Chabahar explained: How India can bypass Pak, reach Europe via Iran port

India and Iran signed a long-term agreement for the operation and management of the Chabahar Port on Monday

After years of negotiations and setbacks, India signed a long-term agreement with Iran on Monday that will allow it to operate and manage the Chabahar Port, which sits at the mouth of the Gulf of Oman and is Tehran's first deepwater port, with the deal likely to have a significant impact on trade and geopolitics.  

Union Shipping Minister Sarbananda Sonowal traveled to Tehran on Monday to ink the pact. Given that the model code of conduct is in effect due to the ongoing Lok Sabha elections, Sonowal sought and was granted an exemption from the election commission to make the foreign visit.  

 

Why is the Chabahar Port important?  

The Chabahar Port, which sits at the mouth of the Gulf of Oman, offers India an alternative route for trade with Afghanistan and Central Asia -- with Pakistan denying India land access to these regions. 

The strategic port, located in southeastern Iran, has been developed with Indian aid.

  

Chabahar is also part of the proposed International North-South Transport Corridor (INSTC), a multi-modal transportation route linking the Indian Ocean and the Persian Gulf to the Caspian Sea via Iran, and onward to northern Europe via Saint Petersburg in Russia.  

As a result, the Chabahar Port is also seen as a gateway for unlocking India's trade potential with European countries, as it provides a shorter route to Europe.  

Shipments through the INSTC route will take 15 days less compared to the Suez Canal route, according to industry estimates.

  

According to the Research and Information System for Developing Countries (RIS), as of January 2018, Indian investment in the Chabahar project was expected to be about $85 million, with overall Indian exposure to the project estimated at $500 million.  

Watch: Why is Iran's Chabahar Port important for India?

What is Chabahar Port's geopolitical importance?  

India's involvement in developing Chabahar began in 2002.  

The following year, during then Iranian President Syed Mohammad Khatami's visit to India, a roadmap for strategic cooperation was signed with then Prime Minister Atal Bihari Vajpayee, with one of the key projects being Chabahar.   

India's interest in Chabahar was the result of the opening up of the Indian economy, which made New Delhi consider new trade routes as a part of its geopolitical strategy.   

The Chabahar project comprises two distinct ports -- the Shahid Beheshti and Shahid Kalantari. India's investment is reportedly restricted to the Shahid Beheshti port.  

Chabahar's strategic location, lying to the west of Iran's border with Pakistan and close to the competing port of Gwadar, makes it attractive for India.  

The Chabahar Port gained greater significance once China started developing the Gwadar port in Pakistan as part of its Belt and Road Initiative. Pakistan and China signed a deal in 2002 to build the deep-sea port at Gwadar.

  

The Chabahar Port has an important role to play in India's outreach to both Iran and Afghanistan.  

Chabahar can potentially help Iran in dealing with the effects of Western sanctions and aid land-locked Afghanistan in curbing its dependency on Pakistan for access to the Indian Ocean.    

State-owned India Ports Global Limited (IPGL) was incorporated in 2015 for the development of ports overseas.  

After a 2016 trilateral agreement between India, Iran and Afghanistan for the development of an international trade corridor, which would include Chabahar as a central transit point, New Delhi ramped up efforts to develop the Shahid Beheshti port.  

The Shahid Beheshti port's first phase was inaugurated in December 2017, with India sending its first consignment of wheat to Afghanistan through Chabahar that same year.  

In 2018, IPGL took over a part of the operations at Shahid Beheshti.  

Exports from Afghanistan to India were transported through the port for the first time in 2019.    

The Shahid Beheshti port is being developed in four phases, according to IPGL's website. "On completion of all four phases, port capacity will be 82 million tonnes per year," according to IPGL.  

In December 2019, Iran said that Shahid Beheshti port's capacity had been increased to 5.8 million tonnes due to the construction of a modern cruise terminal.  

Why is the long-term agreement for Chabahar important?  

The Shahid Beheshti port at Chabahar is already operated by IPGL.  

But, India was operating the port on a short-term agreement, which had to be renewed periodically.  

The short-term agreement and Iran's geopolitical tensions had kept shippers and investors at bay when it came to investing in Chabahar.  

A government official aware of the matter told Business Standard that the industry had been concerned that when the government itself didn't have a long-term agreement with Iran for the Chabahar Port, how could it be expected to move its long-term supply chain plans through it. "This should get streamlined now," added the official.  

Why did the latest agreement take so long?  

In the works for years, the long-term agreement for the operation and management of Chabahar Port had been stalled for various reasons.  

However, the aforementioned official told Business Standard that most of the clauses, including arbitration, where there had been a contention had been agreed on now.  

Negotiations between India and Iran had faced a deadlock after Tehran refused to agree to an international arbitration framework, citing the need for a constitutional amendment.  

Meanwhile, India was adamant about the arbitration clause to ensure transparency in dispute resolution.

  

Geopolitics has also delayed the port's development, with the biggest obstacle being Iran's tense relationship with the United States (US) and US sanctions on Tehran.