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Indo- Iranian Deal  and Its Impact

Shikha Singh

Prime Minister Narendra Modi's 2-day visit to Iran has earned applause from the diplomatic circles. The Chabahar Port deal is being hailed as one of the most significant strategic moves by India to solidify its geo-political and military relationships, and ensure the stability and prosperity in its extended neighbourhood.

New Delhi has signed 12 Memorandum of Understandings (MoU) with Tehran. It includes signing of the agreement of developing the Chabahar port and signing a trilateral trade and transit pact between India, Afghanistan and Iran.

Why is Chahabar Port so important?

The Chahabar port will allow India an alternative route to reach Iran - and Afghanistan, allowing it to bypass Pakistan and China. The move might isolate Pakistan, which is already losing face with its traditional ally - the US. The Iran-Afghanistan-India transit deal is a caution to Islamabad that if it wants progress and prosperity, it has to take the joint-cooperation pathway.

The deal was possible only with the extensive cooperation and interaction of crucial Indian and Iranian Ministries - including Transport, External Affairs, Petroleum, and Finance - to ensure synergy between the two countries.

The Chabahar corridor complements another International North-South Transit Corridor (supported by India) which extends from the Iranian port of Bandar Abbar towards Russia, Europe and Central Asia - which means that India will see a larger presence in the Central Asian region.

The distance between Kandla port in Kutch District of Gujarat and sea port of Chabahar in southeastern Iran is less than the distance between Delhi and Mumbai. If nurtured properly, port business of India and Iran can flourish easily. 

Chahabar port can also be the key for India to import gas from Central Asia. Overall, the Indo-Iranian deal will boost economic growth in the region.

What has India promised to Iran?

Prime Minister Modi's visit to Iran comes at the time when the country is recuperating from the sanctions laid on it by the US due to its nuclear deal. Moreover, the ascendancy of Taliban and the barely disguised role of Pakistani military have not only hurt Afghanistan but threaten peace and stability of India and Iran too.  India has promised to invest $500 million to develop and operate the key Iranian port and establish a transit route by where Indian goods and products can be sent to Central Asia and Afghanistan - while avoiding the traditional land route through Pakistan.

The 10-year contract will allow India to use two terminals and five berths of the port which have multi-cargo capacity. Besides 500 million dollars, India will also offer a credit of Rs 3,000 crore to Iran to import steel rails. Indian railways will offer finance (of $1.6 billion) and services to build the Chabahar-Zahedan railway line on the trilateral transit and trade corridor.

How will the deal impact India and China?

China is investing extensively in the Pakistani port of Gawadar (shown in the map above). India's interest in the Iranian port nearby (only 100 km from the Gawadar port) will strengthen its position against the dragon country.

China is also working extensively on the One Belt One Road (OBOR) project that will recreate the erstwhile Silk Road - on which Iran played a major role too. It is also attaching high importance to nurturing ties with Iran and the Arab Gulf estates to fulfill its economic and energy interests. However, it has shown no interest in intervening between the rival countries and to play the peacemaker.

India is in a better position to intervene between the regional countries because it has millennial-old cultural camaraderie with them. There are over eight million Indians in the Gulf too. Regional stability, fighting terrorism, and of course, our own economic and energy strategies play a key role in our government's initiatives to reach out to the various stakeholders around us.

India is still not sure whether to see OBOR as a threat or an opportunity. On one hand, it represents Chinese political and economic expansion and on the other hand, it opens up new economic growth opportunities for India too. Arguably, OBOR offers India an opportunity to enter into a solid partnership with China and ensure stability in South Asia.

Gas and electricity are cheaper in Iran while India faces a shortage of natural gas. With Iran's help, its steel and aluminium industries will be revitalised. With transit corridor in place, it will also become possible for India to make in-house petroleum products and produce urea for farmers. The trade corridor will allow India, Iran and Afghanistan to improve their commercial ties all the way to Russia and Europe.

How will Iran visit impact Asian political equations?

'Energy' remains central to Indo-Iranian ties. As Iranian President Hassan Rouhani said, Iran is 'rich in energy' while India has 'rich minds'. Together, the two countries can progress in frontier area such as biotechnology, nanotechnology, ICT, space, and aerospace.

Afghanistan's stability and economic development is also the focus of this 'historic' deal which can lead to scourging of Taliban forever.

Last year, in Japan, PM Modi had clearly stated, "Today, the watchwords of international ties are trust, not suspicion; cooperation, not dominance; inclusivity, not exclusion." His efforts to bring competing Islamic giants to one discussion platform seems to be guided by this principle of regional order.

What is happening now?

In a media briefing in New Delhi, Joint Secretary (PAI) Gopal Baglay said, "In the first phase, India will bring in an investment of over $200 million towards the Chabahar project, out of which EXIM Bank will extend a credit line to the tune of $150 million. The bilateral contract for Phase I of the Chabahar port development project has been signed by Arya Banadar of Iran and India Ports Global Private Ltd."

India Ports Global Pvt Ltd will invest $85 million to develop two container berths and three multi-cargo berths. It will take about 18 months to complete Phase I of the construction. The first two years of the 10-year contract will be a grace period for India where it will not have to guarantee any cargo. However, from the third year, India has offered guarantee of 30,000  twenty foot equivalent unit (TEU) of cargo which will scale up to 2, 50,000 TEUs by the 10th year.

The Chahabar free trade zone will help India gain a foothold in Iran. There, India will build a 0.5-million tone aluminium smelter plant and urea manufacturing units too. Right now, Indian government spends Rs 45,000 crore on subsidizing urea for farmers. If it can manufacture urea itself and bring it in through the Kandla port, the government will be able to save that amount. Many private and cooperative fertiliser firms are interested in establishing urea plants if they can get gas at less than $2 per MMBTU - (one million British Thermal Unit ) which will be possible in the free trade zone.

In 2009, India had constructed the Zaranj-Delaram road that face access to Afghanistan's Garland Highway that connected with four major cities there - Kabul, Kandahar, Herat and Mazar-e-Sharif. It also financed another road network inside Afghanistan that allows Iran to access Tajikistan through a shorter route. Together, with the Chabahar project, India will finally be able to break free of the Pakistan and China that impedes its access to other countries.


Minister for Road Transport and Highways and Shipping Nitin Gadkari pointed out that when Atal Bihari Vajpayee was the Prime Minister of India, he envisioned that the construction of a port at Chabahar will be strategically good for India. It happened more than a decade ago. However, sanctions on Iran resulted in a big setback to the Chabahar project. Now, that the sanctions have been lifted, the New Delhi government has rushed in to work on the ties with Tehran and benefit from its significant reserves of crude and natural gas.

This time around, India must deliver on promises and expectations it has made to Iran. Otherwise, all we will see is a 'missed opportunity'.


(The author is a senior journalist with a TV channel. e-mail singhset@gmail.com)