Despite US displeasure, India bets on Iran port

The inclusion of Chabahar port linked with the International North-South Transport Corridor (INSTC) is a vital element in India's connectivity strategy.

The recent agreement between New Delhi and Tehran to operate the Chabahar port for the next decade has reignited discussions about the port and the International North-South Transport Corridor (INSTC), especially with the United States issuing warnings.

Under the agreement between India Port Global Limited (IPGL) and Iran's Ports and Maritime Organization, the IPGL is set to invest $120 million, with an additional $250 million raised through lines of credit. This long-term agreement to operate the Shahid Beheshti Terminal in Chabahar port will replace the 2016 pact which was renewed annually. 

The 2016 agreement's exemption from US sanctions on Iran suggested that the new pact would also likely be exempted. However, the State Department spokesperson clarified that there is no exemption, and any entity contemplating business dealings with Iran faces the risk of sanctions.

In the context of difficult India-Pakistan relations and continuing instability in Afghanistan, the Iranian multi-model transport route has been important for India. If India were to unveil a connectivity strategy, including the INSTC linked with the Chabahar port would be a crucial component.

The INSTC has been under discussion for a long time. It did not materialise as India-Russia trade, which was supposed to provide bulk volumes, was struck for a long time. Now bilateral trade with Russia has grown to more than $50 billion. A large part of this trade is oil imports. Despite uncertainty on many fronts, oil imports from Russia are likely to continue. 

The Russia-Iran sector of the INSTC is operational. After many years, India’s engagement with the South Caucasus has also grown. New Delhi has emerged as an important supplier of defence equipment to Armenia. Some of these arms consignments have been supplied via the Iran corridor. 

The initial plan for the INSTC also included extending connections to other European cities via Russia. Due to the Ukraine war and escalating tensions between the European Union (EU) and Russia, these plans are no longer feasible. However, Armenian authorities offer other options. Under the plan, Indian goods could also be supplied to Europe via the Iran-Armenia-Georgia-Black Sea route. 

Earlier, in 2018 the US exempted the Chabahar port from Iran sanctions. A key objective of the port was to support India's involvement in the reconstruction efforts in Afghanistan. So, during that period, former Afghan President Ashraf Ghani also played a role behind the scenes to ensure that the Chabahar project remained unaffected by US sanctions on Iran.

The situation in Afghanistan has undergone a significant shift, with it no longer being a priority for the US administration. Still, many countries (including India) will likely increase their engagement with Afghanistan. For India, the importance of the Chabahar port in the context of regional stability and balancing Chinese influence in the region has not declined. For these reasons, External Affairs Minister S Jaishankar has urged the US authorities not to take a narrow view of the port agreement with Iran. 

Another major connectivity initiative with Indian involvement was the launching of India-Middle East-Europe Economic Corridor (IMEC) last year. Despite the long-term promise of the IMEC, ongoing discussions are being overshadowed by the Israel-Gaza war. So positive developments on Chabahar and the INSTC are important for India.

Sanctions imposed by the US on Russia and Iran have created complexities for Indian connectivity strategies in the Eurasian region. Private companies with Western exposure are still reluctant to get involved with Iran. However, New Delhi is determined to find ways to deal with the US designs. 

Given India's recent history of consistently purchasing oil from Russia despite Western sanctions, it's probable that India will proceed with the project whether it receives approval from the US or not. It remains to be seen how India will use the port to facilitate India’s trade with Iran and Central Asia. Even the earlier US exemption was mainly for facilitating Afghanistan’s trade and Indian reconstruction activities in that country. 

(Gulshan Sachdeva is Professor at the Centre for European Studies and Coordinator, Jean Monnet Centre of Excellence, Jawaharlal Nehru University.)

Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.