India's Chabahar Deal: More Strategic Now, But Profitable In The Long Run

India and Iran have finally  signed a pact shortly for the former to manage the vital port's Shahid-Beheshti terminal. Chabahar located in Iran’s Sis-Balochistan region, can link India’s western ports to central Asian nations and thence on to Russia via the International North-South Corridor.

The move comes within two months of China running a container train from its city of Xi'an to Azerbaijan via Kazakhstan along the Trans-Caspian International route, which is being viewed as a rival for the movement of freight traffic between Asia and Europe.

India will be taking over the management of an overseas port terminal for the first time, said officials.

The trade potential of the route is believed to be enormous as far as trade with the Russia-promoted CIS or Commonwealth of Independent States is concerned. The Chabahar route will also help Afghanistan and India bypass the troublesome highway through Pakistan for trade between the two South Asian countries. 

An official statement said the deal was signed by India Ports Global Ltd (IPGL) and Iran's Port & Maritime Organisation (PMO), in the presence of Ports, Shipping and Waterways Minister Sarbananda Sonowal. 

The Indian Embassy in Iran in a post on X said: “@sarbanandsonwal handed over the letter from EAM @DrSJaishankar to Iran’s FM @Amirabdolahian offering a INR credit window equivalent of US $ 250 million for Chabahar-related development. Reiterated India’s commitment to cooperate with Iran in developing the Chabahar Port.

“Chabahar is a project India has been working on for a long time. The routes we are investing in should give us a cost-effective rail-road network to reach out to the markets of central Asia,” said Riva Ganguly Das, former Secretary (East) in the Ministry of External Affairs. 

Earlier in March, an Indian diplomatic mission led by the ambassador-level diplomat in charge of the Pakistan-Afganistan-Iran desk met with Taliban authorities in Kabul to discuss the Afghan use of the Chabahar facilities. The development came months after the Afghanistan embassy here, which was earlier run by anti-Taliban Afghan diplomats, was shut down and the consular responsibilities handed over to pro-Taliban officials.

The Taliban-run government is believed to be also planning to invest some US$35 million in the Chabahar port, which connects the landlocked nation via the Chabahar-Zahedan-Sarkhs railway. 

Though Iran does not formally recognise the Taliban regime, Tehran and New Delhi have decided that in the interests of realpolitik, they need to cut a deal with the Taliban regime.

India, Russia, and Iran have long projected the Chabahar port, long described as a ‘Golden Gateway’ on the wild Makaran coast,  as a means to boost regional trade for the 7,200 km long INSTC corridor.

The corridor is expected to serve not just India, Iran, and Russia but also some dozen other central Asian states including Azerbaijan, Armenia, Kazakhstan, Kyrgyz Republic, Turkiye, Ukraine, Belarus, Oman and Syria, and thence on connect with Europe too at some stage.

For Afghanistan, it will give the country an alternative to the route via Lahore, which is prone to being blocked at times by Pakistani authorities. After the initial bonhomie between Islamabad and a Taliban-controlled Kabul faded out, relations between the two countries have often been tense.

For India which has been facing a rising trade deficit and shrinking exports, the trade corridor once operational may present new opportunities. It exported nearly US $ 9 billion worth of goods to Russia and other CIS countries in 2022-23 and imported some US$ 94 billion worth of goods, mostly oil and defence equipment. 

Though the trade with Iran and Afghanistan isn’t large, it is considered of strategic importance. India exported US$ 437 million of goods to Afghanistan and imported US$ 452 million worth of goods from that country in 2022-23. While its trade with Iran was worth about US$ 2.4 billion.  

The problem with the Chabahar and thence on the INSTC route has been that though two dry runs found that the corridor was more cost and time-effective than the Suez Canal route, it had three problems -  troublesome and prolonged border clearances, poor connectivity within Iran and fewer return cargos as the crude that India imported was mostly moved by oil tankers. 

“The region – Iran-Afghanistan-Central Asia has a geo-strategic significance for us, In the first phase the port and the route may not yield huge volumes of business but in the long run it will be a major economic corridor through which both trade and investment will flow within Asia and eventually connecting Europe,” said Sreradha Datta, professor at the OP Jindal University and Senior Fellow, Institute of South Asian Studies, NUS, Singapore. 

However, as political strategists and geographers have pointed out, trade routes are not just about trade, they are strategic pathways to diplomacy. And in this case for India, it is a race of sorts with China, its biggest rival in Asia, as it too searches for new markets within the continent and cheaper ways of reaching Europe. 

In a sense, it is a replay of the medieval era, when European adventurers were searching for a route to Asia, only this time round it’s being played out in reverse.