The Significance of the Recent India-Iran Agreement on Chabahar Port


India recently signed a 10-year deal with Iran to develop Chabahar port. The signing ceremony took place in Tehran, attended by Iran’s Transport and Urban Development Minister Mehrdad Bazrpash and India’s Ports, Shipping and Waterways Minister Sarbananda Sonowal. This initiative aims to strengthen India’s trade expansion into Central Asia. The project has encountered multiple delays and obstacles in the past due to US sanctions. While concerns about potential sanctions persist, both countries remain committed to advancing the project.

Chabahar is located 786 nautical miles from Mumbai and 550 nautical miles from Gujarat’s Kandla Port. India and Iran see the port as a key hub for the 7,200 kilometer  International North-South Transport Corridor (INSTC) project, facilitating freight movement across India, Iran, Afghanistan, Central Asia and Europe, and reducing freight costs by 30%. 

India has supplied six mobile harbor cranes and other equipment worth $25 million to Chabahar port. India Port Global Limited (IPGL) signed the agreement with Iran’s Ports and Maritime Organization (PMO) to develop and operate the strategic Shahid Beheshti terminal at Chabahar port for 10 years. This marks India’s first venture in managing an overseas seaport and could be seen as a template for India’s future projects. India’s engagement with Iran in developing Chabahar port began in 2003, leading to a series of agreements and investment deals, including a $500 million  deal in 2016. Amid long delays and disagreements, by 2018, India took charge of port operations, facilitating trade and humanitarian aid, and reinforcing its strategic trade presence in the region. Officials have reported that 2.5 million tons of wheat and 2,000 tons of pulses have already been shipped from India to Afghanistan through this port.

The Chabahar deal is critical due to its geostrategic importance and several key factors underscore the opportunities and constraints associated with the project:

Firstly, Iran emphasizes the strategic significance of Chabahar port in bilateral cooperation with India, viewing it as a crucial project. While acknowledging the importance of relations with China and Pakistan, Iran seeks to advance cooperation with India in Chabahar without compromising its broader regional engagements. Iran’s railway network, vital for East-West and North-South corridors, prioritizes projects like Chabahar-Zahedan and Rasht-Astara, aiming for 1,000 kilometers of new tracks with enhanced transit capacity as indicated at the 15th Heads of ECO Railway Authorities meeting in Tehran.

Secondly, as per Iran’s Ports and Maritime Organization, Iran’s port capacity has increased to 290 million tons, contributing to an 8% rise in maritime trade, with ongoing development projects, including upgrades to key ports like Shahid Beheshti and Shahid Rajaee. In recent years, Iran has enhanced efforts to increase its port capacity, and the recent deal will complement Iran’s larger aspirations, especially considering the fact that it aims to transform itself into a regional trade and transit hub. However, the economic challenges persist in Iran and the World Bank’s Logistics Performance Index (LPI) ranks Iran 123rd out of 139 countries, placing it among the poorest performers. In contrast, India ranks well in this index, and the port in Chabahar, maintained by India, could complement Iranian efforts to increase revenue through such projects.

Thirdly, the geopolitical shifts resulting from the Russia-Ukraine war and the war in Gaza have prompted many countries in the Global South to adopt a more independent foreign policy to secure their long-term interests and assert their positions — increasing the scope of their strategic autonomy. India is keen to seize the Chabahar opportunity as it is aware that missing it could allow other powers to fill the void. For India, Chabahar holds paramount importance as it serves as a pivotal maritime gateway to Afghanistan and Central Asia, presenting an alternative to routes through Pakistan. This facilitates India’s trade and investment activities in these regions, aligning with its broader strategic objectives of diversifying trade routes. Chabahar’s strategic location is crucial for India, as it helps to counterbalance the influence of Pakistan’s Gwadar Port, which is heavily funded by Beijing and located just 92 nautical miles away.

Fourthly, India’s participation is influenced by several factors, including a tacit understanding between India and the United States that could potentially shield the project from US sanctions, especially as the US regional strategy has been to promote alternative trade routes to China’s Belt and Road Initiative. The main challenge concerning the project has been the US sanctions as the United States has imposed over 600 sanctions on Iran-related entities in the past three years.  In 2018, the United States introduced an amendment to the Iran Freedom and Counter-Proliferation Act (IFCA) that allowed certain exemptions from stringent sanctions. Recently during a press conference, Vedant Patel, principal deputy spokesperson at the US State Department, cautioned that any entity considering business with Iran should be aware of the potential risk of sanctions. India’s External Affairs Minister S. Jaishankar stated that India will work on explaining the significance of the agreement. The recent changes in global dynamics might prompt India to balance its relations and pursue strategically important projects despite external pressures.

Fifthly, there exists a wider regional agreement on the advantages and benefits of the project, despite political differences among stakeholders. Central Asian nations have shown support for the initiative and the Taliban has also endorsed India’s administration of Chabahar port, viewing it as a viable alternative to Pakistan’s Karachi port and conducive to Afghanistan’s economic stability. In February, the Taliban declared a $35 million investment in Chabahar, signaling their intent to promote regional trade and economic integration.

The Chabahar port project holds immense potential for reshaping regional trade dynamics and enhancing economic stability. Furthermore, the project has gained increased significance due to the volatility and risks in traditional trade routes, which have disrupted global supply chains amid the Russia-Ukraine war and the conflict in Gaza. However, navigating geopolitical tensions, securing necessary sanctions exemptions, and ensuring infrastructural development are critical factors that will shape the project’s future trajectory.

Editorial Team