Chabahar Port: Significance of deal and its challenges for India

In a significant strategic development, India, and Iran inked the Chabhar Port deal in May this year. Th deal which allows New Delhi to operate the strategically important port in Tehran holds great strategic importance for India, as it will provide Indian goods with a gateway to reach landlocked Afghanistan and Central Asia, bypassing Pakistan and playing a bigger role in the region.

In this Blog, we will try to understand how the project has progressed over the years, what opportunities and challenges it presents and why India attaches so much importance to this project.

How 1948 Nakba of Palestinians continues to cast shadow in today’s conflict

The Basics of the Deal

‘Chabahar’ means ‘four springs’ in Persian. The Chabahar Port is located in Iran’s Sistan-Balochistan province on the energy-rich Iran’s southern coast, just about 550 nautical miles from Kandla port in Gujarat. This India-Iran flagship project serves as an important transit port for trade with Afghanistan and other landlocked Central Asian countries.

The project is also a key maritime node in the International North-South Transport Corridor (INSTC). This 7,200 km-long multimodal connectivity project connects India to Europe through the Caucasus, Iran, Russia and Central Asia and is projected to reduce transit time between India and Europe by 40% and transit costs by 30%.

Notably, the Chabahar project comprises two ports — the Shahid Beheshti and Shahid Kalantari, but India’s investment is only in the Shahid Beheshti one.

The 10-year deal has been signed between the Indian Ports Global Limited (IPGL) of India and Iran’s Port & Maritime Organisation (PMO). It replaces an initial 2016 pact, which was signed following Prime Minster Narendra Modi’s visit to Iran back then. Notably, Chabahar is also the first overseas port an Indian company is managing, making it all the more important.

“The long-term bilateral contract on Chabahar Port Operation was signed between Indian Ports Global Limited (IPGL) of India and the Port & Maritime Organisation (PMO) of Iran, enabling operation of Shahid-Beheshti in Chabahar Port Development Project for a period of 10 years,” the joint statement by India and Iran read. “This agreement aims to enhance regional connectivity and facilitate trade, particularly between India, Iran and Afghanistan.”

Under this, the government of India will develop the Shahid Beheshti Port at Chabahar by equipping and operating the General Cargo and Container Terminal for a period of 10 years, to make it a viable transit route. At the end of the contract period, both sides would further extend their cooperation in Chabahar.

IPGL will invest around USD 120 million in equipping the port. India has also offered an in-credit window equivalent to USD 250 million, for mutually identified projects aimed at improving Chabahar-related infrastructure. India has allocated a total of Rs 400 cr from 2016-17 to 2023-24, but only Rs 201.51 cr has been utilised so far for the development of Shahid Beheshti Port of Chabahar is Rs. 201.51 cr, according to the Ministry of Ports, Shipping and Waterways.

Drishti IAS Coaching in Delhi, Online IAS Test Series & Study Material

A roadmap describing the connectivity between India and Iran (Photo: Drishti IAS)

Timeline of Events

The first time India offered to develop the Chabahr Port, was in 2003, just a year after New Delhi’s two arch enemies, Pakistan and China signed the million-dollar deal to develop Gwadar Port. However, the deal entered a formal agreement only in 2015, following which the construction commenced a year later after Mr Modi visited Tehran, where he pledged an investment of USD 500 million.

In a further development, an MoU signed between India, Iran and Afghanistan paved the way to build a trilateral transit and transport corridor among the three nations and use Chabahar as a regional hub.

Now, it is pertinent to note that all these developments were short-term in nature. The latest agreement is the first long-term agreement in the direction. Reportedly, Iran was not in favour of an international arbitration framework earlier, but the issues have been ironed out now.

India is already operating the Chabahar port under the existing limited-scope agreement. Last year, India used the port to send 20,000 tonnes of wheat as aid to Afghanistan. In 2021, it was used to supply Iran with environmentally friendly pesticides. This is the first time India will take over the full-scale management of an overseas port, which is expected to further boost its trade with Iran and Afghanistan.

India signs 10-year deal with Iran to manage Chabahar port - India Today

Visuals from signing ceremony of the Chabahar Port agreement (Photo: India Today)

US ‘concerns’ and Sanction Risks

Hours after India and Iran announced the signing of the Chabahar Port deal, the United States, which has no issues in facilitating Israel’s assault in Gaza, was quick to come up with its ‘concerns’ with the deal, and went on to warn of “potential risk of sanctions.”

“As it relates to the United States, US sanctions on Iran remain in place and we’ll continue to enforce them,” US State Department Deputy Spokesperson Vedant Patel told reporters in response to a question on Chabahar port.

“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,” he added.

But, the story of US sanctions and India-Iran relations is not new. Earlier, the US administration had put sanctions on purchasing oil from Iran, following which India was compelled to cut back its oil purchases from the Islamic Republic.

However, the story has been different with the Chabahar Port deal. In 2018, the US had exempted India from certain sanctions for developing the Chabahar port and constructing a railway line connecting it with Afghanistan. The decision under the Trump administration, was reportedly because Chabahar port was considered to be of strategic importance for the development of Afghanistan. The US State Department said that this “narrow exception” is being given to allow a limited number of activities that support the reconstruction and development of Afghanistan, a “key US national security interest” (At that time, US troops were still stationed in Afghanistan).

Following this, Iran, the European Union, and the five permanent members of the United Nations Security Council plus Germany (P5+1) signed the Joint Comprehensive Plan of Action (JCPOA), which imposed a control and monitoring regime on Iran’s uranium enrichment levels to prevent the weaponisation of its nuclear programme. This resulted in the lifting of some of the sanctions from Iran. However, the relief was short-term, as the Trump administration 2018 ceased US participation in the JCPOA and reimposed all US sanctions. Following this, the relations between Washington and Tehran deteriorated further.

Finally, as the US troops ended their presence in Afghanistan in 2021, the region was no longer a priority for them. The same US, which wanted to develop the area to facilitate its interests in Afghanistan, now has no stakes there and is no longer interested in Chabahar. It again shows, how the US thinks that it is compulsory to take its approval and suit its interests, only then can any agreement be carried out. Irrespective of how much the global order changes, Washington isn’t giving up its ‘sense of entitlement’ anytime soon.

Visual of the Chabahar Port in Iran, located in the geo-strategic position (Photo: Daily Pioneer)

The China Factor

Now, we have been saying that this deal holds high strategic importance for New Delhi; a part of the reason is China. Beijing, through its String of Pearls— a network of military and commercial facilities along the Indian Ocean to encircle India — is trying to encircle India. The major facets of China’s plan are its facilities in Chittagong (Bangladesh), Karachi and Gwadar (Pakistan), Colombo and Hambantota (Sri Lanka), and Kyaukphyu (Myanmar).

The Chabahar Port agreement is seen as India’s counter to this ‘String of Pearls.’ Earlier, we also saw New Delhi weighing for the India-Middle East-Europe Economic Corridor (IMEC) which is being projected as a counter to Beijing’s Belt and Road Initiative (BRI), which has been accused of debt-trapping poor countries and encroaching on their sovereignty. The Chabahar deal is like a bulwark against rival China’s dealings with Pakistan.

However, all that glitters is not gold. As India weighs on its relationship with Iran, it should be wary of the fact that Tehran also enjoys a very healthy relationship with Beijing. Recently, Iran and China kick-started a 25-year development plan in 2022, the first step of which was the opening of the Chinese consulate in Bandar Abbas, a region which handles 85% of Iran’s sea-borne trade.

Last year, Iran and Saudi Arabia — two arch-rivals (Shia and Sunni nations respectively) restored diplomatic relations in a deal brokered by China. This was a huge development in the Middle East and showed Beijing’s clout and influence in the region. Even in the ongoing conflict in the Middle East, China has repeatedly reaffirmed its support for Iran. So, as India lays hopes on its relationship with Iran, it also needs to be vary of the upside and Tehran’s closeness with Beijing.

Narges Mohammadi and her fight against Islamist tyranny

The Future of Chabahar Deal and Importance

So, now here we stand. Though the signing of the Chabahar deal is a landmark decision, India has to manoeuvre the right balance between the West and Iran, to get the project on track. The experts believe the US won’t impose any full-blown sanctions on India for such a petty issue. But, yes, New Delhi needs a calibrated approach to perfectly navigate this challenge. It will have to use its geopolitical and diplomatic prowess to convince the US that the project is actually for the region’s greater good.

There is one more angle to it, that fewer people are talking about. Iran is a pathetic regime, which is known for exporting terrorism in the Middle East through its proxies and even directly at times. It suppresses its own people all so badly; it executes critics, represses women and whatnot. It is important to note that India has hardly criticised Iran’s actions at home, or even of exporting terrorism abroad. Even when Iran and Israel fired missiles at each other recently, India only said “it is concerned with the escalating situation in the region” and there was no criticism. During similar attacks between Iran and Pakistan, India appeared to have sided with the former.

So, one can ask, for what compulsion, are we maintaining such good ties with a tyrannical regime like Iran. The answer is national interest. In the world of geopolitics and diplomacy, there is nothing called a good country or a bad country, what matters is maintaining and strengthening ties with anyone, that serves your purpose and helps us in maintaining your national interest. So, whether one likes it or not (I certainly don’t) India will be looking to prospering its ties with Iran.

As we conclude, I would also commend the pro-active and really ‘active’ approach of the Narendra Modi government in diplomacy. As I said, the seeds of the Chabahar deal were laid back in 2003, but then the project took a back seat. It was again, only, under the BJP government, that the deal actually came on track. Similarly, the IMEC project is another visionary idea, which can play a crucial role in the region, though its prospects are currently marred by the ongoing conflict in the Middle East. So, as India tries to play a bigger role in global structure, Chabahar presents it with an opportunity, that it needs to handle carefully.