On May 13, India signed a 10-year contract for operationalising the Shahid Behesti Terminal of Chabahar, a port on Iran’s southwestern coast that would provide India with a vital connection to Central Asian Republics (CARs), Afghanistan and further to Europe through the International North-South Transport Corridor (INSTC). In 2003, India expressed interest in developing the port, but a formal agreement was not signed. A trilateral general cooperation framework on Chabahar between Iran, India and Afghanistan was signed only in 2016.

This route benefits India, as it will have land access to CARs and Afghanistan for its trade. Though India had already signed a short-term agreement with Iran to operationalise the port, the commercial viability of this port was a major challenge. Given the US sanctions on Iran and the short-term deal, it could not attract private capital. Moreover, the Port’s commercial viability could only be achieved if a robust supply chain network is implemented. That is feasible with investments made by private sectors, which would play an important role as stakeholders.

US sanctions and India’s investments

Since 1979, Iran has been facing international sanctions imposed by the US following an attack on the US Embassy during the Iranian revolution. It was further sanctioned due to its persuasion of the nuclear weapons programme. However, some of these sanctions were eased during the Barack Obama regime in 2016 to facilitate a nuclear deal with Iran. The sanctions were reimposed by the Donald Trump administration after he cancelled the nuclear deal.

In November 2018, the US announced that it had exempted India from sanctions for developing Chabahar Port and constructing a railway line that had emerged as an important port for accessing landlocked CARs and Afghanistan. Moreover, the US supported it as it was essential for the development and reconstruction of Afghanistan, a key foreign policy goal.

India has been cautious about its investment in Chabahar. Nevertheless, there are several speculations regarding the implementation of this project. In fact, in 2021, there were reports that India is not a part of the 628-kilometre Chabahar-Zahedan rail link. Later, it emerged that it was non-committal as Iran wanted to involve a company that belonged to the Iranian Revolutionary Guards under US sanctions. Both countries later clarified that they are still implementing the project together.

After the signing of the agreement with Iran, the US State Department warned India of the potential risk of sanctions. However, India has convinced the US about the larger implications of this project and its benefits for regional countries. Indian foreign minister said that the US should not take a ‘narrow perspective’ of the project.

Taliban takeover and Chabahar

The Taliban takeover is one reason the refinement of the port slowed down in Afghanistan after the US withdrawal in 2021. The ground situation has changed since then due to the Taliban’s outreach to India and India’s reciprocation. As a result of the dynamics of their relationship with Pakistan, the Taliban is keen to access the port and has announced an investment of $35 million.

As of now, India has exported 2.5m tonnes of wheat and 2,000 tonnes of pulses to Afghanistan as part of its humanitarian assistance. This export is significant as India does not have land and port access to Afghanistan through Pakistan which perceives India as its strategic rival.

Analysts also see Chabahar emerging as a rival to the Gwadar port in Pakistan, which was built by China. At one point, China also evinced an allure towards developing Chabahar as India was wary of US sanctions. In 2021, China signed a 25-year agreement to invest $400 billion in Iran, raising concerns in India. Since 2021, India has regularly allocated a budget for the development of the port.

Geopolitics of the port

The port would be a significant lifeline for India for its trade with CARs. At present, India’s trade with the CAR countries is worth a little more than $2 billion. Iran’s Chabahar port is a major geoeconomic asset for Iran. Not only will this port enhance Iran’s status as a connectivity hub to reach out to the landlocked CARs and Eurasia, but it would benefit the country economically by bringing business to the second most sanctioned country after Russia. Iran is looking for opportunities to boost its ties with countries friendly to Iran, which has also been a major energy source for many countries.

It was due to the US sanctions that India reduced its energy dependency. But India knows Chabahar would serve its more extensive geopolitical and geoeconomic interests. For example, the decision of the Indian steel conglomerate to invest in Hajigok to extract minerals from Afghanistan also highlighted the difficulties of accessing the nearest port to export which underlined the importance of Chabahar.

Iran also underlines the importance of this port’s connectivity. As the then Iranian Foreign Minister Amirabdollahian said, “Signing a contract for equipping and operating Shahid Beheshti Port terminals in Chabahar and boosting cooperation in the north and south corridors are very important opportunities.”

India’s Westward outreach

This strategic port is expected not limited to boosting trade between the two countries, as Chabahar remains an important connector to the INSTC, a 13-member organisation.

The current agreement envisages an Indian investment of $120 million in infrastructure development and a $250 million line of credit to Iran. Operationalised by the India Ports Global Limited (IGPL) after an MoU to this effect was signed on May 23, 2016, the port is poised to boost trade between India and the CARs. As mentioned earlier, it provides alternative access to Afghanistan for its external trade. After the US announced that this 10-year deal might attract US sanctions, India has said this is for the larger benefit of the region and the US should not take a narrow view of this agreement.

India has operated Chabahar port since 2018. However, it is only now that both countries have agreed to international arbitration, which Iran was reluctant to accept earlier. The two countries have agreed that the matter would be referred to a three-member tribunal in Muscat in line with the Singapore Arbitration Tribunal prior to international arbitration. Iran has also agreed to no penalty clause if the target to get a particular amount of cargo is unmet.

India’s objectives are not just to reach the CARs but to connect to the INSTC. The Chabahar port will connect India through a maritime route and Chabahar by road to Bandar-e-Anzali (an Iranian port on the Caspian Sea). From Bandar-e-Anzali to Astrakhan, a Russian port in the Caspian Sea, by ship further into Europe by Russian railways. At present, India is not focusing much on the INSTC connectivity to Europe given the geopolitics of the Ukraine war; it is concentrating on its connectivity to the CARs, which is part of the INSTC corridor.

In 2022, the first India-Central Asia summit was held, followed by a meeting of the national security advisers. The two countries are members of the Shanghai Cooperation Organisation (SCO). In 2020, India announced a $1 billion line of credit for infrastructure development. After India accessed the quadrilateral Ashgabat Agreement on International Transport and Transit Corridor in 2018, India’s quest for connectivity with the CARs has received a further boost. India has also proposed the inclusion of Chabahar Port as part of the INSTC to the CARs.

Connectivity has emerged as a key definer of geopolitics and access to market and trade initiatives, and through these instruments, achieving domestic economic growth is now a potent geoeconomics instrument. Chabahar serves both bilateral and regional economic growth.