Introduction: In May 2015, India signed an important agreement with Iran, by entering into an MoU, in the field of strategic cooperation. The deal pertains to India’s investment in the development of Chabahar port, in the north Arabian Sea. It was a bold step on India’s part to go ahead and ful-fill India’s strategic trade requirements.
Initial Signing of the agreement and later developments: India and Iran had initially agreed to develop this project in 2003. However, no progress could be made on this front due to sanctions imposed on Iran because of its controversial nuclear program. In 2004, an Indian consortium inked an MoU with the Ports and Shipping Organization (PSO) of Iran to develop the Chabahar port, but the project never took off.
Trilateral Agreement: Three nations, India, Iran, and Afghanistan, signed the historic Trilateral Agreement on Transit and Trade during the visit of Prime Minister Narendra Modi to Iran from May 22-23, 2016. The presence of three heads of state at Chabahar on May 23, 2016, signifies the importance of a non-descript coastal town of Iran that is being mentioned as a game changer for the three countries.
Chabahar: A game Changer for three countries:
Firstly, for Iran, it ends years of isolation. The conclusion of the US-Iran Nuclear Agreement in 2015, followed by the signing of the Trilateral Agreement was just the opportunity it was waiting for to reengage on economic issues and explore new avenues for cooperation.
Secondly, for India, it provides an opportunity to establish its foothold in the region from where it has for long been waiting to fulfill its commitments for development of the port and enhance its economic interests and connectivity with the region.
Thirdly, for Afghanistan, to end its isolation and dependence on Pakistan. Chabahar is located in south Iran in its Sistan Baluchistan region, along the Makran coast in the Gulf of Oman. It is the only Iranian port providing direct access into the Indian Ocean.
Geographical Importance of the Port: The current major port of Iran, Bandar Abbas, is located at the mouth of the Strait of Hormuz and within close proximity to the United Arab Emirates (UAE) and Oman, which is heavily patrolled by various nations to protect the sea-lanes transporting precious oil from the Middle East to various countries around the globe. More signifcantly, Chabahar is located only 72 km west of Gwadar port in Pakistan, which is being developed jointly by Pakistan and China as part of the ChinaPakistan Economic Corridor (CPEC).
Chabahar port is strategically located on the south-eastern coast of Iran. The port has been declared a Free Trade Zone by Iran. It is situated about 70 km west of the equally important Chinese-funded Gwadar port of Pakistan. The geographical position of this port is well suited for movement of trade to/from Afghanistan, a land locked country.
Japan as partner to make Investment: In another significant development, as part of Asia Africa Growth Corridor (AAGC) Japan has shown keen interest in partnering India in the development of the Chabahar infrastructure project, primarily to protect its energy interests in West Asia, independent of the USA. The Japanese assistance would reinforce the viability of Chabahar and provide it much needed money to complete the project. This factor will also play out the Sino-Japanese rivalry being witnessed in the South China Sea. Since China already making investment in Pakistan’s Gwadar Port as part of China – Pakistan Economic Corridor (CPEC).
Why India Iran to Reach Afghanistan: As India was always very keen to engage with Afghanistan economically and strategically, it finds Chabahar port as an easier sea -land route to Kabul. This option assumed further importance because Pakistan refused to provide a land route for Indian trade to Afghanistan via Wagah border in Punjab.
What is there in The Deal:
With the signing of MoU in 2015, the designated Indian and Iranian infrastructure companies will formally enter into a commercial contract under which Indian firms will lease two existing berths at the Port and operationalize them as container and multi-purpose cargo terminals.
The availability of these berths at Chabahar Port for India would facilitate berthing of ships of trading partner countries and provide Afghanistan’s garland road network system alternate access to a sea port.
As per the agreement, the berths at Chabahar port will be leased for a period for 10 years, which can be renewed further by mutual agreement. The port will be developed through a Special Purpose Vehicle (SPV) which will invest USD 85.21 million to convert the berths into a container terminal and a multi-purpose cargo terminal. On Indian side, it will be a joint venture of Kandla Port Trust (KPT) and Jawaharlal Nehru Port Trust (JNPT) Mumbai. The ownership of the infrastructure and installation made with the Indian investment will be transferred to the Iran’s Port and Maritime Organisation (P&MO) by the end of the tenth year. The MoU also caters for incurring annual revenue expenditure of USD 22.95 million towards associated operational requirements of the Joint Venture.
The Trade Corridor
The strategic location of Chabahar makes this port a valuable investment to make. The proposed Iran –Afghanistan road network: Chabahar-Milak-Zaranj-Dilaram, a portion of which was constructed by India in 2009, will be used to transport trade on to the Afghanistan’s Garland Highway. India has already spent UDS100 million on building the 220-kilometre road in the Nimroz province of Afghanistan. On completion of this project, the network will provide easy access to four major cities of Afghanistan -Herat, Kandahar, Kabul and Mazar-e-Sharif. In fact, if this project continues to progress without any hurdle, India’s trade can have clear passage to/from the resource rich region of Central Asia. The transport costs and freight time from India to Central Asia is also expected to reduce drastically by using this sea-land network.
India is also finalising a plan to construct a 900-km railway line that will connect Chabahar port to the mineral-rich Hajigak region in Bamian province of Afghanistan. As per a study, the proposed rail project may cost Iran and Afghanistan about USD 5 billion.vii A major part of this project cost may be extended by India as development assistance. Availability of this railway network will also provide India a link with the energy rich Central Asian states of Kazakhstan, Uzbekistan, Tajikistan, Turkmenistan and Kyrgyzstan.
Non availability of railroad connectivity is a major hurdle for Indian companies to establish joint ventures in this region. The region houses $1 trillion worth of mineral resources, whose rights were bagged by an Indian consortium led by Steel Authority of India Limited (SAIL). This connectivity will ultimately result in operationalising the USD10.8 billion iron and steel project by this consortium of Indian steel makers under SAIL.
The Foreign Policy of India, 2015-20, has highlighted the importance of the International North-South Transport Corridor (INSTC) in expanding India’s trade and strategic links with Central Asia. The proposed trade corridor brings tremendous benefits for India towards enhancing trade linkages with the countries in Central Asia and Eurasia. Development of Chabahar port will be an appropriate step in this direction.
Once completed, these development projects will open numerous geo-political and economic opportunities for India. It will lead to not only increasing India’s leverage in Afghanistan but will also establish its strategic presence in the region. Indian companies will have opportunities to venture into Afghanistan and explore its enormous mineral wealth. In the long term, it will act as a hub for Indian trading operations to venture into the oil and mineral-rich Central Asia.
The US may not be too happy with these developments. India was asked to avoid rushing into doing business with Iran as they have not yet sorted out the pending issues of Iran’s nuclear programme.
However, in all probability, the sanctions are on their way out and it may turn out to be a wise decision by India to have taken the initiative. China, having established itself in a strategic position in Gwadar, may also feel uncomfortable to find India gaining a foothold close to the Strait of Hormuz. The US, on one hand, may be happy to see India taking initiatives to counter growing Chinese influence in Gwadar, but otherwise, may not like India’s strategic partnership with Iran. For Afghanistan, it’s a win- win situation, in getting access to sea thereby reducing dependence on Pakistan. After going through tough economic sanctions, the deal will provide Iran an opportunity to lift its stunted economy.
Another important economic potential of the development is the possibility of enhancing India-to-Russia trade through the land route from Iran. Trials carried out by the Freight Forwarders Association in India for a container from Mumbai to Astrakhan via Chabahar in 2014 revealed that there is a potential to reduce freight cost by 30 percent and sea freight cost by almost half in comparison to the current sea route where freight is delivered at St Petersberg on the Gulf of Finland. Similarly, a truck delivered a container at Baku from Chabahar within 23 days, which is favourable against taking the longer route via Singapore or Hong Kong.