[Updated] Chabahar Port Project – Everything you need to know

In 2019, Indian firm “India Ports Global Limited” took over operations at the Shahid Behesti Port in Chabahar, Iran. The representative of India, Iran, and Afghanistan met and finalized the routes for trade and transit corridors between the three nations. An event, ‘Chabahar Day’ was organised on February 26, 2019, to promote and popularise the potential of Chabahar port. Recently, the Iranian government took several decisions that may impact India’s Central Asian Strategy. IAS Express owns the copyrights to this content

What is Chabahar Port?

  • Chabahar port is a seaport situated in south-eastern Iran, on the Gulf of Oman.
  • It serves as Iran’s only oceanic port and comprises of 2 ports (Shahid Kalantari and Shahid Behesti) and 10 berths.

What is the history between India and Chabahar?

  • India and Iran (then Persia) have a great shared cultural history.
  • Before partition, Iran was very close to India.
  • Later on, due to the ongoing hostility with Pakistan, India failed to get an effective foothold in Iran and in a result, the relations drifted apart.
  • In 1970, the then Shah of Iran envisaged a naval base construction and signed a deal with Americans. However, it was failed due to the following reasons.
    • In 1977, Iran was strapped of cash because of a rift within OPEC.
    • In 1979, Americans left midway due to the Iranian revolution.
  • Even though the strategic importance of the port was realised during the Iran-Iraq war of 1980 and many competed for completing the project, it was not until 2003 when India-Iran signed a deal to develop two additional berths at the port. But it never took off because of the geopolitical climate of that time.
  • In 2016, the project got a new lease of life when India signed a new agreement to renovate two of the berths and build a new cargo facility there.
  • India has realized the port’s importance only after the perceived threat of China Pakistan Economic Corridor (CPEC).

What are the significances of the port for India?

Location:

  • It is the only oceanic port of Iran that can be accessed from the western coast of India bypassing Pakistan.
  • It is the unobtrusive gateway to Afghanistan and Central Asia since Pakistan rejects overland transit facility to India via its land.
  • Thus the port opens new areas of engagement with the region creating prosperity for all.

Geopolitical significance:

  • Chabahar is also the gateway to International North-South Transport Corridor (INSTC) = high geopolitical significance.
  • It will increase the strategic presence of India in the region.
  • It will also act as a check against rising Chinese presence in the Arabian Sea with its involvement in the construction of the Gwadar (a deep sea port in the Balochistan area of Pakistan). Notably, Chabahar is located near to Gwadar port.
  • India-Iran Military Cooperation is also possible which will be helpful to counter the Chinese Navy in the Indian Ocean.

Trade and commerce

  • Costs of imports of items such as iron ore, sugar, oil and rice to India will be considerably reduced. A study of the Ministry of Commerce has revealed that the cost of imports through Chabahar port along with INSTC is 30% cheaper when compared to Mediterranean-Suez route.
  • The economic relationship between India and Afghanistan which was down due to the political uncertainty will considerably improve once Chabahar starts operating. India will connect Chabahar port to Zaranj-Delaram highway in Afghanistan and is planning to build a rail link there with Iran’s cooperation.
  • India is also planning to develop several industries such as aluminium and urea plants in the Chabahar Economic Zone.

Diplomatic importance

  • Chabahar port can be utilised by India to launch humanitarian operations in Afghanistan as well as in Horn of Africa countries.

What is the trilateral agreement of 2016?

  • In May 2016, during Prime Minister Narendra Modi’s visit to Iran, a trilateral agreement was signed between India, Iran and Afghanistan.
  • The agreement deals with the development of a Transport and Transit Corridor across 3 regions using the Chabahar Port as a pivot of connectivity
  • After the visit, the agreement was ratified by the Indian Cabinet and also got the assent of President and even Afghanistan’s Parliament has ratified it. However, the pact is still pending for approval in Iran’s Cabinet.

What are the outcomes of the December 2018 meet?

  • India Ports Global Limited Company opened its office and took over operations at the Shahid Behesti port at Chabahar. This is considered to be a great leap towards India’s role in the expansion of the Chabahar port.
  • Discussions were held between the 3 sides on full operationalization of the Trilateral Transit Agreement 2016 for international trade and transit via the Chabahar port.
  • They agreed on the routes for the trade and transit corridors between the three countries.
  • They also agreed to expeditiously finalise the Protocol to harmonize transit, roads, customs and consular matters.
  • They agreed to enable cargo movement at Chabahar using the provisions in the TIR Convention (The TIR Convention is a multilateral agreement to simplify and harmonise the administrative procedures of international road transport).
  • Furthermore, a study would be launched for finding suitable measures to make the route attractive, minimise logistic costs and make way for smooth operationalization of the Chabahar pact.

Is India no longer a part of the Chabahar- Zahedan Rail Line project?*

  • In July, Iran had decided to proceed with the long-stalled rail project linking Chabahar and Zahedan on its own. The track laying ceremony was also conducted.
  • The Iranian government is reported to have dropped India from the project over concerns about delays in funding. The Hindu reported that IRCON (an Indian consultancy) had earlier pledged to provide funding and services for the project.
  • However, the Iranian government said that no agreement has been inked regarding the railway project with India.
  • Iran is to construct the project alone using 400 million USD from the Iranian National Development Fund. It seeks to complete it by 2022.
  • The Indian government has refuted the claims that India has been dropped from the project. In 2016 an MoU was signed between IRCON and Iran’s CDTIC (Construction and Development of Transportation Infrastructure Company) by which India is to provide requisite services for the project. For this, 1.5 billion USD was committed as financing.
  • According to India, IRCON has completed site inspection and feasibility report. Detailed discussions were held on other aspects too. In December 2019, these aspects were reviewed and detailed at 19th India- Iran Joint Commission Meeting at Tehran. The Iranian side is to nominate an authorised entity to finalize outstanding technical and financial issues. Iran is yet to take things forward.
  • On the funding aspects, it is true that India had cut funds allocated for the Chabahar project. In 2019, the allocation by the Indian government dropped from 150 crore INR to just 45 crore INR. However, in February, the government had increased the funding to 100 crore INR.
  • India has plans to invest 500 million USD in the project given its importance in the country’s Central Asian strategy.
  • Apart from this, Iran has planned to go solo with another project- the Farzad-B Gasfield. This gasfield with approximately 21.6 trillion cubic feet of gas reserves was discovered by India’s ONGC. The ONGC’s overseas arm, ONGC Videsh has been seeking a role in the project. Citing slow progress, Iran is expected to hand over the project to a local firm.

What is China’s role in the matter?*

  • USA’s ‘maximum pressure’ policy has been pushing Iran closer to China. Apart from this, China has been trying to build relations with Iran as evident from Chinese President’s 2016 visit to Iran.
  • ‘Comprehensive Plan for Cooperation between Iran and China’:
  1. China announced intention of infusing 400 billion USD worth of investments in over a 100 projects in Iran- something the Middle East country is in dire need of.
  2. This is a 25 years strategic accord. In return Chinese will get heavily discounted oil for the period.
  3. These include projects in oil and gas sector, banking, telecommunications, transportation and infrastructure.
  4. Notably, it also includes military dimensions and could see the two countries cooperating on aspects like joint training and exercise, R&D for weapons’ development and even intelligence sharing. Iran is yet to sign this.
  5. Free trade zones are to be established in several areas including Abadan. This important oil and trading zone is strategically located at the end of the Persian Gulf. It is also located at the site where 2 major rivers- Euphrates and Tigris– drains into the Persian Gulf.
  6. China is also to bring in its 5G technology and Baidou– its version of GPS.
  7. Iran is expected to sign in the near future.
  • It is noted that Iran is already a part of China’s BRI project.

Why is this a cause of concern?*

  • China will get a greater say in Iran’s affairs- a traditional ally of India.
  • Chabahar Port was envisioned as a counter to the Gwadar Port project of China in Pakistan. Now that the Indian involvement in the Chabahar Project has waned in the recent times, there are concerns that China will move in to make use of the opportunity.
  • If the two countries solidify ties, the Chabahar Port as a Gateway to Central Asia may no longer be an option for India.
  • Many of the projects will go to Chinese contractors. These projects will be under Chinese influence for at least a quarter century.
  • If China moves in, Indian investments in the Chabahar project may become casualties. This is significant as the project could increase India’s trade with Eurasia to 170 billion USD while cutting shipment cost by 60% and shipment time by 50%.
  • If China succeeds in establishing a significant presence at the Chabahar port, it’s String of Pearls’ strategy would succeed in enclosing India from all sides- a significant strategic threat to India.
  • There are also diplomatic losses to India.

What are the present challenges in developing Chabahar Port for India?*

Chinese factor

  • The competition for regional dominance between India and China can also be seen in the development of ports in the region.
  • China has been developing the rival Gwadar port in Pakistan which is the part of its ambitious CPEC project under the Belt and Road Initiative (BRI).
  • China and Iran has significant common grounds to strengthen ties over- antagonism with the USA, Iran’s dire need for funding and China’s capital power, etc.
  • India’s possible loss with regards to the railway project could be China’s gain.

Pakistan factor

  • The reconciliation process with the Afghan Taliban is likely to see the regional powers and the countries such as the US and Russia cooperating with Pakistan more.
  • This could provide Pakistan an opportunity to play spoiler in Chabahar, which sees it a rival port to the Gwadar port in Pakistan.

US-Iran Tensions

  • Cooperation with Iran for the development of Chabahar would strain India’s relationship with the United States.
    • It is because the tensions between USA and Iran over Iran’s nuclear policy and enrichment programme and the imposition of sanctions is yet to be resolved.
  • India has stopped importing oil from Iran- a major strengthening point in the India-Iran ties- due to US sanctions.
  • The Chabahar port has received a temporary waiver from the U.S. sanctions on Iran. However, these concessions could be withdrawn any moment, considering the frequent upheaval in the US administration.
  • However, despite the continuation of the sanctions waiver on the Chabahar Port project, few international construction and equipment firms were willing to sign on to the project. This brought in a lot of delays in the project.

Economic challenges

  • There are logistics challenges involved in the sea-land route to Central Asia via Iran.
  • Moreover, the non-agricultural trade along the India-Iran route could be worth only $150 million a year = Indian government may need to provide subsidies to grow volume and improve efficiencies in order to make the trade economically viable.
  • The Iranian expectation that India would play a ‘more crucial role’ in the funding of the railway lines would be difficult given the current economic situation in India. China could probably present itself as a more attractive funding source for the troubled country.
  • The COVID-19 crisis has emerged as a challenge for infrastructure projects around the world.

The Taliban issue

  • The trade between India and Afghanistan can still be affected by many logistical challenges even after bypassing Pakistan.
  • It is because the Taliban controls most of the area around the Delaram highway = goods travelling to Kabul and Heart will have to pass via rough and dangerous terrain.
  • With the possible withdrawal of US troops from Afghanistan, the concerns regarding the security with respect to Afghanistan as well as Chabahar rises.

Conclusion*

The Chabahar project has been one of India’s successes in making economic and diplomatic inroads into Central Asia despite being cut off by Pakistan and in countering Chinese expansionism and String of Pearls strategy. However, with the recent decisions by Iranian government to go ahead with the projects alone and the impeding decision to strengthen ties with China, India is faced with a significant strategic challenge on its western side. It pays to remember that allies cannot be taken for granted in the fight against Chinese expansionism.

Practice question for mains*

‘Connectivity is the new currency’. Elucidate with reference to the opportunities presented by the Chabahar Port Project for India. (250 words)

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