Chabahar Port – Boost to Indian & Afghan Trade?
The Chabahar Port Deal between India & Iran and the Trilateral Land Transit-and-Trade Corridor Deal between India, Afghanistan & Iran signed on 23 May 2016 brought a huge sigh of relief to the afghan traders associations. As per inputs from Afghanistan, the general feeling is that by being part of the Trilateral Deal, Afghanistan Government has rescued the traders from Pakistan pressure by reducing their dependence on Pakistan for trade towards South Asia. In fact, in the words of Afghanistan CEO, Abdullah Abdullah “dependence on a single transit terminal is a weak point for Afghanistan”[i] while the Iranian Ambassador to India Shaida Abdali also echoed “This is a very, very crucial agreement for Afghanistan. The opening of this corridor will help us reach our potential, give us a new trade route. This is a completely new chapter”[ii].
Significance of Chabahar Port
Chabahar Port, being located in Chabahar City of Iran on the Coast of the Gulf of Oman is a deep sea water port, hence, its further development will cover the inadequacies of Bandar Abbas Port of Iran and provide competition to Gwadar Port (72 Km to its East). Its multimodal transportation capability (sea, air & land) coupled with the planned railway line makes it a strong link between the Central Asian States, Afghanistan & other northern countries with South Asia as part of the International North-South Transport Corridor (INSTC) while providing India an upward link bypassing Pakistan & China.
Chabahar Port Deal & Trilateral Agreement[iii]
India will develop two terminals & five berths and reconstruct the long container handling facility as well as operate the terminals & berths for ten years through India Ports Global. India is investing $ 500 Mn in Phase-1 including extension of a $ 150 Mn credit line to Iran’s Maritime & Ports Organisation for Chabahar Port. India is also setting up a 0.5 ton Aluminum Smelter in Chabahar through NALCO.
India will support the construction of rail link between Chabahar & Zahedan (Iran) by supplying $ 400 Mn worth of steel & help in financing the construction through IRCON International of India (approx $ 1.6 Bn).
Iran will connect the existing road network in Iran to Zaranj (Iran – Afghan border) giving full road connectivity from Chabahar to Garland Highway of Afghanistan via Zahedan – Zaranj – Delaram thus giving access to major cities of Herat, Kandahar, Kabul & Mazar-e-Sharif in Afghanistan.
Afghanistan traders have been allotted 50 hectares of land in Chabahar Free Trade Zone by Iran (130 Afghan trading companies have already been registered) .
Capacity of Chabahar is likely to increase to 8 Mn tons from existing 2.5 Mn tons.
Effect on Indian Trade
The route through Chabahar Port will reduce the transit cost by up to 30% for Indian traders. A dry run conducted in 2014 by Freight Foundation Association from Mumbai to Astrakhan (Russia) had confirmed the same[iv]. Trade to and from Afghanistan should see a threefold jump and allow for indian trading interests in Afghanistan to be safeguarded including the iron from Hajigak Mines. In addition it will allow India cheaper access to its natural resources, tropical fruits, insect resins, grapes, dried fruits & nuts, spice seeds, perfume plants, precious & semi-precious stones etc from Afghanistan as well as natural resources from the Central Asian Countries. India will also be able to increase its exports to Afghanistan including items like synthetic fabrics, packaged medicaments, sugar, cement, rubber tyres, processed tobacco, iron structures, wheat, tea, eggs etc. For other countries too it will give an alternate route thus creating a counter to China – Pakistan dominated CPEC.
Effect on Afghanistan Trade
Afghanistan is presently stuck with its dependence on Pakistan Transit routes and usage of Gwadar & Karachi ports to have sea access. The insecurity of Pakistan routes, vulnerability of political relations with Pakistan and the instrumentisation of commodity trade by Pakistan has prompted Afghanistan to jump across towards Iran as it needs alternatives.
They are reeling under the monopoly of Pakistan on their trade with the south-bound trucks not being allowed to bring back Indian goods, the fruit products sometimes putrefying while lying in the Pakistani ports or being sold at very low prices. Even their carpets are reportedly being exported ahead with Pakistani seals !![v] Pakistan has also recently increased custom tariffs on fruit products causing further agony[vi].
The Chabahar option also reduces time & distance thus making it a more economically efficient route to the deep seas (each container is likely to cost between $ 500-1000 lesser than Karachi Port[vii].The route also gives Afghanistan a more politically sustainable connectivity southwards including with India.
Apparently, currently, Afghanistan exports Pakistan products which are sent without maintaining international standards [viii]. Competition with Indian goods being received through Iran will definitely give a qualitative increase to them too.
In any case Afghanistan views India as its most attractive market for its carpets, vegetables, fresh & dry fruits as well as precious & semi-precious stones thus a cheaper & easier alternative route would be helpful to them. It is appreciated that the India-Afghanistan trade could jump to $ 3 Bn (from present $ 600 Mn) within the next few years based on the Chabahar route[ix]. To complement the same, President Ghani is looking at setting up a SEZ also on the Iranian border [x].
The increase in Indo-Afghan trade will definitely hurt Pakistan which could suffer up to $ 2 Bn loss per year. The same could fuel further attacks on the trade route within Afghanistan by the Taliban specially on Indians while major disruptions on the trade flow could become the norm. It would become imperative, thus, for the Afghanistan Government to put in place adequate security measures. In fact, this is the first thing that the Mahmood Tarzi Think Tank in Afghanistan pointed out when the Chabahar Deal was finalized[xi].
Frequent Pakistan-Iran standoffs on the border could become a cause for concern with the proximity to both the road & rail routes from Chabahar to Afghanistan.
Finally, a future re-instatement of sanctions on Iran could cause a death knell to all the efforts being put in and lay waste the huge investments.
[i] Afghanistan Times, 08 Jan 2016.
[ii] Devirupa Mitra, With Chabahar Text Finalised, India’s Dream of a Road to Afghanistan Gathers Speed, The Wire, 13 April 2016.