Wednesday, May 25, 2016

India’s Chabahar conundrum

Prime Minister Narendra Modi is on his visit to Iran. PM Modi’s visit will be the first by an Indian Prime Minister in 15 years and comes four months after the sanctions on Iran were lifted and the international community is re-engaging with the nation.
This visit was necessary for the following reasons:
  • To diversify and increase India’s oil and gas supplies.
  • To enhance connectivity and trade with Afghanistan, Central Asia and beyond via Iran.
  • To hedge Iran’s geopolitical bets in the region vis-à-vis other players, notably Pakistan, Saudi Arabia and the Gulf Cooperation Council members.
  • To balance China’s growing influence and also to engage the US in ensuring that India’s interests are protected in the region.
To achieve all the above stated objectives, the port of Chabahar has become the crucial gateway to step up relations with Iran.
All you need to know about Chabahar project:
Where is Chabahar port?
It is located on the Makran coast, Chabahar in southeastern Iran. Its location lies in the Gulf of Oman. This coast is a relatively underdeveloped free trade and industrial zone, especially when compared to the sprawling port of Bandar Abbas further west. Also, it is the only Iranian port with direct access to the ocean.
For India, Chabahar is of strategic importance for the following reasons:
  • It is the nearest port to India on the Iranian coast, which provides access to the resources and markets of Afghanistan and Central Asia.
  • It is located 76 nautical miles (less than 150km) west of the Pakistani port of Gwadar, being developed by China. This makes it ideal for keeping track of Chinese or Pakistani military activity based out of Gwadar.
  • Also, Chabahar port is suitably located to serve India’s outreach in the region to Afghanistan and beyond as well as link with International North-South Transport Corridor (INSTC) to which India is one of the initial signatories.
  • The port will cut transport costs/time for Indian goods by a third.
  • From Chabahar, the existing Iranian road network can link up to Zaranj in Afghanistan, about 883 kms from the port. The Zaranj-Delaram road constructed by India in 2009 can give access to Afghanistan’s Garland Highway, setting up road access to four major cities in Afghanistan — Herat, Kandahar, Kabul and Mazar-e-Sharif.
chahbhar port
Despite the strategic import of Chabahar for India, there has been very little progress on it for the following reasons:
  • Iran’s unenthusiastic support for the project. Although the idea was first mooted in 2003, it was only in 2012 on the sidelines of the 16th Non-Aligned Movement Summit in Tehran that Iran conceded to set up a joint working group to operationalize the port project as part of the trilateral cooperation agreement between Afghanistan, India and Iran on investment cooperation, trade and transit.
  • A key factor behind Iran’s reluctance to allow an Indian presence at Chabahar was the opposition by the Army of the Guardians of the Islamic Revolution (the so-called Revolutionary Guards), which reportedly uses the port to ship arms to Yemen and militant groups in the region.
  • Its strategic significance notwithstanding, the economic viability of the project is suspect. India, which has had trouble raising funds for the project, has so far been able to invest only $85 million to build a couple of berths. While India recently indicated that it was willing to invest up to $20 billion—one of its largest overseas ventures—to develop the port, petrochemical and fertilizer plants in the Chabahar SEZ, it remains to be seen if it can raise the funds.
  • Also, given the presence of Gwadar next door, where China has already invested over $1 billion and committed another $46 billion for the 3,000-km long economic corridor to link Gwadar to Kashgar in Xinjiang province and its One Belt, One Road project, it is unclear whether the Chabahar route will generate enough trade and traffic to justify the investment. Besides, so far the project moved slowly because of western sanctions against Iran.
Developments so far:
In May 2015, India inked a memorandum of understanding to develop the Chabahar Port. As per the MoU, India is to equip and operate two berths in Chabahar Port Phase-I with capital investment of USD 85.21 million and annual revenue expenditure of USD 22.95 million on a ten year lease. Ownership of equipment will be transferred to Iranian side on completion of 10 year period or for an extended period, based on mutual agreement.
The Union Cabinet, in February 2016, gave its approval to the proposal of the Ministry of Shipping for provision and operationalization of credit of 150 million USD from EXIM Bank for development of Chabahar Port in Iran.  
Way ahead:
The Union Cabinet has now authorized the Ministers of Finance, External Affairs and Shipping to approve the final contract with Iran and for resolution of any issue arising in implementation of the project. The Union Cabinet has also authorized the Ministry of Shipping to form a Company in Iran for implementing the Chabahar Port Development Project and related activities.
Chabahar port is crucial for India as it is easily accessible from Indian western ports of Mumbai and Kandla. While, Iran would benefit from increased trade, earn transit fees and witness major infrastructural investments and developments. Also, development of Chabahar port will have a multiplier effect on the growth of its economy and boost foreign investments in the country. Hence, resolving the Chabahar conundrum is vital to securing India’s interests in Iran and beyond.

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