Indian Council of World Affairs

On 13 May 2024, India and Iran signed a 10-year agreement to develop the strategically significant Chabahar Port in Iran. This long-term agreement is critical to India's economic and geopolitical strategy for Central Asia and beyond. The bilateral agreement between Indian Ports Global Limited (IPGL) and Iran's Port and Maritime Organisation (PMO) replaces the previous one-year contract, ensuring the port's continuous operations. The long-term agreement also grants India the operations of the Shahid Beheshti terminal in Chabahar, developed with Indian assistance. 

IPGL will make an investment of approximately $120 million. Furthermore, India has pledged a significant $250 million credit line for mutually agreed-upon projects to modernise the infrastructure in Chabahar, underscoring the country's commitment to the port's long-term success.[i] 

Chabahar Port: Strategic Importance for India 

Chabahar, a seaport in south-eastern Iran, stands out with its unique features and combines two terminals, Shahid Kalantari and Shahid Beheshti, each with five berths, promising significant economic benefits. Unlike Bandar Abbas, the busiest port in Iran, Chabahar is a deep water port with direct access to the Indian Ocean outside the Strait of Hormuz. This advantage allows large cargo ships to enter quickly and safely, making it the closest Iranian port to India. The port of Kandla in Gujarat is the nearest to the port of Chabhar, at a distance of 550 nautical miles. Mumbai and Chabahar are separated by 786 nautical miles.  

Strategically positioned at the crossroads of South Asia, Central Asia, and the Middle East, the Chabahar Port presents an opportunity to be a transit port for trade between India and Central Asian countries. This port, serving as a gateway to Central Asia and Eurasia, is pivotal in India's pursuit of strengthening economic relations and regional connectivity. India's investment in Chabahar underscores its significance as a key in its robust regional economic cooperation with the region and beyond. With its historical significance as a gateway to Central Asia, this vital Iranian port is also crucial in delivering trade commodities, reconstruction aid and humanitarian assistance to Afghanistan.  

With its substantial oil and gas reserves, Iran is a crucial potential supplier for India's energy security. Chabahar, with its strategic foothold located in Sistan-Balochistan province on the energy-rich Iran's southern coast, plays a pivotal role in this strategy. It allows India to access Iranian energy resources while bypassing naval chokepoints like the Strait of Hormuz. 

By diversifying its energy sources and supply routes, Chabahar strengthens India's resilience in the face of shifting geopolitical dynamics and uncertainties in the global energy market, providing a sense of reassurance. By actively supporting connectivity projects like Chabahar and emphasising sustainability, transparency and respect for national sovereignty, India is presenting a proactive and alternative approach to infrastructure development. 

India's Initiatives and Continuing Investments in Chabahar 

Since 2003, discussions have been underway about the potential of the Chabahar Port as a gateway to Afghanistan and beyond, a topic of great interest between India and Iran. In May 2015, a memorandum of understanding was signed, marking India's commitment to developing the Chabahar port.[ii] This commitment was further solidified in May 2016 when India, Iran and Afghanistan signed a tripartite agreement to support the expansion of the Shahid Beheshti Terminal at Chabahar.[iii] India's significant financial contribution of $500 million for the port's expansion and accompanying infrastructure was a testament to its effort to improve connectivity.[iv] This landmark agreement cemented Chabahar's position as an international transport and transit corridor and paved the way for India to assume operations of the Shaheed Behesti terminal in December 2016.  

India sent its first wheat shipment via Chabahar to Afghanistan in October 2017, a significant step towards turning the port into an important commercial route. In December 2018, India Ports Global Limited (IPGL) assumed control of the Chabahar Port through its fully owned subsidiary, India Ports Global Chabahar Free Zone (IPGCFZ).[v] 

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.[vi] 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.[vii] This humanitarian role, particularly in times of crisis, underscores the port's significance beyond its commercial success. 

India persisted in its commitment to Chabahar's development, highlighting its significance for trade and connectivity. In 2022, India declared that it would work with Iran to establish a long-term agreement for the administration of Chabahar, further demonstrating its commitment and resilience.[viii] 

The Sanctions Conundrum 

The US sanctions on Iran significantly hampered the progress of the Chabahar Port. However, The US lifted some sanctions against India in November 2018 for developing the Chabahar port and building a railway linking it to Afghanistan. [ix] In the following years, US sanctions and the COVID-19 pandemic have impeded the development. The US has imposed more than 600 sanctions on individuals and entities connected to Iran in the past three years. In April 2024, the US imposed sanctions on three Indian companies, including Zen Shipping and Port India Private Limited, for their connections with Iran.[x] After the recent agreement signs over the Chabahar port, the US also warned that any nation engaging in business with Iran could face the "potential risk of sanctions". This warning was issued despite the Chabahar port's previous exemption from US restrictions, indicating a potential shift in US policy that could significantly impact India's projects in Iran.  

In response to the US risk of potential sanctions, External Affairs Minister S. Jaishankar emphasised that the project would benefit the entire region and that people should not take a "narrow view" of it. He also mentioned how the US had already acknowledged Chabahar's greater significance.[xi] It is crucial to note that the Chabahar Port deal is not a standalone 'new agreement'; it is a continuation of a long-standing partnership on the evolving path to meet the changing needs of both India and Iran.  

The development of Chabahar Port and its associated infrastructure as a dynamic trading hub with an investment of $370 million is not just a benefit for India. However, it is also a significant development that is expected to benefit many countries, particularly those landlocked in Central Asia.[xii] Imposing sanctions would be impractical and counterproductive to the shared goal of regional connectivity and trade. 

Integrating INSTC and Chabahar  

India's proactive involvement in initiatives like the International North-South Transport Corridor (INSTC) and Chabahar showcases its objectives to pursue strategic relations with Central Asia and Afghanistan. The inclusion of the Chabahar into INSTC is strategically significant for regional countries. By circumventing Pakistan, India gains access to Afghanistan and opens a path to Central Asia, a geopolitical shift of importance. This move significantly alters the regional dynamics. 

Iran and India both recognise the Chabahar port's pivotal role in the INSTC project. A trilateral working Committee comprising Iran, India and Uzbekistan was established in 2020 to promote cooperation on the Chabahar Port and other connectivity initiatives.[xiii] At the Committee's second meeting in December 2021, the significance of Chabahar's Shahid Beheshti Terminal was emphasised.[xiv] The Committee also observed the need to build a transit corridor to improve regional connectivity by connecting South and Central Asia. At the India-Central Asia Summit in January 2022, it was emphasised to coordinate different connectivity projects.[xv] India's bid to incorporate Chabahar Port in the INSTC was endorsed by five of the Central Asian nations, noting the port's tremendous potential to improve connectivity with both Eurasia and Central Asia. Subsequently, in April 2023, the India-Central Asia Joint Working Group (JWG) on Chabahar Port had its inaugural meeting in Mumbai.[xvi]

The Taliban dispensation in Afghanistan also expressed support for the Chabahar Port and stated that it was prepared to provide the required "facilities". The Taliban's Foreign Ministry has "welcomed" the integration of Chabahar Port into the INSTC. The statement emphasised that the regime is "ready to provide all necessary protection and facilities in this regard".[xvii] This endorsement from the Taliban, a critical regional political entity, could significantly boost the port's development and its role in regional connectivity. Furthermore, in March 2024, considering the port's potential, the Taliban also announced an investment of $35 million in Chabahar.[xviii]

The integration of Chabahar Port with the INSTC, which will serve as an additional port of entry for Bandar Abbas and the INSTC, holds immense promise. With Russia expressing interest in utilising the Chabahar Port to facilitate India's access to its resource-rich regions, these developments have the potential to significantly enhance India's connectivity and trade with Russia and Eurasia, sparking optimism for future trade prospects. Their mutual reinforcement underscores the strategic significance of Chabahar Port and the INSTC. Their integration strengthens India's ties to the substantial Russian and Eurasian markets and enhances the strategic value of these initiatives for India's economic relations.  

Conclusion 

Given the significant disruptions to global connectivity due to the evolving geopolitical scenario, the long-term agreement between India and Iran brings connectivity to the landlocked Central Asia region and beyond, providing a promising alternative route—India's aim to reduce reliance on conventional routes susceptible to geopolitical fallout. In this context, the Chabahar Port, with its potential to become a new hub with various connectivity links, holds the promise of enhanced global connectivity.

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*Dr. Punit Gaur is a Research Fellow at the Indian Council of World Affairs
The views expressed are personal.

Endnotes

[i] Financial Express, "Enhancing Connectivity: India-Iran Chabahar Port Pact Paves the Way; IPGL To Invest $120 million", May 13, 2024, https://www.financialexpress.com/business/defence/enhancing-connectivity-india-iran-chabahar-port-pact-paves-the-waynbspipgl-to-invest-120-million/3486312/, accessed May 14, 2024. 

[ii] The Hindu, "India, Iran sign 10-year contract for Chabahar port operation", May 13, 2024, https://www.thehindu.com/news/national/india-iran-sign-long-term-bilateral-contract-on-chabahar-port-operation/article68171624.ece, accessed May 14, 2024.

[iii] Valdai Club, "Chabahar Port Transit Project: The Eastern Wing of the International North-South Transport Corridor (INSTC)", May 19, 2023, https://valdaiclub.com/a/highlights/chabahar-port-transit-project-the-eastern-wing/, Accessed May 15, 2024.

[iv] India Briefing, "India Signs 10-Year Pact with Iran to Operate its Chabahar Port", May 14, 2024, https://www.india-briefing.com/news/india-signs-pact-with-iran-to-operate-chabahar-port-32647.html/, Accessed May 15, 2024.

[v] Punit Gaur, "Changing Connectivity Dynamics in Central Asia and India's Growing Engagements" Sapru House Paper, ICWA, /pdfs/SHPChangingConnectivityDynamicsWeb.pdf, Accessed May 16, 2024.

[vi] India Today, "India signs 10-year deal with Iran to manage Chabahar port", May 13, 2024, https://www.indiatoday.in/business/story/india-signs-10-year-deal-with-iran-to-manage-chabahar-port-2538654-2024-05-13, Accessed May 15, 2024.

[vii] Ministry of External Affairs, Government of India, "Humanitarian Assistance to Afghanistan" February 22, 2024, https://www.mea.gov.in/press-releases.htm?dtl/34885/Humanitarian+Assistance+to+Afghanistan, Accessed May 14, 2024.

[viii] DD News, "India and Iran Ink Long-Term Deal for Chabahar Port Operations", May 13, 2024, https://ddnews.gov.in/en/india-and-iran-ink-long-term-deal-for-chabahar-port-operations/, Accessed May 16, 2024.

[ix] ZEE Business, "US exempts India from certain sanctions for development of strategic Chabahar Port in Iran", November 7, 2018, https://www.zeebiz.com/india/news-us-exempts-india-from-certain-sanctions-for-development-of-strategic-chabahar-port-in-iran-70594, Accessed May 15, 2024.

[x] The Hindu, "US to impose fresh Iran sanctions after attack on Israel, expects allies to follow: White House", April 17, 2024, https://www.thehindu.com/news/international/us-to-impose-fresh-iran-sanctions-after-attack-on-israel-expects-allies-to-follow-white-house/article68074497.ece, Accessed May 15, 2024.

[xi] The Economic Times, "For everyone's benefit, don't think people should take a narrow view of it": EAM Jaishankar responds to US' sanction warning on Chabahar Port deal", May 15, 2024, https://economictimes.indiatimes.com/news/india/dont-think-people-should-take-narrow-view-of-it-jaishankar-on-us-sanction-warning-after-chabahar-port-deal/articleshow/110131709.cms?from=mdr, Accessed May 16, 2024.

[xii] The Economic Times, "US ignoring its own sanctions waiver extended to India on Chabahar Port", May 16, 2024, https://economictimes.indiatimes.com/news/economy/foreign-trade/us-ignoring-its-own-sanctions-waiver-extended-to-india-on-chabahar-port/articleshow/110156945.cms?from=mdr, Accessed May 16, 2024.

[xiii] Punit Gaur, "Changing Connectivity Dynamics in Central Asia and India's Growing Engagements" Sapru House Paper, ICWA, /pdfs/SHPChangingConnectivityDynamicsWeb.pdf, Accessed May 16, 2024.

[xiv] Ibid

[xv] Ibid

[xvi] Ministry of External Affairs, Government of India, "Joint Statement of the First Meeting of the India-Central Asia Joint Working Group (JWG) on Chabahar", April 14, 2022, https://www.mea.gov.in/bilateral-documents.htm?dtl/36488/Joint_Statement_of_the_First_Meeting_of_the_IndiaCentral_Asia_Joint_Working_Group_JWG_on_Chabahar, accessed 14 May 2024.

[xvii] Punit Gaur, "Changing Connectivity Dynamics in Central Asia and India's Growing Engagements" Sapru House Paper, ICWA, /pdfs/SHPChangingConnectivityDynamicsWeb.pdf, Accessed May 16, 2024.

[xviii] Arab News, "Bypassing Pakistan, Taliban set sights on Iranian port for access to international markets", March 12, 2024, https://www.arabnews.com/node/2475396/pakistan, Accessed May 16, 2024.