Chabahar Port: A Win for South Asia

Courtesy of Foreign Policy, a report on Chabahar port:

When Afghanistan’s Chief Executive Officer Abdullah Abdullah visited Iran on Jan. 4, one of the top items on his agenda was the finalizing of the Chabahar Transit and Transport Agreement. The core aim for the creation of this agreement is to expand regional trade between India, Iran, and Afghanistan. Abdullah hoped to build on the momentum of December 2015, when Indian Prime Minister Narendra Modi reiterated his commitment to improve connectivity between India and Afghanistan through Chabahar port. Located about 45 miles west of Pakistan’s Gwadar port, in Iran, it holds strategic significance for India, as it gives it direct access to Afghanistan and Central Asian countries, bypassing Pakistan. According to the Afghan Ministry of Foreign Affairs, the Chabahar agreement will be finalized in an upcoming trilateral meeting in New Delhi.

Economists project that Central and South Asia will become the new global center of economic growth and activity in the next decade. Given its location, Afghanistan can play a substantial role in these rising regional prospects. Recently, Afghanistan has made major advances in terms of security and political reforms. It is looking to make similar efforts on the economic front. In addition to the two large energy projects — the Turkmenistan-Afghanistan-Pakistan-India Natural Gas Pipeline (TAPI) Project and the Central Asia South Asia Electricity Transmission and Trade Project (CASA—1000) — Afghanistan has also invested in transport infrastructure projects like the development of Chabahar port.

India has historically enjoyed good relations with Afghanistan. But because they do not share a border, their physical detachment presents a logistical dilemma. Since 2001, India has taken on a number of sizable infrastructure projects in its development assistance program in Afghanistan. One of these projects is the Zaranj-Delaram Highway, a 135 mile long highway that connects Zaranj in Nimruz province, near the Iranian border, with Delaram in neighboring Farah province, and the Afghan-Iranian border with Kandahar-Herat highway in Delaram. The construction of the Zaranj-Delaram highway connects the Chabahar port on the Gulf of Oman to the 1,300-mile Afghanistan Ring Road. It connects 16 of country’s 34 provinces, stretching from Herat, Mazar-i-Sharif, Kabul, Ghazni, and Kandahar and to Tajikistan’s Gorno-Badakhshan province. The highway creates North-South transport corridors linking the Indian sub-continent and the land-locked Central Asia. The new infrastructure enables Afghanistan to access the Arabian Sea through Iran, and raises its potential to stimulate more investment from trade with outside powers like India.

Discussions among India, Iran, and Afghanistan over the use of Chabahar port have been going on for some time, but have accelerated since the P5+1 nuclear deal with Iran. Iran’s recent emergence from sanctions will alter the regional dynamics. The port will provide India access to Central Asia, and investment in the port will yield immediate strategic gains for India. On May 6, 2015, New Delhi and Tehran signed a memorandum of understanding worth $195 million to secure India’s participation in the development of Chabahar port. The Chabahar port allows India, the world’s fourth largestenergy consumer, to access Iran’s crude oil reserves of over 150 billion barrelsand 1,187 trillion cubic feet of gas reserves. It also allows India access to the added energy resources in Central Asia, where Kazakhstan and Turkmenistan possess 30 billion barrels of oil and 265 trillion cubic feet gas reserves, respectively, and Kazakhstan holds 679,300 tons of uranium and more than 37,000 million short tons of recoverable coal reserves.

In addition to India’s access to Iran and Central Asia’s oil and gas reserves, the Chabahar port will help India to meet its maximum trade potential with Central Asian countries. Currently, India lags far behind major regional players such as China, Russia, and Turkey in trading volumes with Central Asia strictly because of access limitations. For example, India’s trade with Kazakhstan, its largest Central Asian bilateral trading partner, was worth $952 million in 2014 and 2015, versus $315 million with Uzbekistan in 2014. Conversely, China-Kazakhstan bilateral trade reached $22.53 billion in 2013 and China-Uzbekistan trade turnover accounted for $4.75 billion in 2014. In fact, according to some estimates, India has the potential to reap up to $450-500 billion in trade through Central Asia and Afghanistan. The integration of India with Central Asia and Afghanistan through the Chabahar port, then, could enable it to increase its trade level to its maximum potential.

Afghanistan, meanwhile, lacks the infrastructure necessary for connectivity and extracting its prodigious deposits of oil, gas, and minerals. Since 2001, the Afghan government and donors have built around 5,700 miles of road, with USAID building at least 1,325 miles alone. Despite such efforts, 85 percent of Afghanistan’s roads are still in poor condition, and a number of strategic road corridors have yet to be concluded, including the Ring Road. President Ashraf Ghani’s efforts to make the procurement process and management of large development projects — including infrastructure projects – more efficient and transparent are encouraging. But there is also an urgent need to create a stronger institutional environment for the infrastructure sector. With little infrastructure maintenance knowledge and a limited labor force in Afghanistan, there is rapid deterioration and even less enforcement of road use. If a truck is carrying twice what it should, it causes four times the damage on the roads. Afghanistan is sorely behind in developing and issuing road use rules and weight limits, and even further behind in enforcement. Until this is addressed, the roads will always be in a state of deterioration. That could impact the use of Afghanistan as a trade route by Uzbekistan, Tajikistan, and Turkmenistan.

Many of Central Asia and Afghanistan’s natural resources cannot be cost effectively shipped by truck, so in order to derive a profit from commodities like iron ore and grain, rail is the only option. This is a problem, as Afghanistan has no rail capacity. There is a rail system in Iran and Afghanistan’s northern neighbors, but there is no connectivity through Afghanistan. There is also the added challenge that the countries north of Afghanistan have rail systems that use the Russian gauge (1520mm), which is broader than the Standard Gauge (1,435mm), while Iran’s rail system uses the Standard Gauge. Even if rails were built in Afghanistan, there would have to be a decision on what gauge to use and a transfer system to move the goods from one rail system to another.

Moreover, in the absence of low-skilled labor, weak infrastructure, and an inability to produce at scale leaves Afghanistan unable to compete to produce most goods for the regional and global market. Afghanistan’s experience with even its current limited regional access shows a widespread trade imbalance of $7.1 billion because Afghanistan exports only $570 million worth of products per year while importing $7.6 billion. Investing in skill-building projects, improving the capacity and mandate of government institutions to serve without corruption, formulation and implementation of laws, regulations, and policies to encourage and support domestic economic activity are important steps in this regard.

This regional project is not free of geopolitical implications. The corridor will displease both Islamabad and Beijing, as Pakistan has historically worried about India’s influence in Afghanistan. The Chabahar port project will compete directly with China’s Gwadar port in Pakistan. As India is building up Chabahar to open up new trade routes through Iran and Afghanistan, China is building up Gwadar to open up trade routes through Pakistan and northward back to China. There is still the risk that the port will become a source of rivalry between China and India.

If the development of the Chabahar port goes according to plan, the region will benefit from the creation of new trade routes stretching from the northern reaches of Central Asia down to Chabahar in southern Iran. The port will be a station for global imports coming from the Gulf region, and a gateway to the Middle East and possibly Europe for exports coming from Afghanistan and Central Asia. The project will boost India and Afghanistan’s trade volume, India’s trade volume with Central Asia, and Afghanistan’s access to markets in India, Europe, the Middle East, and the world. China has already established a presence in Pakistan’s Gwadar to ensure its close proximity of the Gulf and Indian regions. The current regional institutions can play an important role in creating an environment of trust and close cooperation among regional players to prevent these two ports from becoming a center of rivalry.

This entry was posted on Wednesday, February 10th, 2016 at 6:39 am and is filed under Afghanistan, India, Iran.  You can follow any responses to this entry through the RSS 2.0 feed.  Both comments and pings are currently closed. 

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