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Chabahar: A point of convergence between India and Iran

Chabahar: A point of convergence between India and Iran
28 May 2024 12:36

The writer is an assistant researcher at TRENDS Research & Advisory

India has taken an advanced step toward expanding its relations with Iran by signing a long-term agreement to operate and develop the Chabahar port in Sistan and Baluchestan province, southeastern Iran. Located on the Gulf of Oman and 100 kilometres west of the Pakistan border, this port is strategically important for transporting goods to Central Asia away from Pakistani ports. Nonetheless, the project faces the American sanctions imposed on Iran.

The long-term, 10-year renewable cooperation agreement between Tehran and New Delhi on this strategic port, along with their collaboration on the North-South Corridor, provides an opportunity to expand both bilateral and multilateral trade. The agreement between the two countries extends beyond the development of a port and also aims to create a vital trade route connecting India with Afghanistan and Central Asian countries. Notably, the Indian Ports Global Limited company will invest $120 million in the project, in addition to $250 million in financing, bringing the total cost to $370 million.

The agreement between India and Iran, both members of the BRICS and Shanghai Cooperation Organisation, signals a new chapter in their bilateral relations. Their cooperation on this strategic port began in 2003, and the new agreement replaces the one signed in 2016, which was hampered by American sanctions on Iran following Washington’s withdrawal from the nuclear deal. In recent years, Iran’s “Look East” strategy has indeed improved trade relations with India, with bilateral trade reaching $2.33 billion in 2022-2023. The port city of Chabahar could become a key hub for regional trade transit, as it houses the largest port of its kind in Iran. The strategic significance of this port would particularly increase if integrated into the 7,200 kilometre North-South International Corridor to transport goods between Afghanistan, Armenia, Azerbaijan, Russia, Central Asia, and Europe. As the port is a link between Indian and Russian markets, a shipping company between the two countries could be established to boost transit activity in the region.

New Delhi views Chabahar from the prism of geopolitics and economic interests. India aims to shorten the delivery time of goods to Afghan, Russian, Caucasus, and European markets by using Iranian territory. In the context of competition with regional powers, India considers its operations via the port of Chabahar as a rival to Pakistan’s Gwadar port, through which China has found a gateway to global markets via the Indian Ocean as part of its Belt and Road Initiative.

India and Iran have had long-standing historical relations since the independence of the former in 1947, but a host of various challenges and obstacles have kept them at a standstill. However, both countries today seem interested in relying on each other as regional powers. India is attracted by Iran’s abundant resources of natural gas and oil, as New Delhi has only limited energy resources. Investing in and developing infrastructure could strengthen their relationship based on the principle of mutual benefit. Iran is under American sanctions, and any foreign investment in Iranian projects would run counter to these sanctions. As a result, Washington can restrict the full potential of the Chabahar port because sanctions hinder the agreement between India and Iran for its development and block international financing for the project. Despite that, the project is likely to proceed, albeit at a slower pace, as India will benefit from investing in Chabahar and cannot afford to forgo these benefits. India’s stance toward the war in Ukraine and oil imports from Russia already contradicts US policies, as does its decision not to join the multinational coalition to protect international shipping, known as the “Guardian of Prosperity.” India’s foreign policy is independent, and it can negotiate with the US regarding this ambitious project, given the geopolitical and economic advantages it sees in it.

India seeks to enhance its trade, especially with Afghanistan, Central Asia, and Russia, and to deepen its engagement with the South Caucasus. It plans to link the Chabahar port to the Iranian railway network to facilitate regional connectivity, create new trade and investment opportunities, and open access to energy resources in Central Asia. Moreover, the project helps Iran overcome the sanctions-induced economic isolation, increase its revenue from foreign goods transit, develop the infrastructure of the port, complete the two Chabahar railway lines, and transform itself into a country of strategic routes.

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