What is the Chabahar Port deal?
This deal had its backdrop in 2003, during the rule of the Vajpayee Government. A bilateral discussion was brewing between New Delhi and Tehran to jointly develop the Chabahar Port in the southernmost part of Iran, mere dozen kilometers away from the Iran-Pakistan border. India’s motivation for this deal is clear with the significance this port has from its perspective. A major trade and connectivity hub on Iran’s coast would give India an alternative route to Afghanistan, bypassing Pakistan, while providing an Indian strategic counter to Pakistan’s Gwadar port being developed by China close to Chabahar. The Chabahar trade zone could act as a major trade centre for India’s energy imports and food and material exports coming from Kandla and Mundra ports.
Another deal was under talks between Iran, India and Afghanistan. This deal involved a rail project from Chabahar to Zahedan, which would have allowed India an independent corridor not only to Afghanistan, but also to Central Asia and Russia in the future.
Completion status
The Modi government, in 2016, decided to fast track both agreements and begin development. It was time for talks to be inked on paper in the form of a treaty. Thus, two deals were signed. A bilateral treaty was signed between New Delhi and Tehran for the Chabahar Port. Additionally, a trilateral treaty between New Delhi, Tehran and Kabul was signed to build an alternate trade route/rail line to Afghanistan and Central Asia.
The first phase of the port began operations in December 2017, thereby paving the way for further works. As part of the trilateral agreement, the rail line was supposed to be developed with a deadline of March, 2022.
What is happening?
Over the past two years, Iran has made many changes to the rail contract, which is deemed against India’s interest.
There has also been a delay from India’s side despite a commitment from state-owned IRCON. IRCON International Limited, formerly Indian Railway Construction Limited, is an engineering and construction organization, specialized in transport infrastructure who has taken the bid for the 628 km proposed rail line.
A reason, in part, of this delay is that there has been a fear of American penalties on transactions with Iran. Even though India was able to negotiate a sanctions waiver for the Chabahar port and the rail line from the U.S., very few international construction and equipment partners were willing to sign on to the project with fears of facing sanctions from the biggest economy in the world. These sanctions are on the backdrop of the USA exiting the JCPOA.
The Frenzy
On 14th July, 2020, the government of Iran announced that Iranian Railways will proceed without India’s assistance, using approximately $400 million from the Iranian National Development Fund. This implied the exit of India from the trilateral agreement. Tehran, in its defense, cited the long standing delays from India’s end with initiating the project.
However, on 16th July, 2020, the Indian Ministry of External Affairs spokesperson made a statement that there has been significant progress on the port project. The Government has denied the reports of Iran dropping India from the rail project. Also, the ministry mentioned that Tehran is yet to nominate an authorized entity to finalise the outstanding technical and financial issues related to the venture.
Soon after this statement by India, Iran’s Railway Minister has said that Iran and India are determined to continue cooperation on the railway line and that work shall progress as mentioned in the treaty.
Risks involved
The constant delays in the project owing to many factors have raised several geopolitical concerns.
Iran has been in talks with and has finalized a massive 25-year, $400 billion strategic partnership deal with China. Also, Iran had proposed a tie-up between the Chinese-run Pakistani port at Gwadar and Chabahar in 2019 and has offered interests to China in the Bandar-e-Jask port 350km away from Chabahar, as well as in the Chabahar duty-free zone.
Secondly, the increasing relations with Iran may invite sanctions from the USA as part of its stance with regards to the JCPOA. Moreover, there is a possibility that current reliefs provided by the USA in terms of crude oil trade may be revoked, leaving India stranded with relation to oil imports.