraf Ghani had met to discuss cooperation on trade routes.

India and Iran first began discussions on developing the port at Chabahar, in Iran's Sistan-Baluchistan province, in 2003.

Breaking new ground

Chabahar is India's first overseas port, but ministers in New Delhi say the country "aims to replicate the Chabahar model in other strategic locations."

Analysts agree that it could serve as a precedent for future schemes. More broadly, it is likely to have a major influence on regional transport projects, both current and future.

Although significant cargo volumes have already been achieved, the port's significance for India is arguably more political, as it "opens up" access to Central Asia. India makes a lot of its "rich civilisational and cultural" links with this region.

Developing trade with Afghanistan, now ruled by the Taliban, is another Indian priority, with 2.5 million tonnes of wheat and 2,000 tonnes of pulses having already been shipped from India to Afghanistan through Chabahar.

India also sees the Chabahar projects as "complementing" the India-Middle East-Europe Economic Corridor proposed by New Delhi last year. This involves several big European states, such as Saudi Arabia, the United Arab Emirates, and Israel.

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