In May 2024, India Ports Global Ltd. (IPGL) and the Ports and Maritime Organisation of Iran (PMO) inked a 10-year contract to develop and operate the Shahid Beheshti Port in Chabahar. The stalled deal eventually materialised with the effective work of both sides to turn the strategic port of Chabahar into a regional hub. India’s interest in the Chabahar port project is influenced by its strategic location, offering easy access to Afghanistan, Central Asia, and Europe, bypassing Pakistan through the International North-South Transport Corridor (INSTC). India plans to integrate the INSTC into the Chabahar port project. Despite this noteworthy strategic advantage, financial and regional challenges loom over the project, which India needs to overcome to expand its network.

The initial talks between India and Iran began back in 2003 but failed to take off due to the sanctions imposed by the US and the UN on Tehran for its nuclear programme and their ignorance towards an international arbitration framework. The deal saw movement only after 2015, when the two sides agreed on a formal agreement to develop the Chabahar port. In 2018, India pledged to invest US $500 million in the project. India has held up their side of the bargain by following up with a plan in the recent agreement to spend approximately US $120 million, with an additional US $250 million offered through a credit window for infrastructural development. Through strategic agreements like the Chabahar port, India is trying to expand and increase its trade with Central Asia and Europe. In 2020, India announced a US$ 1 billion Line of Credit for infrastructure development projects in Central Asian nations. Top officials of Indian and Central Asian countries are conducting regular and substantive engagements to utilise this credit window for progression in the region. 

Even though India has expressed its interest in financially backing the port, the persistent economic and regional adversities are intertwined. The possibility of US sanctions on Iran remains a threat to the project. Even after the agreement’s ratification in May 2024, the US has not ruled out the prospect of imposing sanctions on Tehran. If such a situation transpires, it can disrupt the project’s development, which can induce financial losses for India. The previous sanctions imposed by Washington on Tehran in 2018 exempted the Chabahar port from its restriction for two reasons. First, India required access to the port to provide aid to Afghanistan for its development and reconstruction. Second, Afghanistan was a priority for the US during that time. This geopolitical landscape has shifted since the exit of Washington from Kabul in 2021. Their priority has clearly changed and the risk of potential sanctions from the US has been renewed. Saudi Arabia’s role in the Middle East’s power struggle with Iran could potentially lead to Saudi Arabia requesting aid from the US to reduce Iran’s influence through sanctions, which can affect the development of the Chabahar port.

Even if India can materialise a trade route connecting the Shahid Beheshti terminal to the INSTC, regional instability in Iran due to its troubled relations with Israel is another geographical issue that can create financial losses for India. Tehran’s involvement in the ongoing conflict between Israel and Palestine through their proxies (Axis of Resistance) is heightening tensions between Iran and Israel, with both nations launching attacks on each other amid the continuing hostilities in Palestine. This creates continuous jeopardy for India regarding the feasibility of the project.

China and Russia are major players attempting to enhance their presence in Central Asia. Moscow has expressed their support for India in developing the port and they have conducted business through the western corridor of INSTC in the previous years. Russia’s support for the project increased due to the ongoing Russia-Ukraine conflict and the strained ties of Western countries with Moscow. Stronger collaboration with Central Asia and India is imperative for Russia’s trade and overall political stability. On the other hand, China and its ambitions for the region remain a threat to India. China’s initiatives like the China-Pakistan Economic Corridor (CPEC), influence over Gwadar port, the Belt and Road Initiative (BRI), and Beijing brokering a reconciliation between Iran and Saudi Arabia corroborate China’s attempts to increase its power in the region. The linking of the Chabahar port and INSTC is also aimed at countering the BRI and the Gwadar port. It is an inevitable fact that China will make moves to subdue India’s growing stronghold in the region.

However, it is imperative that India act accordingly to overcome these hurdles. India has a cordial relationship with the US. India should strategically use effective diplomatic approaches and conduct negotiations with Washington to earn and solidify waivers from Washington for not imposing any sanctions that can negatively impact the progress of the Chabahar port. The US might align with India, as China is significantly more of a strategic opponent for Washington than Iran in the overall geopolitical landscape. Any sanctions that impede India’s port project would aid the cause of China, and it is clear that the US does not desire such a situation. India has strong ties with both Israel and Saudi Arabia and can utilise this cooperation to avoid any impediment from the two countries on Iran that can affect the progress of the Chabahar port through active bilateral talks and effective negotiation.

(The author is Research Intern at CPPR)

Views expressed by the author are personal and need not reflect or represent the views of the Centre for Public Policy Research.

V Krishna Kumar

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