By: Samarveer Singh; Edited by: Shagun Khetan
Introduction:
In May 2024, India inked a 10-year deal granting access to Iran’s strategic Chabahar port enhancing its trade with Central Asia and countering Pakistan’s Chinese-backed Gwadar port. What makes this deal a game-changer?
Firstly, this agreement provides India a direct trade route to Central Asia and Afghanistan bypassing the traditional route through Pakistan. Moreover, it also provides India with a crucial trade route to bypass the Suez Canal, potentially reducing dependence on the vital chokepoint of world trade and increasing the smooth trade transition through the region.
Plus, it also helps India counter China’s growing economic influence in the region by providing a counterbalance to the Gwadar port which is part of China’s ambitious CPEC project and BRI.
It also acts as a safeguard against the increasing threats of Houthi attacks in the Red Sea by providing India with alternative trade routes through Iran.
However, like any other deal with Iran, this one has not gone unnoticed by the US with the looming threat of sanctions casting a shadow over the deal threatening India’s efforts. Despite the threats posed by the sanctions, India’s commitment to bolster its trade, economic interests and regional connectivity remains unflinching. This deal is more than just a strategic move- it will help in shaping India’s commitment to securing its economic future.
Through this article, I will delve into the points mentioned above to offer a deeper analysis of the Chabahar port deal and its significant implications for India’s strategic and economic landscape.
India’s access to Afghanistan and Central Asia
The Chabahar port opens a direct and cost-effective trade route to Central Asian markets bypassing the traditional (and often troublesome) route through Pakistan. It's just a short hop from India’s Kandla port in Gujarat, facilitating a smooth transportation of key items like medicines, fertilisers and food grains to the region. The port will be vital for India to export goods to Afghanistan and import minerals. The Central Asian regions are rich in resources but are landlocked and the current trade route through land remains very costly via China posing a serious logistical challenge for Indian traders. But with Chabahar India can trade directly from Iran to resource-rich countries like Kazakhstan and Uzbekistan through internal roads in Iran. The port also connects to Central Asia via various corridors of the International North-South Transport Corridor (INSTC) which spans over 7,000 Km. This corridor will provide rail and road links to connect Chabahar to Central Asia helping in the smooth movement of India’s trade across the region. According to ORF, the INSTC reduces time to transit to 25–30 days from over 40–60 days in comparison to the Suez Canal and a decrease in freight cost of 30%. This will ensure cost-effective trade for India through the region while also helping it tap into new markets. In essence, all these developments will help India establish good trade relations with the Central Asian countries and increase its footprint in this strategic region.
India’s counter to CPEC and BRI and safeguard against Houthi attacks
The Chabahar Port counters the Gwadar Port developed by Chinese investment in Pakistan as part of the China-Pakistan Economic Corridor (CPEC) asserting India’s strategic interests. Why is this so crucial? India’s acquisition of the Chabahar port is also a counter to China’s ‘String of Pearl’ strategy which is aimed at encircling India with ports to curb India’s trade and commercial activities as China has acquired major ports in India’s neighbourhood in Bangladesh, Myanmar and Sri Lanka. To acquire these regional ports China creates unsustainable debt for these Indian Ocean countries to get hold of these regional chokepoints. This acquisition of key ports in the Indian Ocean potentially limits India’s influence in the region. The encirclement of India helps China restrict India’s trade via sea lanes impacting its maritime security and constraining its strategic autonomy. Thus, by acquiring Chabahar India asserts its strategic interests in the region by providing a counterbalance to Pakistan’s Gwadar port and will therefore help India break China’s economic grip in the region, serving as a trade hub for Iran, India, Afghanistan and an alternative to China’s silk route for trade. This advantage attracts more investment countering China’s Belt and Road Initiative (BRI) by providing an alternative trade and transit route strengthening India’s position in regional connectivity projects. China’s BRI sometimes referred to as the new ‘Silk Road’ is an ambitious global infrastructural project that aims at connecting East Asia to Europe through a series of infrastructural projects through land and maritime networks. The strategic location of the Chabahar port will help India challenge China’s influence in the Arabian Sea and beyond.
As we know, recently, the Houthis (a terrorist group located in Yemen) have targeted many commercial and military ships in the Bab-al-Mandab strait in the Red Sea in its war against Israel, posing a significant threat to trade and maritime security in the region. This has caused shipping companies to shift to the alternative routes of ‘Cape of Good Hope’ leading to a high increase in shipping costs. Chabahar ensures unhindered trade through more reliable shipping routes, countering such disruptions.
Additionally it will help offer an alternative route allowing Indian goods to reach European and Western markets without navigating through the Suez Canal, reducing shipping times and costs making Indian exports more competitive in the market. Therefore Chabahar is more than just a port; it is a strategic linchpin in India’s broader economic and geopolitical strategy.
The threat of US sanctions?
As US-Iran tensions flare up amid the Israel conflict, India faces challenges and potential US sanctions over the Chabahar port deal. Just last month the US State Department issued a stern warning that ‘any country dealing with Iran risks US sanctions’. This isn’t the first time the threat of US sanctions has loomed large over India. Back in 2019, US President Donald Trump ramped up pressure on India over its oil trade with Iran after which the trade between the two nations took a significant hit. Renewed US sanctions could jeopardise the Chabahar deal, which would be a big economic blow to India. But here is the thing: India has a track record of maintaining good relations with Iran with or without sanctions. Despite the pressure from the US, India has consistently promoted bilateral trade and safeguarded its economic interests in the region. It is indeed a bold move by India however the benefits of the deal are also too valuable to give away.
Why does the deal matter to India so much?
As Chabahar (India’s first overseas port) offers reliable and secure access to trade routes, India can increase its trade volumes not only with Central Asia but also with Russia and other countries in the Middle East.
The Indian Ports Global Limited (IPGL) will invest around $120 million and around $250 million in credit for infrastructure development at the port, as per ORF, helping in job creation. As the port becomes a key transit hub, India will be in a better position to negotiate trade deals and form better economic partnerships with the countries in the region leading to more stable and sustainable growth for India. India’s involvement in managing the port for a long period of 10 years will also ensure the generation of revenue through port fees, tariffs and related services offering a good investment opportunity for India.
Conclusion
The Chabahar port deal therefore offers India sustainable economic benefits enhancing trade access, reducing transportation costs and increasing regional economic integration. By capitalising on these potential benefits, India can strengthen its economic position in the region, increase its export competitiveness and drive sustainable economic growth. However, with the looming threat of US sanctions, can India navigate the complexities to fully realise the potential of this strategic port?
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