Chabahar: Once exempt from US sanctions, why the port is again under threat

India and Iran have signed a long-term contract for the operation of the Shahid Beheshti Port terminal at Chabahar in Iran

Any country having business dealings with Iran runs the "potential risk of sanctions", the US warned on Monday, noting that it was aware that Tehran and New Delhi had signed a deal concerning the Chabahar port. The warning came despite the Chabahar port being previously exempt from US sanctions.

On Monday, India and Iran signed a long-term contract for the operation of the Shahid Beheshti Port terminal at Chabahar in Iran. The contract was signed by India Ports Global Ltd and the Ports and Maritime Organisation of Iran, in the presence of Ports, Shipping and Waterways Minister Sarbananda Sonowal.

India's 10-year bilateral contract with Iran for operating the Chabahar Port is likely to bring in an investment of approximately $370 million, comprising a direct investment of $120 million from India for infrastructure development and a $250 million line of credit to Iran, Business Standard reported on Monday. Moreover, the agreement can be extended by mutual consent.

 

Located at the mouth of the Gulf of Oman, the Chabahar Port offers India an alternative route for trade with Afghanistan and Central Asia -- with Pakistan denying India land access to these regions. It is also seen as a gateway for unlocking India's trade potential with European countries, since Chabahar is 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.

While India's involvement in developing Chabahar began in 2003, United States (US) sanctions on Iran over its suspected nuclear programme had slowed the development of the port.

Chabahar Port located in southeastern Iran (Image by Amohammadid on Wikimedia)

How has US reacted to Monday's Chabahar agreement?

Regarding the Chabahar Port pact, the US has warned of a potential risk of sanctions for any business dealings with Iran.

"We're aware of these reports that Iran and India have signed a deal concerning the Chabahar port. I will let the government of India speak to its own foreign policy goals vis-a-vis the Chabahar port as well as its bilateral relationship with Iran," US State Department Deputy Spokesperson Vedant Patel told reporters at his daily news conference on Monday.

However, in response to a question on the Chabahar port deal, Patel added: "I will just say, as it relates to the United States, US sanctions on Iran remain in place and we'll continue to enforce them."

When asked whether these sanctions would apply against Indian firms, Patel said, "You've heard us say this in a number of instances, that any entity, anyone considering business deals with Iran, they need to be aware of the potential risk that they are opening themselves up to and the potential risk of sanctions."

When asked whether there was any specific exemption for the latest agreement between India and Iran on Chabahar, Patel gave a single word answer: "No."

The Chabahar port is located in Iran's Sistan-Balochistan province. Photo credit: Google Maps

Why did US exempt Chabahar from sanctions in 2018?

  

In November 2018, the US had exempted India from certain sanctions for the development of the Chabahar port and the construction of a railway line connecting it with Afghanistan.

The decision to give an exemption by then US President Donald Trump's administration, which had just imposed tough sanctions on Iran, was reportedly seen as a recognition by Washington of India's role in the development of the Chabahar port, which was considered to be of strategic importance for the development of Afghanistan.

In May 2016, India, Iran and Afghanistan had inked a pact for the establishment of a transit and transport corridor among the three countries using the Chabahar Port as one of the regional hubs for sea transportation in Iran, besides multi-modal transport of passengers and goods across the three nations.

In its statement, the US State Department had said that after extensive consideration, in November 2018, the administration had granted a narrow exception under section 1244 of the Iran Freedom and Counter-Proliferation Act of 2012 (IFCA) to allow a limited number of activities that supported the reconstruction and development of Afghanistan, a key US national security interest.

According to the statement, the exception provided for Afghanistan's development and reconstruction and allowed for the operation of the Chabahar port in support of those goals.

The statement added that the narrow exception also allowed for certain activities, including Afghanistan's imports of refined petroleum products from Iran and the shipment of non-sanctioned goods, including lifesaving humanitarian assistance, through the Chabahar port to Afghanistan.

However, the US State Department had said that the exception excluded transactions with individuals or entities designated under US counterterrorism or non-proliferation authorities, including Iran's Islamic Revolutionary Guard Corps and its officials, agents, and affiliates.

The statement clarified that the exception provided under section 1244 of the IFCA did not apply to other sanctions authorities.

According to the State Department, other sanctions authorities would still be applicable to entities engaging in certain activities at Chabahar, including the sale, supply, or transfer to or from Iran of a number of materials that could be used by the country's construction sector.

Back then, the State Department had said that the US president's South Asia strategy underscored the US' support of Afghanistan's economic growth and development, as well as its close partnership with India.

However, it had also said that the US would seek to build on its close relationships with both India and Afghanistan even as it executed a policy of maximum pressure to change what it described as Iran's destabilising policies in the region and beyond.

The circumstances became favourable for Chabahar after Iran, the European Union, and the five permanent members of the United Nations Security Council plus Germany (P5+1) signed the Joint Comprehensive Plan of Action (JCPOA). 

Under the deal, a control and monitoring regime was imposed on Iran's uranium enrichment levels to prevent the weaponisation of its nuclear programme.

In return, some of the sanctions imposed on Iran were lifted, making it possible for India to push investments in the country.

In 2018, President Trump's administration ceased US participation in the JCPOA and reimposed all US sanctions that had been eased pursuant to the JCPOA. Along with other new restrictions, these were part of a "maximum pressure" policy meant to compel Iran to negotiate a new and expanded accord.

What happened to US sanctions waiver for Chabahar?

Tensions between the US and Iran increased after that, with Iran's Revolutionary Guard shooting down a US surveillance drone in the Strait of Hormuz in June 2019 and the US killing a powerful Iranian military commander, general Qassem Soleimani, in Iraq in January 2020.

There were reports of secret talks between Washington and Tehran in 2023, indicating a possible push by US President Joe Biden’s administration to revive the JCPOA.

However, the real change in Washington's outlook on Chabahar may have come in August 2021, when the US officially ended its military presence in Afghanistan after two decades of American involvement triggered by the September 11 terrorist attacks.

Also in August 2021, Indian officials had told a business daily that the Taliban seizing control of Afghanistan had put a question mark on the Chabahar port.

The official reportedly said that the US had allowed India to go ahead with developing Chabahar despite its sanctions on Iran mainly because Washington was looking to aid re-construction in Afghanistan. The official had added that the port was being developed "more for Afghanistan than for Iran", without specifying whether this was New Delhi's view on the matter or Washington's.

Ultimately, the US exit from Afghanistan could be the reason why it no longer views the Chabahar port project favourably.

(With inputs from Dhruvaksh Saha & agencies)