India and Chabahar Port of Iran

Prime Minister Narendra Modi’s visit to Iran and the signing of a $500-million deal for development of the Chabahar port has generated considerable excitement, and understandably so.

The Chabahar port idea was first conceived in 2003 but failed to take off thanks to a combination of policy inertia in India and the imposition of sanctions on Iran by the US, which closed the doors on the country.

Strange as it might seem, the deal has now been made possible by tacit support from the same US which is keen on counterbalancing growing Chinese influence in the Central Asian region.

For India, the port, which is just 940 km from Mundra, Gujarat, is not just about facilitating trade with Afghanistan which has been affected by Pakistan’s refusal to allow transit of goods through its territory.

Rather, the development of Chabahar is an important part of the country’s grand strategy to connect with Central Asia for trade circumventing Pakistan, and for tapping into the energy opportunities that are opening up in Iran.

The port will play a crucial role for India’s trade with the land-locked countries of Central Asia via the to-be-developed International North-South Transport Corridor that will run through Iran.

This project is part of the Great Power Game that is on in the region; the US has the New Silk Road Initiative while China is forging ahead with its One Belt One Road plan.

Clearly, for India, geo-political and strategic stakes are as important as the economic opportunity that will open up from development of the port.

There is also an ambitious plan to develop a free trade zone area surrounding the port where Indian companies can invest in plants to produce fertilisers and petrochemicals.

While the potential clearly exists, the challenge will be in attracting investment in a volatile region especially given the unhappy experience of Indian companies in the past.

With all the focus on Chabahar, what’s gone almost unnoticed is the lack of forward movement on India’s plans to develop the Farzad-B gas field, estimated to hold as much as 21 trillion cubic feet of gas.

India has been pushing Iran for ONGC Videsh to develop the field and transport gas back into India.

For its part, Iran is seeking to revive the on-land pipeline project through Pakistan — the Iran-Pakistan-India (IPI) pipeline — that has been in the works for a decade now and which failed to take off due to the political tensions in the region.

India would prefer to take the liquefied natural gas (LNG) route or a sub-sea pipeline that will bypass Pakistan. The LNG project was discussed many years ago but the sanctions ensured that Iran would not be able to build the liquefaction plants since the technology was available only with the West.

The challenge for Indian diplomacy now is to persuade Iran to give up the IPI pipeline idea and agree for one of the other two options.