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India and Iran Sign 10-Year Contract for Chabahar Port


India and Iran have inked a decade-long contract for the operation of the Chabahar port in Iran. The agreement, signed between Indian Ports Global Ltd. (IPGL) and the Port and Maritime Organisation (PMO) of Iran, facilitates the operation of the Shahid-Beheshti terminal, marking a significant step in enhancing maritime trade relations between the two countries.


GS II: International Relations

Dimensions of the Article:

  1. The Chabahar Port and its benefits for India
  2. What is INSTC?
  3. Status of Economic Ties Between India and Iran:

The Chabahar Port and its benefits for India

  • The Chabahar Port is Located on the Gulf of Oman and is the only oceanic port of the country.
  • With this, India can bypass Pakistan in transporting goods to Afghanistan.
  • It will also boost India’s access to Iran, the key gateway to the International North-South Transport Corridor that has sea, rail and road routes between India, Russia, Iran, Europe and Central Asia.
  • It also helps India counter Chinese presence in the Arabian Seawhich China is trying to ensure by helping Pakistan develop the Gwadar port. Gwadar port is less than 400 km from Chabahar by road and 100 km by sea.
  • With Chabahar port being developed and operated by India, Iran also becomes a military ally to India. Chabahar could be used in case China decides to flex its navy muscles by stationing ships in Gwadar port to reckon its upper hand in the Indian Ocean, Persian Gulf and Middle East.
  • Trade benefits: With Chabahar port becoming functional, there will be a significant boost in the import of iron ore, sugar and rice to India. The import cost of oil to India will also see a considerable decline. India has already increased its crude purchase from Iran since the West imposed ban on Iran was lifted.
  • From a diplomatic perspective, Chabahar port could be used as a point from where humanitarian operations could be coordinated.

What is India’s strategic vision for Chabahar?

  • When the first agreement for Chabahar was signed by then Prime Minister Atal Bihari Vajpayee in 2003, the plan had a three-fold objective:
    • To build India’s first offshore port and to project Indian infrastructure prowess in the Gulf;
    • To circumvent trade through Pakistan, given the tense ties with India’s neighbour and build a long term, sustainable sea trade route;
    • To find an alternative land route to Afghanistan, which India had rebuilt ties with after the defeat of the Taliban in 2001.
  • Subsequently, Prime Minister Manmohan Singh’s government constructed the Zaranj -Delaram Highway in Afghanistan’s South, which would help connect the trade route from the border of Iran to the main trade routes to Herat and Kabul, handing it over to the Karzai government in 2009.
  • In 2016, Prime Minister Narendra Modi travelled to Tehran and signed the agreement to develop Chabahar port, as well as the trilateral agreement for trade through Chabahar with Afghanistan’s President Ashraf Ghani.
  • Since the India Ports Global Chabahar Free Zone (IPGCFZ) authority took over the operations of the port in 2018, it has handled 215 vessels, 16,000 TEUs (Twenty-foot Equivalent Units) and four million tons of bulk and general cargo, the government said in Parliament last month.
  • In the last few years, a fourth strategic objective for the Chabahar route has appeared, with China’s Belt and Road Initiative making inroads in the region.
    • The government hopes to provide Central Asia with an alternate route to the China-Pakistan Economic Corridor (CPEC) through Iran for future trade.

What is INSTC?

  • India, Iran, and Russia initially agreed to the International North-South Transport Corridor (INSTC) project in 2000 in St. Petersburg; ten additional central Asian and west Asian nations have since joined as observers: Azerbaijan, Armenia, Kazakhstan, Kyrgyz Republic, Tajikistan, Turkey, Ukraine, Belarus, Oman, Syria, and Bulgaria.
  • Although they are not signatories to the INSTC agreement, Pakistan, Turkmenistan, and Afghanistan are interested in using the transport corridor.
  • It aims to cut the cost of freight transportation between India and Russia by around 30% and to cut the transit time from 40 days by more than half. It proposes a 7,200 km multi-mode network comprising ship, rail, and road lines.
  • The route largely comprises transporting cargo from Russia, India, Iran, and Azerbaijan.
  • It would be provided as a viable and fairer alternative to China’s Belt and Road Initiative (BRI).
  • Further, it will enhance regional connectivity.

The objective of the corridor is to increase trade connectivity between major cities such as Mumbai, Moscow, Tehran, Baku, Astrakhan, etc.

Status of Economic Ties Between India and Iran:

Bilateral Trade:

  • During FY 2022-23, India-Iran bilateral trade reached USD 2.33 billion, marking a year-on-year growth of 21.76%.
  • India’s exports to Iran amounted to USD 1.66 billion, while imports from Iran stood at USD 672.12 million.

Trade Composition:

  • India primarily exports agricultural goods and livestock products to Iran, including meat, milk products, onions, garlic, and canned vegetables.
  • Imports from Iran include methyl alcohol, petroleum bitumen, liquified butanes, apples, liquified propane, dates, and almonds.

Total Trade:

  • Despite the growth in bilateral trade, the total trade decreased by 23.32% compared to the previous year.

FDI Inflows:

  • Foreign Direct Investment (FDI) from Iran to India has been minimal, with recorded inflows of just USD 1 million from April 2000 to December 2023.

Oil Imports:

  • Currently, India does not import Iranian oil due to sanctions imposed on Tehran by the United States (US).

-Source: The Hindu

June 2024