INDIA and Iran concluded a long-awaited port deal in Tehran on Wednesday, lending a big boost to efforts for promoting regional trade. The Chabahar port near the Iranian border with Balochistan reflects Prime Minister Narendra Modi’s keen interest in forging robust trade links with Central Asia, including landlocked Afghanistan.
In 2003, the two sides had agreed to execute the project, bypassing Pakistan, but the venture made slow progress due to Western curbs on Iran over its controversial nuclear programme. The port’s expansion is expected to whittle down transport costs and cut freight time from India to Central Asia and the Persian Gulf.
Chabahar provides India an easier land-sea route to Afghanistan, where it has fostered close security cooperation and economic interests over the years. New Delhi has already spent $100 million on building a 220-kilometre road in the Nimroz province of Afghanistan. The road will be extended to Chabahar.
Chabahar provides India an easier land-sea route to Afghanistan.
Afghanistan is expected to sign a tripartite transit trade agreement on using the port as an alternative route, which could jack up bilateral trade to $3 billion from $700-800 million.
The project’s strategic nature is illustrated by its location along the coast from the Chinese-funded Gwadar port in Balochistan. Noting the prospect of sanctions on Iran being lifted or eased, India plans to fast-track the plan.
Modi’s sense of urgency in concluding trade pacts with Iran and other Persian Gulf nations is apparently driven by Chinese President Xi Jinping’s signing of $46bn energy and infrastructure development agreements with Pakistan last month.
During his daylong visit to Tehran, India’s shipping minister inked with his Iranian counterpart Abbas Ahmad Akhoundi a memorandum of understanding on developing the port on the Gulf of Oman. Both sides overruled America’s call for India and other countries not to rush into doing business with Iran. The US has expressed its concern that India is moving too fast and could undermine the sanctions regime.
After a commercial accord is reached on implementing the pact, Indian firms will, according to the Indian government, “lease two existing berths at the port and operationalise them as container and multi-purpose cargo terminals”, providing Afghanistan with access to the sea and reducing its substantial reliance on Pakistan.
The signing ceremony came on the heels of a warning from the US ambassador to India, who said countries engaging with Iran must wait for the outcome of Tehran’s discussions with the P5+1 group — the US, Russia, China, France, Britain and Germany.
With the next round of talks scheduled for May 12 at Geneva, the European Union and the rest of the partners will join the negotiations three days later. As the negotiators seek to wrap up the process by June 30, there is cautious optimism of a breakthrough.
For its part, the Modi administration insists the development of the port in no way violates sanctions and that it is not bound to enforce Washington’s decisions. The port will enable Iran to open up to the Western world once the sanctions are lifted. India had also expressed its interest in developing a key oilfield, but Iran refused to give it gas marketing rights.
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During the government of ex-premier Atal Behari Vajpayee, India slashed oil imports from Iran, a move that left the two countries running into rough weather. The situation worsened in 2014 when Iran hiked import duty on Indian rice from 10pc to 45pc, worrying traders and farmers from Punjab, Haryana and UP.
While eyeing a larger role in Western Asia, Delhi’s regional diplomatic status will see a huge surge with the development of the port. Iran, meanwhile, wants India to help create a free trade zone near Chabahar, some 70km from Gwadar where the Chinese Overseas Ports Holding Company has agreed to help Pakistan establish a free economic zone.
Islamabad’s constant refusal to provide a land route for Indian shipments to Afghanistan via Wagah has frustrated Delhi’s efforts to engage with Kabul economically and strategically. India has pledged $100m for laying railway lines connecting Afghanistan with Central Asia.
In order to ensure the launch of trade activities at Chabahar, India may enter into discussions with the US for seeking a sanctions waiver. Once the nuclear deal is sealed, New Delhi will invest $85m in the purchase of equipment to set up and run a container terminal and a multi-purpose berth at the port, whose operation is estimated to cost India $22.95m annually.
Officially designated as a free trade and industrial zone by the Iranian government, Chabahar has acquired increased significance in terms of an international trade hub. Poised to connect business growth centres in South Asia, the Middle East and Afghanistan, the free trade area is being connected to Iran’s main rail network.
The writer is a Kabul-based Pakistani journalist.
Published in Dawn, May 10th, 2015