A Wide Berth

Located on Iran’s southern shore, near the Iranian-Pakistani border, construction of Chabahar Port started in 1981 during the Iran-Iraq War. The intention to build the port had been there for some years, but the war spurred Iran to put things in motion in a bid to shift trade interests eastward and become less vulnerable to airstrikes from Iraq. The current post-sanctions era is the stage of the port’s next phase of development and is driven by geopolitical incentives as well, but Iran is in a more comfortable position now. As India witnesses how China is strengthening its foothold in the region, it is keen on countering China’s growing presence. With the signing of the China-Pakistan Economic Corridor in 2015, China pledged considerable investments in Pakistan’s Gwadar Port. While India seeks access to Afghanistan’s mineral reserves and consumer market, Pakistan denies India transit rights. More than just another hostility between two longtime foes, this issue sustains the economic dependency of Afghanistan on Pakistan, as its number-one trade partner. As Afghanistan’s repeated requests to allow India transit rights have been futile, Iran’s Chabahar Port has been identified as the most suitable route to bypass Pakistan. However, albeit Iran’s only oceanic port, its capacity is rather limited and investments are needed if its strategic role is to be enhanced.

The May 2016 trilateral transit agreement between India, Afghanistan, and Iran was a meaningful display of regional diplomacy. India was more than happy to facilitate Afghanistan in curtailing its trade dependency on Pakistan. At the same time, Iran could show it is back in business, welcoming President Modi and President Ghani to Tehran, and presenting itself as a regional leader capable of engaging its partners. Separate bilateral negotiations resulted in a set of agreements over Indian investments in Chabahar Port and its railway link to Afghanistan. Under the agreements, India is to develop two terminals and five berths with an initial capital investment of over USD85 million. India will operate these facilities on a 10-year lease with annual revenue expenditures of nearly USD23 million. It also promised to assist with a USD150 million credit to Iran’s Ports and Maritime Organization and a USD400 million credit line for the import of steel rails to develop a railroad between Chabahar and Zahedan, at the border with Afghanistan.

Almost one year after the agreements, the announcement of the completion of the upgrades is expected at any moment. Yet, some hitches have hampered the process along the way, with delays and back-and-forth squabbling over the status of the USD150 million credit. The election of Donald Trump has been perceived as another fly in the ointment, as India seemed to be awaiting clarity over the future of US-Iran relations before committing further to its investments in Iran. However, recent developments indicate that progress forthcoming. Indian officials have revealed that they are in the process of selecting the private firm that will operate Chabahar Port and that Afghan customs personnel are currently being trained in India. While China is steadily continuing with its investments in Pakistan’s Gwadar Port and the CPEC, India cannot afford to lay low. It is fair to assume this sense of urgency is shared by Iran. It is in serious need of investments and will not risk the derailment of one of its cornerstone diplomatic projects. Despite the bumpy road, positive developments may be expected shortly.