Industry
Mint Explainer: Why Iran’s Chabahar Port is vital to India's interests
Summary
- Situated just 170 km from Pakistan’s Gwadar port, where China is developing a deep port facility under its Belt and Road Initiative, Chabahar Port offers India a strategic advantage over both its neighbouring rivals and also has the potential to generate considerable revenue.
On Monday, India and Iran signed a long-term contract for the development of Chabahar Port after years of negotiations. This has paved the way for increased Indian investment in the strategic port, which will serve as a vital trade artery connecting India with Afghanistan and Central Asian countries. It will also strengthen the country's presence on a strategic route that’s considered to be the main gateway for shipments from the Indian subcontinent to Europe.
Mint takes a closer look at what it means for India.
What did India and Iran agree to on Monday?
India and Iran signed a long-term contract for the development of Chabahar Port during shipping minister Sarbananda Sonowal’s visit to Iran. Signed by Indian Ports Global Limited (IPGL) and the Port & Maritime Organisation of Iran, the agreement allows the Shahid Beheshti terminal at Chabahar Port to operate for 10 years.
The pact replaces one-year contracts that were being signed since 2016 to keep the port operational. These short-term arrangements, and geopolitical tensions involving Iran, proved a major deterrent for shippers, who were looking for a more permanent arrangement before making investments and commencing operations.
Why did it take this long to sign this contract?
In 2003, India agreed to help Iran develop the port and accompanying infrastructure links during Iranian President Muhammad Khatami’s visit to India, but talks progressed slowly. In 2013, India committed to providing $100 million for the port’s development and two years later, in May 2015, it signed a memorandum of understanding (MoU). The contract was executed on 23 May 2016 in Tehran during the Indian prime minister’’s visit.
India also agreed to invest $85 million to the Shahid Beheshti terminal. However, the reimposition of US sanctions on Iran for its nuclear programme hampered India’s ability to develop the port.
The India Ports Global Chabahar Free Zone (IPGCFZ), a subsidiary of IPGL, facilitated the first consignment of exports from Afghanistan to India only in 2019 and the operations continued through short terms contracts while negotiations on the Long-Term Agreement peaked pace with the visit of Sonowal to Chabahar in August, 2022.
Negotiations on the long-term contract stalled over disagreements on arbitration clauses, with Iran not agreeing with international arbitration provisions. The two sides later agreed for follow arbitration rules framed by the UN Commission on International Trade Law (UNCITRAL).
Why is Chabahar Port important to India?
Located in the Sistan-Baluchistan province on Iran’s southwestern coast, Chabahar Port is an important point on the Arabian Sea with easy access from India’s west coast. Kandla port in Gujarat, 550 nautical miles away, is the closest Indian port; the distance between Chabahar and Mumbai is 786 nautical miles.
The strategically located port also offers an alternative route from the Strait of Hormuz for cargo traffic between Central Asian countries and Afghanistan. With land routes through Pakistan completely blocked for trade with these regions, the port offers a faster alternative. Situated just 170 km from Pakistan’s Gwadar port, where China is developing a deep port facility under its Belt and Road Initiative, Chabahar Port offers India a strategic advantage over both its neighbouring rivals.
Chabahar is also part of the proposed 7,200-km International North-South Transport Corridor (INSTC), a multi-modal transportation route that will connect the Indian Ocean and the Persian Gulf to the Caspian Sea via Iran, and onward to northern Europe. The port is thus seen as India’s gateway to increased trade with European countries as it’s expected to cut travel time by about 15 days compared to the current route through the Suez Canal.
Strategic importance aside, does the port promise any commercial gains?
Having handled more than 80,000 twenty-foot equivalent units (TEUs) of container traffic and more than 8 million tonnes of bulk and general cargo since 2019, Chabahar Port also has the potential to generate considerable revenue.
India expects 13,282 TEUs of cargo handling at the Shahid Beheshti terminal in 2023 (the data has not been released yet), up from just 3,096 TEUs in 2022.
The port's integration with IPGCFZ increases its appeal. India offers various other incentives, too, such as concessions on vessel-related charges and cargo charges to boost trade flows through Chabahar.
India also plans to increase the port’s cargo-handling capacity from 8 million tonnes to 18 million tonnes a year in the next phase – and eventually to 82 million tonnes a year over the next few years – to boost revenue.
Which other infrastructure projects is India working on to strengthen its presence in the region?
India is also involved in the construction of the 700-km Chabahar-Zahedan railway line. An MoU was signed between Indian Railways’ IRCON and Iranian Railways’ Construction and Development of Transportation Infrastructures Company (CDTIC) in 2016 for its construction. Once complete, the project will further improve cargo movement, and could also increase capacity significantly if linked to the port, according to experts.
In addition, India is looking to strengthen its presence in key infrastructure along the route through the Persian Gulf. Adani Group already operates Haifa port in Israel and Indian companies are expected to strike more such deals in the region.
