India signed a 10-year agreement with Iran on Monday, May 13, to develop and operate the Iranian port of Chabahar. The inking of the deal came after several years of negotiation between the two countries. The deal will have wide ranging geopolitical and trade implications.
The agreement was signed between Indian Ports Global Limited (IPGL) and Iran’s Port and Maritime Organization (PMO). The state-owned IPGL is expected to invest approximately $120 million into the project, with an additional $250 million to be invested via debt financing schemes.
The flagship project between the two countries will play a critical role in managing trade between India, Iran, Afghanistan, Central Asia and the Eurasian region. The Chabahar port is Iran’s first deepwater port and is located at the mouth of the Gulf of Oman, just 72 kilometres away from Pakistan’s Gwadar Port, which is operated by China.
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With Pakistan denying India a direct land route to Afghanistan, the new project will help establish a sea-trade link for India to reach the Afghanistan market and vice-versa, bypassing Pakistan’s ports Gwadar and Karachi. “This linkage has unlocked new avenues for trade and fortified supply chain resilience across the region,” Union Shipping Minister Sarbananda Sonowal said in Tehran on Monday.
Chinese Trade Threat
The Chabahar project assumes great significance for India’s trade ambitions across Central Asia given its opposition to China’s Belt and Road Initiative (BRI). The BRI, often referred to as the new Silk Route, is an extensive multimodal network that would establish China as a very influential player in trade across Asia, Europe and Africa. The deep-sea port at Gwadar is developed as an integral part of this BRI project.
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India has stayed away from the BRI network given the border skirmishes and trade hostility with its eastern neighbour. It has also repeatedly stated that China’s ambitious corridor undermines India’s sovereignty and territorial integrity as it passes through Indian territory occupied by China and Pakistan.
China has also made significant infrastructure investments in Iran in recent years and has been aligning itself closely with Iranian interests due to their shared estrangement from the Western power bloc. With the Chabahar project, India can also attempt to deepen its relations with Iran.
Bigger Games at Play
There are plans to integrate the Chabahar Port to the International North South Transport Corridor (INSTC). The planned 7,200 kilometre-long trade corridor, for which an agreement was signed by India, Iran and Russia in 2000, would help connect the Indian Ocean and Persian Gulf to Central Asia and further towards North Europe via Russia.
This multimodal network of shipping, road and rail routes can reduce the cost of trade as well as transit time between India and Russia. According to a Union commerce ministry estimate, trade along the north-south axis of the corridor can turn 30 per cent cheaper and 40 per cent quicker once the network is fully operational.
US Sees Red
India’s decision to optimise trade relations with Iran may attract scrutiny from the United States, given its history of trade sanctions on Iran. Soon after the deal was finalised on Monday, the US confirmed that its sanctions on Iran would continue as earlier.
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“US sanctions on Iran remain in place and we will continue to enforce them...Any entity, anyone considering business deals with Iran, they need to be aware of the potential risk they are opening themselves up to, potential risk of sanctions,” said Vedant Patel, principal deputy spokesperson for the US State Department.
But Indian External Affairs Minister S Jaishankar has downplayed concerns. “The US has no issues with Chabahar…And frankly, if something’s between me and Iran, it’s between me and Iran,” he said. India enjoys friendly relations with the US and hence, its navigation of the US-Iran hostility will play a crucial role in the country’s attempt to protect its trade interests against an advancing China.
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