The Chabahar Port and India-Iran Agreement

Highlights

On 13 May 2024, India and Iran signed a 10-year long-term contract for operation of Shahid Behesti terminal at the Chabahar port in Iran, eight years after concluding the general framework of cooperation on the Chabahar port. A memorandum of understanding (MoU) was signed in May 2015 for the development of this port by India and on 23 May 2016, the contract was executed during the visit of Prime Minister Narendra Modi to Iran. This is being termed as a historical agreement that would enable India to “use the port for humanitarian aid shipments, reaffirming its commitment to support regional development beyond commercial interests, showcasing its commitment to fostering goodwill and stability in the region”. Chabahar is also being integrated with International North South Trade Corridor (INSTC) However, in the past, India has faced several challenges while operationalizing such MoUs, because of which, the full potential of the port has not been realised till now. This Issue Brief traces the history of India-Iran engagement on Chabahar, provides a critical analysis of it and identifies the challenges ahead.  

Sea routes have historically played a key role in international trade as well as socio-cultural exchanges in the world. Despite developing other means and modes of transportation such as land, rail and air corridors, maritime transport remains the backbone of international trade and global economy as over 80 per cent of the total volume of international trade in goods is carried out by sea. It is no co-incidence that major developed and cosmopolitan cities in the world are situated at the seashore. No one can downplay the importance of port cities and their role in facilitating international trade and driving global economy in today’s times. Port cities such as Hong Kong, Karachi, London, Mumbai, New York, Rotterdam, Shanghai, Shenzhen, and Singapore all have contributed significantly to the global economy.

Amid fast changing geo-political, geo-strategic and geo-economic scenario, certain sea-ports have acquired sudden prominence. The requirement of new logistic hubs and ongoing geo-political competition brought Gwadar port in Pakistan and Chabahar port in Iran to the fore. Due to their unique geo-strategic location, the two ports sometimes are referred by many as rival ports. China has invested heavily in the development of Gwadar port under multibillion China-Pakistan Economic Corridor (CPEC) which is the flagship project of Belt and Road Initiative (BRI).

India along with Iran and Russia is part of International North-South Trade Corridor (INSTC) initiative launched in September 2000 in St. Petersburg. The three countries signed preliminary agreements to develop the 7,200 km long corridor linking Baltic Sea coast of Rusia to India’s western ports in the Arabian Sea via Iran.¹ The idea behind INSTC was to transport goods via Sea from Mumbai to Russia and Europe via Bandar Abbas to begin with and also via another port , Chabahar (since 2010s) and then via road to Bander-e-Anzali, another Iranian port on the Caspian Sea, and from Bander-e-Anzali via Sea to Astrakhan port in Russia, and from there via Russian railways to other parts of Russia and further to Europe and vice versa.² So far, the agreement has been ratified by 13 countries that include Armenia, Azerbaijan, Belarus, Bulgaria, India, Iran, Kazakhstan, Kyrgyzstan, Oman, Russia, Tajikistan, Turkey and Ukraine. However, the actual implementation of the project slowed down over the years due to imposition of western sanctions on Iran which discouraged other countries and private corporations to make large investment.³

Indian Interest in Chabahar Port

Chabahar port is also known as the Golden Gate due to its potential enabling landlocked Afghanistan and other Central Asian counties to access the sea. India, Afghanistan and Iran have special interest to develop the port with an aim of neutralizing strategic imbalance caused by Gwadar port and reduce Afghanistan’s dependence on Pakistan for trade and transit.⁴ For India also it has not been possible to access Afghanistan and Central Asia because the overland transit route passes through Pakistan. The move by South Asian Association for Regional Cooperation (SAARC) to enable a regional motor vehicle agreement for free movement of goods  in the region failed because of Pakistan’s opposition to such a move. From 2002, India has developed an interest in Chabahar and hoped to use it as a gateway to Afghanistan and Central Asia bypassing Pakistan. With this in mind, India had also funded construction of a 218 km-long link road from Zaranj in Iran to Delaram, connecting the garland highway in Afghanistan, which was completed in 2010. The route could not realise its potential mainly because Afghanistan continued to remain disturbed because of violence perpetrated by the Taliban as a proxy of Pakistan  in Afghanistan.

Thus, the importance of the Chabahar port could also be underlined by the fact that it not only provides the shortest route to landlocked Central Asian countries, it was a feasible alternative for Indian operations in Afghanistan and Eurasia.⁵ Some observers and analysts are of the view that a fully developed Chabahar port could also be used to counter Chinese presence in the Oman Sea and Gwadar Port.
Indian interest in Iran’s Chabahar port is not new. During Prime Minister Atal Bihari Vajpayee’s Iran visit in April 2001, Tehran Declaration was singed which inter alia had expressed the desire to realise the “vast potential of bilateral co-operation in political, strategic, economic, technological and cultural fields, including trade, industry, technology, energy, transportation and agriculture.”⁶ The declaration categorically referred to their commitment “to promote the socio-economic development and prosperity of their people, the sides agree to launch a new phase of constructive and mutually beneficial cooperation covering, in particular, the areas of energy, transit and transport, industry, agriculture and service sectors.”⁷

India was offered Chabahar back in 2003 when the two countries signed a Memorandum of Understanding (MoU) to promote Chabahar port as part of a joint strategy to channel oil from Iran and the Central Asian republics to the Gulf and then on to India and other export markets.⁸ India committed to make bulk of investment to develop the infrastructure. Following this, in 2004, Hinduja Group signed a MoU with the Ports and Shipping Organisation of Iran to begin development of the port and a rail link.⁹ However, due to US sanction on Iran over its nuclear programme, the progress to develop the port significantly slowed down.
With the signing of the Joint Comprehensive Plan of Action (JCPOA) in 2015 between Iran on the one hand and the US, UK, France, Russia, China, Germany, and the European Union on the other, sanctions were eased. This provided an opportunity to India to speed up its work and meet its commitment on Chabahar. Prime Minister Narendra Modi embarked on a two-day official visit to Iran in May 2016 during which an agreement was signed between India, Iran and Afghanistan to build a trilateral Transit and Transport Corridor using Chabahar Port as one of the main regional hubs. The commercial contract for the development of the Shahid Behesti terminal of the Chabahar port was signed between India Ports Global Ltd (IPGL), (a Consortium of Jawaharlal Nehru Port Trust and Kandla Port Trust), and Arya Banader on 23 May 2016.¹⁰ Government of India and Port and Maritime Organization of Iran signed the contract as confirming parties for a period of ten years. As per the contract, India agreed to construct two terminals (five berths) at Chabahar Port.¹¹

The United States, under Trump administration, withdrew from the JCPOA deal in May 2018 but Chabahar Port and a railway line connecting it with Afghanistan was exempted from US sanctions on Iran. In November 2018, the US State Department released a statement saying the administration granted a narrow exception under section 1244 of the Iran Freedom and Counter-Proliferation Act 2012 to allow a limited number of activities required to support the reconstruction and development of Afghanistan.¹² There were two main reasons to exempt Chabahar. Firstly, Chabahar was important for stabilizing Afghanistan and all humanitarian aid from India to Afghanistan was routed through Chabahar due to Pakistan’s non-cooperation. Secondly, it was also meant to counter China’s developed Gwadar Port situated about 170 kms from Chabahar.

The Recent Agreement

The IPGL has been managing the operations of the port since December 2018. IPGL entrusted the responsibility of managing the operations to its fully owned subsidiary India Ports Global Chabahar Free Zone (IPGCFZ). The port provided a transit route for Indian goods and products to Afghanistan and Central Asia. As of now, India has supplied six mobile harbour cranes and other equipment worth $25 million. Two of these cranes have a lifting capacity of 140 tons each whereas the other four have a capacity of 100 tons each.¹³

In August 2023, on the sidelines of 15th BRICS summit in Johannesburg, Prime Minister Narendra Modi met Iranian President Ibrahim Raisi and discussed to remove bottlenecks in the way of long-term contract on Chabahar. Both the leaders agreed to drop the arbitration clause which was a major hurdle for the finalization of a long-term agreement. This particular concession paved the way for a long-term contract that was concluded on 13 May 2024. The recent contract has given India rights to operate Chabahar Port for the next ten years.

This formal agreement was signed between IPGL and Port and Maritime Organisation (PMO) to hand over Shahid Behesthi terminal to India for ten years. IPGL has agreed to invest $120 million to modernise the terminal with necessary equipment, whereas India offered a $250 million Line of Credit to improve infrastructure through mutually identified projects. Shipping Minister Sarbananda Sonowal termed the development as a historic moment heralding a new age of trade, maritime cooperation and transshipment. He stated that India will use the opportunity to provide humanitarian aid shipments and reaffirmed its commitment to support regional development. Reacting to the development, External Affairs Minister S. Jaishankar said that the deal “will clear the pathway for bigger investments to be made in the port.” Iranian Ambassador to India Iraj Elahi expressed satisfaction over the conclusion of the agreement and said that it “will create a new and serious energy in all sectors of relations and will restart stalled projects. So with this contract and its implementation, cooperation will be developed in all sectors. Chabahar can act as the driver of relations.”¹⁴

Threat of Sanctions

As soon as the news about India-Iran long-term agreement became public, observers and analysts became conscious about the US reaction and possible sanctions. These worries were not unfounded as on 14 May 2024, Vedant Patel, the Deputy Spokesperson of the US State Department, underlined that US sanctions on Iran were very much in place and Washington would continue to enforce them. He went on to add that "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."¹⁵

US Ambassador to India Eric Garcetti went a step further:  “We know that Iran has been a force for terrorism, a force for exporting a lot of bad things, not just in the Middle East, but other places as well. We generally have sanctions, with some rare exceptions, where there is a strategic interest." He also stated that most businesses should be aware of the risks of interacting with Iran, as it exports terrorism and directly attacks another sovereign nation¹⁶—a reference to recent Iranian attack on Israel.

India downplayed the sanction threat. Responding to possible threats of sanctions underlined by the US officials, EAM S. Jaishankar said that the US should not take a narrow view of the development, as the port is going to benefit the entire region. He also emphasised that in the past, US has been appreciative of the fact that the Chabahar port has a larger relevance. Jaishankar categorically stated that “I think we need to explain to everyone and convince them that this is beneficial for all. Taking a narrow view isn’t helpful.”¹⁷

Conclusion

The recently concluded India-Iran deal is a landmark development intended to address connectivity issues in region on the one hand and opening the golden gate of Central Asia for India. The Chabahar port has both commercial as well as strategic significance. A fully operational port will facilitate India access to resource rich Central Asian region on the one hand, and allow it to enhance its presence on in the region. By not worrying much about a possible US sanction, India has once again displayed its strategic autonomy in foreign policy decision making. Given the changing geo-political and geo-strategic environment, it would not be easy for United States to put India under sanctions at a time when increasing Chinese presence in neighbouring Gwadar port is already a cause of concern. Moreover, there are reports of China not only showing its interest in Chabahar port but also planning to link Gwadar with Chabahar. It may also be pertinent to mention here that China already has a presence in the port area and its companies have set up their shops in the soecial economic zone around the port.

It is, thus, incumbent on India to take the MoU seriously and bring in investments to develop and operate the port to its advantage. In the past, India had not invested itself to its potential leaving it to Iran to develop the port and connecting road and rail network, which India had once promised to partener in. Rather than activating their agreements, the two countries also wasted their energy on secondary issues like arbitration, acquisition of right equipment for developing the port, etc. Now that they have sidestepped these issues and signed a long-term agreement, both countries should focus their attention on effective implementation of the agreement.

* Dr Ashish Shukla is an Associate Fellow at the Manohar Parrikar Institute for Defence Studies and Analyses (MP-IDSA). He is also a life member of ICPS.

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