05

On May 13, India and Iran signed a 10-year contract to operate the Chabahar port in Iran. The agreement between India Ports Global Ltd (IPGL) and Iran’s Port and Maritime Organization (PMO) pertains to the operation of the Shahid Beheshti terminal, one of the two projects at Chabahar port.

A brief history

Despite historical ties, India and Iran were not close from 1947 to 1979, partly due to India’s leadership in the Non-Aligned Movement and Iran’s alignment with the USA. Suhasini Haidar mentioned in The Hindu (May 19) that in the 1970s, the USA planned to build a submarine base in Chabahar, but it never materialized. In 1993, India’s Prime Minister Narasimha Rao visited Tehran to build a new relationship with Iran. In 1994, Foreign Minister Dinesh Singh visited Iran, initiating discussions about Chabahar. However, it wasn’t until Prime Minister Atal Bihari Vajpayee’s visit to Tehran in 2001, followed by Iranian President Mohammad Khatami’s visit to Delhi in 2003, that both countries agreed to develop the Chabahar port. The plan included linking Chabahar to the National Iranian Railroad, connecting India to Central Asia and Europe.

After a long gap due to various complexities, India signed a MoU for the development of Chabahar port in May 2015. In May 2016, India, Iran, and Afghanistan signed a trilateral agreement to establish the International Transport and Transit Corridor, known as the Chabahar Agreement. This aimed to improve transport and trade connectivity between the three countries using Chabahar port as the main transit point.

Importance of Chabahar Port for India

First, Chabahar port provides an alternative route to West Asian countries, including Afghanistan, bypassing Pakistan. Second, it offers easy access to Iran, the key gateway to the International North-South Corridor (INSTC). This allows India to utilize sea, rail, and road routes of the INSTC for transportation to Iran, Russia, Central Asia, and Europe, providing an alternative to the Suez Canal route for international trade.

Economic benefits

Enhanced Connections: The port will facilitate easier access to resource-rich Central Asia and Afghanistan. Trade Links: Improved trade connections with Russia, Eurasia, Europe, Iran, and Afghanistan will benefit both India and the regions involved.

Cost Efficiency: Cargo movements through the INSTC route are expected to save 30% in cost and 40% in transportation time, reducing turnaround time and costs.

India’s utilisation of Chabahar Port

India has previously used Chabahar port for humanitarian assistance and reconstruction efforts in Afghanistan. During the COVID-19 pandemic, India supplied vital materials to Afghanistan, shipping 2.5 million tonnes of wheat and 2,000 tonnes of pulses through Chabahar.

Challenges

Iran faces sanctions from the USA, creating uncertainty about the uninterrupted utilisation of Chabahar port.

Investment opportunities

An Indian company has built a highway connecting Chabahar port to Kabul, providing landlocked Afghanistan an alternative route to the Arabian Sea and Persian Gulf, bypassing Pakistani routes. This reduces the distance between Chabahar and Kabul by 700 kilometers compared to Karachi, saving $1,000 per container.

At Chabahar, India Ports Global will refurbish and reconstruct container handling facilities and modernize ancillary infrastructure, aiming to increase handling capacity from 2.5 million tonnes to 8 million tonnes. The investment target when the MoU was signed in 2018 was $85 million.

Conclusion

The impact of Chabahar port on India’s economy remains to be seen. For India to benefit economically, its foreign trade sector must remain vibrant. Despite entering several bilateral and multilateral trade agreements in the past decade, India has often not benefited as expected, with trade balances often tilting against it, according to Biswajit Dhar, a trade theoretician and former professor of economics at Jawaharlal Nehru University, New Delhi (Ananda Bazar Patrika, May 14,’24).