India's Opportunity in Iran Port

Published: 03rd June 2014 06:00 AM  |   Last Updated: 03rd June 2014 11:25 AM   |  A+A-

As the Modi government defines its foreign policy priorities, one of the issues that needs urgent attention is the finalisation of India’s investment in the development of Chabahar Port in Iran. This is particularly important because the window of opportunity available to India to have a presence in Chabahar may be closing rapidly. India and Iran had agreed to cooperate on the development of this Iranian port way back in 2003 when Iran’s president Mohammad Khatami had visited India but nothing much has been achieved in these 11 years.

It appears the previous government was close to approving US $100 million investment in the development of the port but could not take the decision. The new government could pick up the threads and quickly seal the deal.

The strategic importance of Chabahar Port for India cannot be overstated. Located in the Sistan-Baluchistan province of Iran on the Makram coast and just outside the Persian Gulf, Chabahar is a natural gateway for India to Afghanistan and Central Asia. In the last 10 years, the Iranians have invested considerable sums of money in the development of Chabahar city. A 600km-long highway linking Chabahar to Zahidan in the north is operational. Zahidan is only about 240km from Milak on the Iran-Afghanistan border. Across Milak is Zaranj in Afghanistan where India has built the Zaranj-Delaram highway. Thus, there is already an excellent road connectivity between Chabahar and Afghanistan via Zahidan.  The Iranians have also started the construction of a railway line from Chabahar to Zahidan where it will connect with the Iranian rail network and to Central Asia and CIS.

The Iranians are constructing a vast petro-chemical complex at Chabahar which will receive its gas feedstock through a pipeline from Iranshahr which is only about 200km from Chabahar and is an important point on the proposed Iran-Pakistan gas pipeline. A gas pipeline from South Pars gas field to Iranshahr has already been built.

The Iranian government has set up a Free Trade Zone at Chabahar to attract investors. It is understood that some CIS countries and Afghanistan have already been given land in the Free Trade Zone. The Iranians are keen to attract Indian investors in the Free Trade Zone.

Chabahar Port has good growth potential. It is functional and is already handling 2 million tonnes (MT) of cargo every year. On completion of the three proposed phases of development, the port will have the capacity to handle 82MT of cargo per year by 2020. The port traffic will be generated through imports, exports and transit of goods. Chabahar Port is much safer than Gwadar Port in Pakistan’s troubled Baluchistan province, 76km from Chabahar. It will certainly take away Afghanistan’s transit trade through Pakistan. A recent report in the Pakistani newspaper Dawn highlighted that Afghan transit trade dropped by 54 per cent in the financial year 2012-13 partly due to development of Chabahar Port. The Iranians are counting on the rejuvenation of economic activities in Afghanistan after the withdrawal of US and foreign troops from the land-locked nation for further development of Chabahar.

The Chinese are entering Chabahar in a big way. They have begun work on a heavy oil refinery there. A Chinese dredger is functional at Chabahar Port for land reclamation activities. A market selling Chinese goods has also been opened in Chabahar. It is reported that a Chinese company has interest in the development of the Chabahar petro-chemical complex.

Chabahar offers great strategic opportunity for India not only to enter Iran but also to reach Afghanistan and Central Asia. Apprehensions about the commercial potential of Chabahar are overstated because the Iranians are already investing in Chabahar and many other nations are also showing interest. In fact, the US $100 million investment that India is planning appears to be on the conservative side and should be increased. Indian companies will have good opportunity to supply equipment for the construction of the railway line to Zahidan. Since Chabahar lies only about 1,000km from Kandla port in Gujarat, a direct shipping line should be considered to bypass Dubai, give boost to direct India-Iran trade and enhance transit trade to Afghanistan and CIS.

A number of Indian official delegations and private companies have visited Chabahar but no worthwhile investment has been made or business deal concluded. This has disappointed the Iranian officials and businessmen. They think India is not serious. The local Baluchi population is friendly towards India and many speak fluent Urdu. Some traders regularly visit India to source Indian goods but they face problems transferring money and also in the absence of a direct shipping link. Indian Basmati rice, imitation jewellery and foodstuff, etc. are in good demand in that part of the world.

India will continue to face problems with regard to transit of goods to Afghanistan through Pakistan. The use of the Chabahar route can resolve access problems.

India’s involvement in Chabahar Port will also strengthen India-Iran ties which are increasingly becoming strategic in content. The lingering bitterness in Iran about India’s vote against Iran at the IAEA on the nuclear issue in 2005 will also lessen. India has stood by Iran through difficult times as it continued to import Iranian oil even at the time of sanctions and despite the closing down of payment channels. This is often not appreciated either in Iran or in India. Indian oil import from Iran averaged over 200,000 barrels per day in 2013. Two-way trade was over US $16 billion. India needs to build an independent relation with Iran without affecting ties with Saudi Arabia, GCC or the US. Our diplomacy should be aimed at deepening strategic partnerships with GCC as well as Iran considering that relations with one do not contradict ties with the other.

The likelihood of a rapprochement between Iran and the West will increase Iran’s importance. Chabahar will certainly gain from this rapprochement. If India does not enter Chabahar now, it may be too late and more expensive to do so later. Increased Indian presence in Chabahar now will pay rich dividends later. India should adopt a long-term strategic vision and not a narrow commercial approach towards the development of Chabahar Port and investment in Chabahar Free Zone.

The author is director general, Institute for Defence Studies and Analyses.

Email: directorgeneralidsa@gmail.com

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