Chabahar: Making Sense of India’s Decision to Manage a Port in Iran

Tehran: Officials during the signing of a contract between India Ports Global Ltd. & Ports and Maritime organisation of Iran for the operation of the Shahid Beheshti Port in Chabahar, Iran.

(Photo: PTI)

India has signed an agreement with Iran to manage its Chabahar Port for the next 10 years. New Delhi has had a long association with the port and its development because it is a vital element in India's connectivity plans relating to Afghanistan, Central Asia, and Europe.

The new agreement is automatically extendable and replaces the 2016 arrangement which covered the operation of just one terminal of the port by India Ports Global Ltd (IPGL) [belonging to the public sector] and was renewable annually. New Delhi has been involved with Chabahar since 2003 and IPGL is seeking to finance the expansion of the port.

India’s decision to manage a port abroad is a first. It ties in with its larger plans of connectivity to Europe via the International North-South Transportation Corridor (INSTC).

Both plans are a direct consequence of the Pakistani blockade on overland Indian traffic to Afghanistan, Iran, Central Asia, and Europe.

A Response to China's BRI

Chabahar Port is the hub through which freight is transported via a multi-modal network involving ships, roads, and railways — from ports in India to Iran and from there to Afghanistan. Once the 630 km railway line linking Chabahar to Zahedan is ready, it will be linked to the central railway system of Iran and it will be able to transport goods to Central Asia and Russia.

However, this is less than optimal and there is a need for another 1000 km line connecting Zahedan with Mashad to the north and Sarakhs across the border in Turkmenistan.

In its own way, the INSTC and the Chabahar project are an answer to the Chinese Belt and Road Initiative (BRI) which operates railway routes from China to Europe via Central Asia.

Last year, as many as 17,000 freight trains shipped $75 billion worth of traffic on these routes. Chabahar is just 170 km to the west of the Chinese-built port of Gwadar in Pakistan's Balochistan, where it serves as a terminal of the China-Pakistan Economic Corridor (CPEC), linking China's Xinjiang province with the Persian Gulf.

Chabahar is Iran’s first deepwater port and is located at a strategic point on the Gulf of Oman. US sanctions on Iran slowed down work on the port, even though there was a carve-out for India (regarding Chabahar) in the American action. Yet, the sanctions themselves have constrained Indian and other foreign investment in the port and its Free Trade Zone.

Further, the country that could have benefited from the port’s operations, Russia was itself under sanctions.

Through 2023, things seemed adrift in Chabahar. The IGPL had promised an investment of $85 million in modernising the terminal it was operating, but the Union Budget put up only $11 million for the port’s development.

India's decision to work out a long-term agreement to manage the port indicates that New Delhi will now come through with the investment that it promised.

There could also be some developments in an earlier plan for India to finance the Chabahar-Zahedan railroad. While the Indian plan fell through, the Iranians have taken up the work and they say that the first section of the railway, some 25 per cent, is now complete. It is possible that New Delhi now renews its interest in getting back into the project.

Chabahar in the Context of India-Russia Ties

Chabahar is now being seen as the eastern anchor of the International North-South Transportation Corridor (INSTC), which will be a land route to Russia via Turkmenistan and Kazakhstan, as well as Afghanistan. The great value of Chabahar is that it can take large cargo ships. The port of Bandar Abbas in the Persian Gulf, which is the southern anchor of the INSTC, cannot take large vessels.

The 7,200 km INSTC was mooted around the year 2000 and was initially seen as a means of transporting goods from India to Russia via Iran, bypassing the Pakistani blockade. Anaemic Indo-Russian trade and bouts of international sanctions on Iran, however, cooled interest in the project.

Further, there were key gaps in the planned route which would involve Azerbaijan, Armenia, Kazakhstan, Kyrgyzstan, Tajikistan, Ukraine, and Belarus. The numerous customs clearances that would be needed were seen as a major burden in the system.

Nevertheless, several dry runs that were undertaken indicated that the project itself was a viable one.

In 2014, India and the Freight Forwarders Association conducted one such run by shipping cargo to Bandar Abbas in Iran, thereafter sending it by rail to Bandar-e-Anzali on the Caspian Sea, and then by ship to Astrakhan in Russia. In another dry run in 2017, cargo was sent via Azerbaijan to Russia.

Both found the INSTC route to be more cost-effective and time-effective than the traditional Suez Canal route. In July 2022, the first major commercial cargo arrived from Russia to India, using an eastern route via Kazakhstan and Turkmenistan, via Iran from whose Bandar Abbas port it was shipped to India.

With the onset of the war in Ukraine and the Western embargo on Russia, Moscow’s interest in the southern corridor to the Persian Gulf with respect to India has increased. The heavy purchases of Russian oil led to a boom in the Russia-India trade.

Bilateral trade between both nations in 2021-22 was $13 billion, but by 2022-23, it shot up to $49.36 billion, and in 2023-24 it reached $66 billion.

The Russian push and investment has seen the completion of a key part of the western INSTC corridor which is a 162 km rail line linking Rasht in Iran with Astara in Azerbaijan. Another line linking Rasht with the Anzali port in Iran is also nearing completion. This would effectively provide a smooth railway link between Russia and Iran.

India’s exports to Russia, though growing, are still just about $4 billion and is an area that has huge growth potential. Last year, India’s annual exports of machinery, auto parts, and other engineering goods doubled to over $1 billion in just nine months. In late 2022, Russia shared with India and other countries a list of items (hundreds of them) it wanted to import including axles, crankshafts, fasteners, pistons, bumpers, and welding materials.

India is aware that its fast-growing economy could gain from Russia’s swing away from Europe. In this, the port of Chabahar and the INSTC can play a major role.

A lot of Chabahar is an investment in the future when, hopefully, the US sanctions on Iran are lifted. Oil-rich Iran will not only be a transit country, but a destination for Indian investment and could also re-emerge as a source of oil and gas. The port, given its location, could emerge as a major economic hub of the region.

Given the recent developments in the region, the port and the overland routes to Eurasia are an important hedge. The recent Houthi attacks on shipping in the Arabian Sea have affected traffic on the Suez Canal route. Other plans such as that of an India-Middle East Economic Corridor (IMEC) too could end up hostage to the chronic instability engendered by the Israel-Hamas war.

(The writer is a Distinguished Fellow, Observer Research Foundation, New Delhi. This is an opinion article and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for them.)