India: Advancing Trade Plans With Iran

Via STRATFOR (subscription required), an interesting analysis of closer economic ties between India and Iran:

Indo-Iranian Trade Routes


India is trying to open up more direct trade corridors with Central Asia. Two of the country’s largest state-owned ports have enlisted the help of a private firm to help develop Iran’s southeastern port of Chabahar. According to media reports from March 3, the Jawaharlal Nehru Port, which is south of Mumbai and is India’s busiest container port, will develop loading facilities in Chabahar. Kandla Port, which is located in western India’s Gujarat state and is India’s biggest cargo handler by volume, will help establish dry bulk handling facilities at Chabahar.

Iran has been increasingly interested in developing its trade infrastructure; earlier the same day, Iranian Supreme Leader Ayatollah Ali Khamenei’s international affairs adviser, Ali Akbar Velayati, called for a trade corridor between Chabahar and the Russian city of St. Petersburg.

India’s interest in Chabahar is more about bypassing Pakistan for access to Central Asia. A sea-route to Iran offers a better alternative to a land route through India’s western neighbors. Tense relations with Pakistan and the difficult terrain and security risks of the Afghanistan-Pakistan land corridor make port-to-port trade with Tehran significantly more desirable. But given the scale of the project and political, logistical and financial limitations, a potential Indian-Iranian ocean trade corridor is more of a long-term project for both countries.


When the Soviet Union collapsed in 1991, India saw an opportunity to develop trade relations with the newly independent republics. However, geography worked against India: Pakistan, a hostile state, lay between New Delhi and the Central Asia, and Afghanistan, an anarchic state, lay beyond Pakistan. 

With international assistance, Pakistan prevented an India-friendly Marxist regime from taking over Afghanistan, though it struggled to get the Islamist insurgent alliance that had forced the Soviet military out of Afghanistan in 1989 to form a government that would replace the ousted Najibullah administration. Power struggles led to a brutal civil war among Islamists, paving the way for the Taliban to seize power and forcing many anti-Soviet Islamist fighters to unite under the banner of the largely non-Pashtun Northern Alliance. For the first time, India and Iran saw the opportunity to engage in a major geopolitical joint venture. Cooperating with Russia, the Tehran-New Delhi alliance worked together to expand influence in Afghanistan and Central Asia, supporting the Northern Alliance from Tajikistan.

Despite their efforts, India, Iran and Moscow could not expand their influence in Afghanistan. The 9/11 attacks in the United States ushered a new global era, which appeared to favor the Iranians and the Indians. After 9/11, the administration of former U.S. President George W. Bush worked with Iranian officials, particularly current Foreign Minister, Javad Zarif, for regime change in Kabul. While New Delhi sought to align itself with Washington against Islamabad, the United States needed to rely more heavily on Pakistan, at least in the short term. As well as sharing a strategically significant border with Afghanistan, the key logistical routes needed for a NATO ground campaign ran through Pakistan.

U.S.-Iranian cooperation in Afghanistan was short-lived and tactical as relations grew increasingly tense. While the United States then focused on Iraq, Indian and Iranian interests in Afghanistan remain aligned. India became interested in supporting Chabahar port as an alternative to land routes through Pakistan. This was in part prompted by China’s prospecting for maritime outposts in the Indian Ocean basin, a perceived incursion into New Delhi’s sphere of influence. Given the historic rivalry between India and Pakistan, China’s plans to develop the Pakistani port of Gwadar were provocative. Gwadar is also only 72 kilometers (45 miles) from Chabahar.

Setting the Conditions

The Western perception of Iran prevented New Delhi from being overt in its desire to engage further with Tehran. The announcement of uranium enrichment facilities in 2002 — not to mention Iran’s ongoing influence in Iraq — had created significant tension between Tehran and Washington. Acting unilaterally, India further involved itself in Afghanistan, to the extent that it could. New Delhi provided foreign assistance to the Karzai regime in Kabul, partly to circumvent the Pakistanis and partly to advance its own geopolitical goals. 

One notable investment entailed the construction of a strategic road by the Indian army’s corps of engineers. Costing more than $1 billion, the road connected Delaram and Zaranj, two otherwise obscure Afghan towns in the southeastern province of Nimroz. Significantly, the road served as the missing link between the Iranian border and Afghanistan’s “garland highway,” also know as the A01 — the conduit linking Kabul, Kandahar, Herat, Mazar-e-Sharif and Kunduz. Completed in 2009, the 135 mile-long, two-lane road, also known as Route 606, runs all the way to the Iranian border, connecting to the southeastern Iranian city of Zabol. Zabol, in turn, is connected to Chabahar.

Ultimately, building a road to Chabahar was not New Delhi’s goal. Any port meant to be a regional hub, let alone a channel into Central Asia, would need millions of dollars of investment to make it suitable for handling cargo. And then there was the matter of the road infrastructure — or lack thereof — from Chabahar to Zabol. India became interested in developing the transport system in Iran as a corollary, but by the time the Delaram-Zaranj road in Afghanistan was up and running, tensions between the United States and Iran had led Washington to place additional sanctions on Tehran.

India was forced to cut imports of crude oil from Iran, resorting to a complex barter system to settle existing debts. With the sanctions in place, Chabahar was no longer a viable project for India. Fortunes for both countries took a dramatic turn with the election of President Hassan Rouhani in June 2013. By September, Washington and Tehran had embarked on a historic diplomatic engagement to end 35 years of hostility. The emerging rapprochement gave the Indian government an incentive to pick up where it left off, commencing talks with the Rouhani administration to revive the Chabahar project.

Paths to Progress

The interim U.S.-Iran accord increased optimism that Tehran was on its way to international rehabilitation. It is no coincidence that Iran’s foreign minister paid a visit to India, heralding a renewed effort to get the Chabahar project off the ground once more. Early reports suggest that India is prepared to make an initial investment of $100 million, with a preliminary agreement ready for signing as early as April.

No time frame has yet been given for the Indo-Iranian project. To some extent, how fast India can develop Chabahar will depend on how much progress is made toward Iran’s nuclear program. Even if he current sanctions against Iran are eased sufficiently, it will still take a long time to find the investment needed to make Chabahar operational. It will also take time to develop the requisite road and rail links between Chabahar, Afghanistan and Central Asia beyond.

All of this will occur in a new geopolitical environment, one in which Afghanistan has become less attractive to New Delhi. The security situation in landlocked Afghanistan and neighboring Pakistan, which has been struggling with a ferocious domestic jihadist insurgency for years, will only deteriorate after the NATO drawdown is complete by the end of 2014.

While trade access to Central Asian countries is the primary incentive for India to invest in Chabahar, access to Afghanistan is a secondary consideration. Likewise, the Iranians are interested in making their country a north-south trade conduit that goes all the way to Europe and Russia — which explains Velayati’s statement about developing a trade corridor to St Petersburg.

Post-sanctions Iran would be a more attractive corridor to the Central Asian markets than post-NATO Afghanistan. Even if the situation in Afghanistan and Pakistan remains manageable, India cannot access the shortest route to Afghanistan and Central Asia — the one that runs traverses Pakistan. Islamabad is unlikely to give India access to this corridor without significant concessions in return. In any case, New Delhi would not want to be dependent upon Islamabad for access to Central Asia

A Viable Alternative

An Iranian trade corridor with Chabahar at its heart is not without its own security issues. The port and its immediate transportation network run through the troubled province of Sistan and Baluchestan, where Sunni Islamist ethnic Baloch rebels are fighting the Iranian regime. Further complicating the situation is an enduring Iranian suspicion that its arch-rival, Saudi Arabia, is working with its allies in Pakistan and that the Pakistani government is backing the Balochi rebels.

Although the security situation in Iran is not as bad as that of Afghanistan and Pakistan, the Indians do not want to be caught up in a Saudi-Iranian struggle in Southwest Asia. From India’s point of view, the Iranian corridor will take years if not decades to develop. Fortunately for New Delhi, the government is not looking for a quick return on its investment, planning instead for enduring infrastructure, trade routes and future opportunities. 

Since the end of the Cold War, India has been driven by the desire to bypass the Afghanistan-Pakistan corridor and gain access to Central Asia. That its regional interests converge with those of Iran has long represented a major opportunity to the Indians. The ongoing shift in U.S.-Iranian relations is finally allowing New Delhi to capitalize on this opportunity, even though it may not see the benefits for some time.

This entry was posted on Thursday, March 6th, 2014 at 10:08 pm and is filed under 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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