Chabahar is India’s first significant overseas port project and has become a key part of New Delhi’s foreign policy. It aims to build strong ties with resource-rich Central Asia and Afghanistan.

After signing a long-term agreement in May, New Delhi and Tehran believed they could finally advance on developing Chabahar, Iran’s only port with direct access to the Indian Ocean. Despite India inking another pact with Iran for Chabahar in 2016, the earlier plans failed to make headway. Even after New Delhi received a sanctions waiver from Washington in 2018 to move forward with the project, nothing significant happened.

Under the new deal, India Ports Global (IGPL) company will manage and develop the Shahid Beheshti port in Chabahar for 10 years. Chabahar has two ports: Shahid Beheshti and Shahid Kalantari. However, just hours after New Delhi signed the second agreement in May, the US warned that any country doing business with Tehran could face sanctions.

Although the Trump Administration exempted the Chabahar project from sanctions because of India’s efforts in Afghanistan’s reconstruction, US-Iran relations have deteriorated since last October due to Iran’s support for Hamas in the Gaza conflict. In the past three years, the US has placed over 600 sanctions on Iranian entities.

In response to Washington’s warning, the Indian media questioned why the US had “ignored the waiver it granted India for the port, which is India’s gateway to Afghanistan, Central Asia and Eurasia”, as noted in an Economic Times analysis.

External Affairs Minister S Jaishankar highlighted the wide-ranging positive effects of the project and encouraged people not to view it too narrowly, while India’s shipping minister, Sarbananda Sonowal, highlighted the port’s importance after the recent deal. He said it was now more than just a link between India and Iran. It had opened new trade opportunities and strengthened supply chains in the region.

Details of New 10-Year Agreement

Despite warnings from Washington, India and Iran are finding ways to bypass the sanctions. Last week, Ali-Akbar Safaei, the head of Iran’s Ports and Maritime Organization, spoke to local Iranian media about the current deal with India on Chabahar. He revealed that some parts of the new agreement had been kept secret. This was reported by Al-Monitor, a well-known online media outlet.

At a recent press conference, Safaei declined to share details about IGPL’s future plans in Chabahar. A few days later, he told the local media that, while the contract with the Indian operator was not entirely secret, some parts of it had been kept confidential since revealing everything might cause India to face pressure from the US.

Mohsen Shariatinia, an assistant professor of international relations at Shahid Beheshti University in Tehran, told Al-Monitor this was not surprising as keeping parts of contracts secret was a common practice among governments and many of Iran’s contracts with other countries also had confidential sections. He suggested that Iran did not trust the exemptions granted by the US and that was why it was being cautious.

Omair Anas, a scholar at Ankara University and director of research for the Centre for India West Asia Dialogue in New Delhi, told Al-Monitor that, just because some parts of the contract were not public did not mean it was a ‘secret’ deal. Chabahar port development had taken a long time as Indian companies had faced many challenges, including US sanctions, and keeping some details private could afford them ‘temporary protection’.

India Sets Out Plans for Chabahar Port

India has been blocked from accessing Iran by land by Pakistan. So, New Delhi views Chabahar as a crucial trade route to bypass Pakistan’s Karachi and Gwadar ports, just 172 kilometres from Chabahar. Gwadar port is funded by China. India feels surrounded by both China and Pakistan. To avoid this, India believes it must advance its presence in this sea zone. Once goods reach Chabahar port, another trade route opens up for India. The International North-South Transport Corridor (INSTC) links India to Russia and Azerbaijan.

However, Iran has not yet finished the Rasht-Astara railway link, which is essential for completing the INSTC. Instead, it has focused on building a railway that connects Chabahar port to the Iranian city of Zahedan, near the Afghanistan border. The Rasht-Astara railway link is a crucial part of the INSTC, intended to connect Iran’s rail network to Azerbaijan. From Azerbaijan, the railway extends into Russia, enhancing trade routes to Russia and beyond.

Challenges that Chabahar Port Faces

Besides US sanctions, Iran is also blacklisted by the Financial Action Task Force (FATF), the global authority on money laundering and terror financing. Unless Iran takes specific steps to combat terror financing, it will stay on the high-risk jurisdictions, subject to a ‘call-for-action’ list, which identifies countries with weak measures against money laundering and terrorism financing. Additionally, Iran cannot access the SWIFT international electronic payments system and is banned from making dollar transactions.

Manoj Joshi from the Observer Research Foundation in New Delhi told Voice of America that Chabahar had long-term potential. However, due to US sanctions on Iran, it had not become the game-changer India hoped for. Private Indian companies are hesitant to use the port, resulting in no significant increase in India’s trade with Central Asia—including such countries as Kazakhstan, Uzbekistan, Turkmenistan, Kyrgyzstan and Tajikistan—as reported by Al-Monitor.

In fact, because of these obstacles and India’s stronger relationships with other allies, Tehran may have had no choice but to ‘look East’ towards such countries as China. Anas observed that Prime Minister Narendra Modi’s government had chosen to strengthen relationships with Israel, the US and such regional allies as the UAE and Saudi Arabia. This shift had already driven Iran closer to China.

With this new long-term agreement on Chabahar, Iran has regained an important role in India’s regional strategy. If the obstacles for the second agreement are cleared, IGPL plans to invest at least $370 million in the port. Under the previous agreement, IGPL was supposed to invest at least $250 million. However, it only spent $85 million on gantry cranes for the Shahid Beheshti terminal.