Chabahar Port: Why the 10-Year Agreement Between India & Iran is a Big Deal

'In the backdrop of the Israel-Palestine war, Chabahar will act as a saviour to India's oil trade,' an expert said.

India and Iran signed a historic agreement on Monday, 13 May, giving New Delhi the authority to operate one out of two terminals at the strategic Chabahar Port for a period of 10 years.

(Photo: Namita Chauhan/The Quint)

"Trade and political relations between India and Iran have taken a quantum leap," Himanshu Roy, professor of international relations at Jawaharlal Nehru University, told The Quint after New Delhi and Tehran inked a historic agreement on Monday, 13 May, giving India the authority to operate one out of two terminals at the strategic Chabahar Port for a period of 10 years.

Union Minister for Shipping Sarbananda Sonowal oversaw the signing of the agreement between India Ports Global Ltd (IPGL) and Ports & Maritime Organisation of Iran (PMO) in Tehran on Monday.

Chabahar comprises of two distinct ports – Shahid Beheshti and Shahid Kalantari, and India will operate the former. This is also the first time India will take over the management of a foreign port.

The signing of the agreement, which comes 22 years after the idea was first floated in 2002, is being seen as a major diplomatic victory for India. The Quint explains with the help of experts how the port could benefit India politically and economically.

Geopolitical Significance of the Chabahar Deal

The innate significance of the Chabahar Port lies in its geographical location.

The port, which is located at the mouth of the Gulf of Oman, is a mere 550 nautical miles from Gujarat's Kandla Port and 786 nautical miles from Mumbai.

Following the signing of the long-term agreement, India will have unimpeded access to trade with land-locked Afghanistan and Central Asian republics: Uzbekistan, Kazakhstan, Kyrgyzstan, Tajikistan, and Turkmenistan.

This means that New Delhi will not have to overwhelmingly depend on Pakistan for allowing its goods to head towards the region and onward to Europe.

"Islamabad has not been allowing even ordinary Indian goods to go to Afghanistan via the land route," geopolitics expert Lt General Kamal Davar (retd) said while speaking to The Quint. "So, the Chabahar Port will enable India to access Afghanistan economically without going through Pakistan."

Further, the port is being viewed as India's counter to Pakistan's Gwadar Port and China's Belt and Road Initiative (BRI).

"With the help of the Chabahar Port, India can develop trade-related SOPs with Afghanistan and Central Asian republics and develop its own road and sea project to rival China's BRI," Lt General Davar added.

Economic Significance of the Chabahar Deal

The agreement also comes at a time when there are looming risks of oil supply disruptions due to the ongoing Israel-Hamas war.

India is the third-largest consumer of crude oil in the world and imports 85 percent of its total requirement. Hence, any major disruption in the country's oil trade will not only impact supply but will also have adverse effects on its foreign exchange reserves and the value of the rupee.

"Keeping in mind the precarious economic situation in West Asia over the Israel-Hamas war and attacks by Houthi rebels in the Red Sea, the Chabahar Port will act as a saviour to India's oil trade," Himanshu Roy told The Quint.

Experts suggest that after gaining control of the Chabahar Port, the next step India should look at is the completion of the 7,200-km-long International North-South Transport Corridor (NSTC) – a transport corridor linking Russia’s Baltic Sea coast to India’s western ports via Iran – which would help propel better connectivity via Chabahar.

The idea for the NSTC was initially mooted in the year 2000, but the project has faced several roadblocks over the years. Of late, work on the NSTC was halted due to sanctions slapped on Iran by the United States and other western countries over the former's nuclear programme.

As per the Federation of Freight Forwarders’ Associations in India, the corridor will be an economic boon to all parties concerned as it is 40 percent shorter and 30 percent cheaper than the traditional Suez Canal route linking Europa and Asia.

Will the US Apply Sanctions on India Over Chabahar Port Agreement? 

Hours after the India-Iran deal was announced on Monday, the US issued a stern warning saying that any entity holding economic negotiations with Iran could be subject to sanctions.

Responding to a question regarding the Chabahar Port, US State Department spokesperson Vedant Patel conceded that India was free to pursue its own foreign policy goals. However, he did not rule out the possibility of ramifications.

"Broadly, you've heard us say this in a number of instances, that any entity, anyone considering business deals with Iran, they need to be aware of the potential risk that they are opening themselves up to and the potential risk of sanctions," Patel said during a press briefing on Tuesday, 14 May.

This comes at a time when the US has already applied crippling economic sanctions under the CAATSA (Countering America's Adversaries Through Sanctions Act) against Moscow and Tehran over the Russia-Ukraine and Israel-Palestine wars, respectively.

However, seeing that India and the US are strategic partners, experts feel that Washington may pay "lip service" regarding sanctions over the India-Iran agreement but won't actually put them into effect.

"I don't believe the US will have the gumption to sanction India over the agreement with Iran. India must convey to the Americans that it is necessary for us to trade with Iran owing to the geographical proximity between the two countries. India is not inking military agreements with them, so I feel there is no reason for the US to worry."

Lt General Kamal Davar

The US had similarly warned of sanctions against India when New Delhi refused to budge from its agreement with Moscow over the import of the S-400 missiles system amid the Russia-Ukraine war. India also escaped sanctions when it continued its import of Iranian oil even after the then Donald Trump-led US administration unilaterally withdrew from the Joint Comprehensive Plan of Action (JCPOA) in 2018.

India-Iran Negotiations Regarding Chabahar Port Over the Years

The beginning of negotiations between India and Iran over the development of the Chabahar Port began in the early 2000s.

In 2002, the then National Security Advisor of India Brajesh Mishra had conducted negotiations with his Iranian counterpart Hassan Rouhani to develop the port as a major trade route keeping its strategic geographical location in mind.

This culminated in an agreement signed between the then Atal Bihari Vajpayee-led Indian government and the Muhammad Khatami-led Iranian government to oversee cooperation on a range of projects – including Chabahar.

However, the agreement fell flat over India's growing closeness to the US under President George W Bush and Washington's further alienation from Tehran – which was described by the west as part of the "axis of evil".

Later in 2015, Chabahar figured prominently in discussions between Prime Minister Narendra Modi and his then Afghan counterpart Ashraf Ghani in a bid to expand trade relations and also rebuild Afghanistan's infrastructure.

After getting Iran on board, the three countries signed an agreement to develop the International North-South Transport Corridor in 2016 – which was aimed to complement Chabahar in promoting greater regional connectivity.

The IPGL took up operations at the port in late 2018, without a long-term agreement in place. Over 8.4 million tonnes of cargo and 90,000 twenty-foot-equivalent units (TEUs) have been handled by the IPGL at Chabahar since then, according to Reuters.

In 2023, PM Modi and Iranian President Ebrahim Raisi finalised the brass tacks of the long-term deal on the sidelines of the BRICS Summit in Johannesburg – which culminated in the agreement on Monday, 13 May.