India signed long pending Deal with Iran on Iranian Port of Chabahar Despite US Sanctions
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Issue Net Edition | Date : 23 May , 2024

India and Iran on May 14 signed a ten year long pending Agreement to operate the strategic Iranian port of Chabahar that will help both the countries to expand trade with Central Asia. India’s operation of Chabahar port will serve as a vital hub for humanitarian aid, trade agreements, and regional connectivity, benefiting landlocked nations and enhancing economic prospects in the region. India and Iran have projected the port as a key hub for the 7,200-km-long International North South Transport Corridor (INSTC) for moving freight between India, Iran, Afghanistan, Armenia, Azerbaijan, Russia, Central Asia and Eastern Europe, bypassing Pakistan.

Chabahar Port is strategically located in the Gulf of Oman, providing India with direct sea access to Afghanistan, Central Asia, and beyond using the INSTC. This bypasses Pakistan, which has historically been a barrier to India’s trade with these regions thereby reducing transportation costs and time. The port serves as a crucial node in India’s efforts to enhance regional connectivity and economic integration, particularly through initiatives like the INSTC, which seeks to link India, Iran, Afghanistan, and Central Asia.

For India, the Chabahar Port deal represents a strategic counterbalance to China’s growing influence in the region, particularly its investment in the Gwadar Port in Pakistan. It provides India with a foothold in the region and strengthens its geopolitical position. Enhanced connectivity through Chabahar Port can contribute to the  development of Afghanistan by facilitating the flow of humanitarian aid, construction materials, and facilitate trade. This is particularly crucial in the context of India’s interest in a stable Afghanistan.

Chabahar Port offers an alternative route to India for accessing energy resources in the region, reducing its dependence on traditional routes that pass through volatile regions like the Strait of Hormuz. The Chabahar Port deal signifies the deepening of economic and diplomatic ties between India and Iran. Beyond its maritime significance, Chabahar Port is part of a larger project that includes road and rail connectivity, further enhancing its importance as a multi-modal transportation hub.

Iran inaugurated the Chabahar Port way back in 1973. Thirty years later, India expressed its initial interest in developing the port to bolster connectivity and trade with Afghanistan and Central Asia. This interest materialised in 2008 when India and Iran signed a memorandum of understanding for Chabahar and the development of a transit corridor. However, US sanctions on Iran delayed the decision making. Later, India acquired a waiver from the US for use of Chabahar Port for accessing Afghanistan. New Delhi has been insisting Iran to agree to a long-term pact enabling India to manage the port and invest additional financial resources.

A pact on Chahbahar was signed in 2016 during Modi’s visit to Iran. A tripartite agreement was also signed in 2016 between India-Afghanistan-Iran on the port. In 2018, when Hassan Rouhani, the then Iran president, visited India, the issue of expanding India’s role at the port figured prominently. It also came up during the visit of Foreign Minister S Jaishankar’s visit to Tehran in January 2024

India took over the operations of the Chabahar Port with effect from 24  December 2018. Since then, it has handled traffic of more than 90,000 twenty foot equivalent units (TEUs) of container traffic and more than 8.4 MMT of bulk and general cargo. The port has also facilitated the supply of humanitarian assistance, especially during the Covid-19 pandemic.

Till date, a total of 2.5 million tonnes of wheat and 2,000 tonnes of pulses have been trans-shipped from India to Afghanistan through Chabahar Port. In 2021, India supplied 40,000 litres of environment friendly pesticide (Malathion) to Iran to fight locust menace. There are plans by India to develop an SEZ at Chabahar Port. Railroad connectivity between Chabahar Port and Zahedan has been delayed due to US sanctions on the Iranian authority designated to build the railroad.

Landlocked Central Asian states like Kazakhstan and Uzbekistan have been keen to utilise Chabahar to access the Indian Ocean Region and Indian market. Indian traders and investors interested in Central Asia will tremendously gain  from this deal. Uzbekistan has been keen to form a trilateral agreement involving India and Iran for the use of the port. Uzbekistan has plans to connect Chabahar Port through rail road via Afghanistan and Northern Iran. Kazakhstan has been able to develop its terminal in Chabahar Port to connect with Gujarat ports. Plans have been afoot to connect Chabahar Port with the INSTC providing another entry point from the INSTC besides Bandar Abbas. Armenia is also keen to get attached to the port through the INSTC. Pakistan has been trying to woo the Central Asian states to utilise Karachi port to access the Indian Ocean Region but failed as Chabahar is found more lucrative and economically sustainable with the Indian deal.

The U.S State Department has warned India about the potential risk of economic sanctions that any entity considering a business deal with Iran faced after New Delhi signed a 10-year deal with Tehran to operate the Chabahar port. It also emphasised that no exemptions would apply. In a press briefing on May15, 2024, the US State Department Deputy Spokesperson, Vedant Patel, stated, when asked about the deal, that the US sanctions on Iran are still in place and that Washington would continue to enforce them -“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,” he said.

While there was no official word from the ministry of Indian External Affairs, sources down played the comments by saying that the spokesperson was not fully aware of the facts. Chabahar port had got an earlier waiver from US administration during President Trump’s time. It is likely that India will get the waiver again because India has been carrying out trade with Iran through Chabahar since 2008.

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The views expressed are of the author and do not necessarily represent the opinions or policies of the Indian Defence Review.

About the Author

Col (Dr) PK Vasudeva

is author of World Trade Organisation: Implications for Indian Economy, Pearson Education and also a former Professor International Trade.

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