India-Iran Chabahar 10-Year Agreement And US Sanctions (Images: ipgl.co.in)
In 2016, India signed an agreement with Iran to develop the Chabahar port close to Iran’s border with Pakistan. A tripartite agreement was signed between Iran and Afghanistan to foster the development of the Shahid Beheshti Terminal at Chah Bahar, however, Afghanistan”s involvement was later curtailed after the Taliban government took over the country. On May 13, 2024, India signed a long-term deal with Iran to develop it further, which provides India with 10-year access to operate the port.
The deal was signed in Iran’s Chabahar town between India’s shipping minister, Sarbanda Sonawal, and Iran’s urban development minister Mehrdad Bazrpash. Indian shipping ministry said it was a historic moment in the India-Iran relationship. Indian Ports Global Limited (IPGL) and the Port & Maritime Organisation of Iran signed the deal. Under the agreement, IPGL will invest a total of $370 million in the port development with $120 million in infrastructure development and a $250 million line of credit to Iran.
History of Chabahar Port Development
Chabahar port location
Chabahar is a deep-water port in Iran’s Sistan-Baluchistan province which provides an easy and secure access for large cargo ships. Its strategic location in the Gulf of Oman and Strait of Hormuz sets it apart. India’s involvement in the port began in 2002 but under the George W Bush presidency, New Delhi was forced to abandon its strategic relations with Iran. India started developing Chabahar Port by building new cargo berths and a terminal in 2016 when the US eased sanctions on Iran which were reimposed by the Trump administration in 2018.
How is the agreement significant for India and Iran?
Iranian President Hassan Rouhani and Indian Prime Minister Narendra Modi during the former”s 2018 India visit
India took over the port’s operation at the end of 2018. The port opened a transit route for India to reach out to the markets of Afghanistan and resources-rich Central Asia, avoiding the land route through neighboring Pakistan which shares a tense relationship with India. It is India’s first major overseas port venture and part of its strategy to navigate the hostile neighbor Pakistan in its backyard. The port also provides a shorter route to access the European market. Plans are underway to connect Chabahar with the International North-South Transport Corridor (INSTC) to facilitate a direct route from India to Russia via Iran. It places India’s firm footstep in the global supply chain and maritime sector.
As per the official data, nearly 2.5m tonnes of wheat and 2,000 tonnes of pulses have been shipped to Afghanistan through Chabahar port. It has handled container traffic of more than 90,000 TEUs and bulk along with general cargo of more than 8.4m tonnes.
India’s investment in Iran is crucial amid the presence of US sanctions due to its suspected nuclear program which has impacted Iran’s economy badly. The deal provides several opportunities for Iran to strengthen its economy, access to central Asian markets, opportunities to diversify ties with other regional powers. India has also offered to invest in road and rail networks in Iran and will also work as a major market for Iranian goods.
US sanctions and the India-Iran Agreement
The progression of the port was hindered by the US sanctions on Iran due to its suspected nuclear program. However, the US has imposed more than 600 sanctions on Iranian- entities in the past three years. After the India-Iran Chabahar Agreement was signed the US State Department Deputy spokesperson Vedant Patel responded that the US sanctions on Iran are still in place and that Washington would continue to enforce them and any entity considering a business deal with Iran will also be prone to the potential risk of the sanctions. However, India has not responded officially to the statement.
ORF fellow Manoj Joshi says that Chabahar has long-term potential but due to US sanctions on Iran, it has not turned out to be a game-changer for India as private Indian companies are reluctant to use the port. Due to this reason, no real sharp rise in India’s trade with Central Asia was observed. The deal is strategically significant for India to reach out to Iran.
Earlier India was operating the port through short-term agreements as the geopolitical nature of the country kept investors and shippers away due to the absence of a long-term government agreement so far but now the situation can change as a 10-year long-term agreement has been signed between both the countries.
Strategic significance of the agreement
Chabahar is seen as a counter to China’s development project of Gwadar Port in Pakistan which is just 100 kilometers from the Chabahar port. The Belt and Road Initiative (BRI) of China required India to increase its maritime presence in the Arabian Sea.
Pakistan’s Daily Dawn writes that India has been developing the port in Chabahar on Iran’s south-eastern coast bypassing the ports of Karachi and Gwadar. However, US sanctions on Iran slowed the port’s development.
By signing the agreement India has shown the independence and autonomy of its foreign policy considering its own economic and strategic interests.
