India’s signing of a 10-year contract this month to develop and operate the strategic Iranian port of Chabahar — which is seen as a gateway to landlocked Afghanistan and energy-rich Central Asia — could emerge as a counter to a Chinese-controlled project in Pakistan provided that the U.S. does not act on its warning of potential sanctions.

Under the long-term deal between India Ports Global Ltd. (IPGL) and the Ports and Maritime Organization of Iran, inked on May 13, New Delhi is set to invest about $120 million in equipping the port and has also offered Tehran a credit window of $250 million with the aim of improving project-related infrastructure, taking the total contract value to $370 million. The landmark deal replaces a 2016 pact that was being renewed on an annual basis.

India wanted the port, on Iran’s southeastern coast along the Gulf of Oman, developed to help it gain access to war-torn Afghanistan. It also needed a route for its companies to enter Central Asia, bypassing rival neighbor Pakistan.

“The port operation, we believe, will benefit the entire region,” Indian External Affairs Minister Subrahmanyam Jaishankar said at an event in Kolkata on May 14.

At a separate event in New Delhi on Monday, Jaishankar also spoke of the role of the late Iranian President Ebrahim Raisi and Foreign Minister Hossein Amir-Abdollahian, who died in a helicopter crash, in the Chabahar project, saying it was “because of their interest and their initiative we were actually able to finalize a long-term agreement.”

Sanjay Kumar Pandey, a professor at the Centre for Russian and Central Asian Studies at Jawaharlal Nehru University in New Delhi, told Nikkei Asia that “although the Iranian president was instrumental in getting this agreement, [his death] is not a major hurdle that this pact faces.”

Besides giving India access to Central Asia, the port could also help it counter Gwadar Port in Pakistan, near the Iranian border, which is operated by the China Overseas Ports Holding Co. under the China-Pakistan Economic Corridor (CPEC).

One of the sales pitches of Gwadar Port was to provide easy and quick access to Central Asia, but the Indian-controlled port in Chabahar — located just 170 kilometers west of Gwadar — can now deprive it of this advantage.

Tania Baloch, a political analyst based in Canada, said that the increase in the Indian footprint just across the border from Pakistan is significant following skirmishes between Pakistan and Iran in January. “India has got a very good opportunity to take advantage of Pakistan-Iran border tensions and strategically compete with Chinese-controlled Gwadar Port, which has failed to kick off.”

Gwadar Port has limited commercial activity, and hardly any ships dock there for unloading cargo. Pakistan has not been able to properly develop the port as planned. In 2015, a 300-megawatt coal power plant was approved for the port. Work has not yet started on that, resulting in a severe shortage of power needed for economic development in the city.

“[The] Chinese are frustrated with how things are not going as planned for Gwadar Port,” a Pakistani government official dealing with CPEC told Nikkei Asia on condition of anonymity. “They are not happy with the current state of the Gwadar project, but they can’t just pack and leave.”

According to Akshay Mathur, senior director at the New Delhi-based Asia Society Policy Institute, the agreement to operate the Chabahar port has other crucial geoeconomic benefits for India, such as accruing long-term international business experience in running an overseas port in a foreign free trade zone at a geopolitical hotspot.

“The negotiations between India and Iran for Chabahar may have been catalyzed by China’s economic and suspected naval activity in the region, but India has been discussing the Chabahar port with Iran since 2003, a decade before China’s Belt and Road Initiative was formally launched in 2013,” he said.

Pandey of the Jawaharlal Nehru University said that “the major hurdle is the U.S. approach to this agreement.” Hours after India and Iran signed the 10-year pact, the U.S. warned of possible sanctions against those engaging with Tehran.

Vedant Patel, principal deputy spokesperson at the U.S. State Department, told reporters in Washington in response to a question on the deal that “any entity, anyone considering business deals with Iran, they need to be aware of the potential risk that they are opening themselves up to and the potential risk of sanctions.”

Although India and Iran had talked about developing the port for over 20 years, progress was stymied by U.S.-led economic sanctions on Tehran over its controversial nuclear program.

“I did see some remarks which were made, but I think it’s a question of communicating and convincing and getting people to understand that this is actually for everybody’s benefit,” Jaishankar said in response to a question on the U.S. warning.

In the past, Jaishankar pointed out, the U.S. had been “appreciative of the fact that Chabahar has a larger relevance,” particularly in the context of humanitarian supplies to Afghanistan. “We will work at it.”

Pandey noted that when the initial pact was signed in 2016, the U.S “looked the other way” because a friendly government under President Ashraf Ghani was in place in Afghanistan at the time and the Chabahar pact was seen as a way to help the war-torn nation reach the world outside.

“Now that the Taliban has come to power, that compulsion is not there … as the U.S. has not recognized the Taliban government,” Pandey said, adding that it cannot be stated for sure whether Washington would allow India to continue routine operations at the port for the next 10 years or whether other countries interested in using the port would be deterred by the threat of American sanctions.

“India has made a bold move” with this contract, as it has opened itself to potential sanctions from the U.S., said Harsh V. Pant, a professor of international relations at King’s College London and vice president of studies and foreign policy at the Observer Research Foundation think tank. But, he added, “in some ways, India has to convey to Americans that if India is not present in this port, then the Iranian gravitation toward China would be very swift and significant.”

“While eyebrows would be raised in the West — and Washington in particular — I think that perhaps can be sorted with some serious strategic thinking,” Pant said. “If India is not there, then Chinese are going to come there.”