Potential for Growth: The India-Iran Chabahar Port Deal

On May 22, Indian Prime Minister Narendra Modi signed a trade deal with Iran, an agreement in which New Delhi pledged to invest US$500 million into the strategically important Iranian port at Chabahar (1). In the works since 2003 but stalled due to bureaucratic delays, the project to develop Chabahar under Indian control finally gained momentum earlier this year with the lifting of Iranian sanctions (2). 
 
Located near Iran’s border with Pakistan on the Gulf of Oman, Chabahar’s proximity to this busy shipping corridor makes it an especially valuable asset for trade in the region (3). Though the port has held great geopolitical and economic significance for explorers and rulers for centuries, it was only in 1974 that the Shah of Iran proposed a comprehensive development plan for the port: a US$600 million naval base that was to be constructed at Chabahar, mainly using American contractors (3). However, a lack of funds and the subsequent Islamic Revolution in 1979 put a temporary halt on these plans (3). After the revolution, Iranian national companies took over construction, but only a small part of the port was completed in the following years (3). The Iran-Iraq war beginning in 1980 brought a renewed strategic importance to the port; more vigorous construction resumed between 1982 and 1983 (3). However, the port remains underdeveloped, a symbol of Iran’s untapped potential for economic development. 
 
Today, the investment and development deal represents a great opportunity for both Iran and India to expand their trade influence in the region. Since the US, UN and EU lifted most sanctions against Iran early this year in response to a positive report from the International Atomic Energy Agency in regard to Tehran’s nuclear program, Iran has been taking measures to establish itself as an outward-looking player in the region’s politics and trade, as well as the global economic regime (3). Developing Chabahar will allow Iran to compete for regional trade with Pakistan’s Gwadar Port only 72km away, in which China already invests heavily (2). 
 
On the other hand, India stands to gain just as much if not more from this deal from an economic standpoint. The rapidly growing Indian economy relies on huge inputs of oil and natural gas, a need which Iran is “capable of fulfilling,” according to an Iranian newspaper reporting on the Chabahar deal (1). Partial ownership of Chabahar will help restore fossil fuel imports from Iran to their pre-sanctions levels; before the 2012 nuclear controversy, the Iran was India’s second-largest crude supplier (4). Beyond Iran itself, Chabahar will also facilitate trade with other suppliers of oil and natural gas in the Central Asia region, including Kazakhstan, Kyrgyzstan, Uzbekistan, Turkmenistan and Tajikistan (2). Currently, India accounts for less than 1% of these countries’ trade volume, largely due to supply-route difficulties; Chabahar is poised to dramatically increase this figure (2). 
 
More specifically, access to a major seaport in Iran will allow India to strengthen ties with Afghanistan. As of now, the only overland trading route with Afghanistan lies through Pakistan, of which New Delhi is barred from taking full advantage due to political hostility from Pakistan (4). According to Tanvi Madan, head of the India Project at the Brookings Institute in Washington, “The Indians have tried for many years to get such transit access [to Afghanistan] through Pakistan, but they’ve come to the conclusion that it’s just not going to happen and that they need to move forward another way” (4). Chabahar port is India’s solution to this setback; the overseas route will eliminate the need for negotiations with Pakistan for overland trade, bypassing the country completely. 
 
To further facilitate trade made available by the port, India signed additional agreements with Iran, including a US$16 billion pledge to invest in a free trade zone at Chabahar (5). As such, Central Asia will likely see a steady expansion of Indian presence in regional trade in coming years. Beyond trade in oil and gas, in exchange for natural resources, India can boost exports in aluminum, steel and petrochemicals to the region, improving its trade balance (4). 
 
The Chabahar deal represents India’s aim to establish itself firmly as a major trading player in the region, resisting Chinese and, to some extent, Russian dominance. While in the past years sanctions limited many countries’ access to Iranian commerce, Russia and China strengthened their footholds on trade in the region; now that they are lifted, India is eager to open up the previously closed-off country while claiming a large stake of influence for itself (5). Moreover, according to senior associate at the Center of Strategic and International Studies Ariane Tabatabai, “Iran doesn’t want these two countries [China and Russia] to keep a quasi-monopoly on various sectors of its economy” (5). 
 
In addition to its involvement in Iran, China’s investment in Pakistan’s Gwadar Port, despite risk from political instability, demonstrates the country’s commitment to dominating trade in Central Asia (6). Moreover, such willingness to take on risk in its investments speaks to the great future payoff that China predicts from expanding trade with Central Asia, an area of great potential for growth. The Chabahar trade deal shows India embracing this mentality, eager to cash in on trade with the region before it finds itself shut out by more quick-acting countries.

(1) BBC (2016). India and Iran sign ‘historic’ Chabahar port deal. Available at: http://www.bbc.com/news/world-asia-india-36356163 (Accessed: 26 July 2016). 
 
(2) Nooruzzaman, S (2016). Chabahar Port: A game-changing deal. Available at: http://www.tehelka.com/2016/06/chabahar-port-a-game-changing-deal/ (Accessed: 27 July 2016). 
 
(3) Ports and Maritime Organization (2016). Welcome to Chabahar Port. Available at: http://chabaharport.pmo.ir/en/introducing/history (Accessed: 27 July 2016). 
 
(4) Taylor, G (2016). Iran-India port deal reveals tense Asian rivalries. Available at: http://www.washingtontimes.com/news/2016/may/29/india-iran-chabahar-port-deal-reveals-tense-asian-/ (Accessed: 27 July 2016). 
 
(5) Balachandran, M (2016). India’s $500 million port deal with Iran is a masterstroke—and a tough balancing act. Available at: http://qz.com/690217/india-just-played-a-masterstroke-in-iran-to-reinforce-its-regional-soft-power-status-in-asia/ (Accessed: 27 July 2016). 
 
(6) Jha, S (2016). India’s Grand Plans in Iran Go Way Beyond the Chabahar Port Deal. Available at: http://www.worldpoliticsreview.com/articles/19085/india-s-grand-plans-in-iran-go-way-beyond-the-chabahar-port-deal (Accessed: 27 July 2016). 

Image: &copy; TasFoto | Dreamstime.com - <a href="https://www.dreamstime.com/editorial-image-cargo-ship-iran-rotterdam-netherlands-container-ardebil-new-waterway-leaving-port-image54128995#res14972580">Cargo ship Iran in Rotterdam, Netherlands</a>