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India losing Chabahar project

Context: India Dropped from Chabahar Rail Project:

Iran has decided to move ahead with the construction of a railway line from Chabahar port to Zahedan without any assistance from India due to delay in funding.

The railway line project was part of India’s commitment to the trilateral agreement with Afghanistan and Iran to build an alternate trade route to Afghanistan and Central Asia.

Completion of this project would give India access to Afghanistan and beyond to Turkmenistan, Uzbekistan, Tajikistan, Kyrgyzstan, Kazakhstan, Russia and Europe via 7,200-km-long multi-modal North-South Transport Corridor (INSTC).

About Chabahar Port:

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 Sea which 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.

From a diplomatic perspective, Chabahar port could be used as a point from where humanitarian operations could be coordinated.

MoU 2016: India would be granted a 10-year lease to develop Chabahar Port:

1. Right from the beginning of its tenure, the government has underlined the geostrategic importance it attaches to the Chabahar port project.
2. The project, signed in 2003, has been a symbol of traditionally important India-Iran ties.
3. Connected by sea lanes to ports on India’s west coast, Chabahar would form the fulcrum of India’s outreach to Russia and Central Asia, enhancing connectivity, energy supplies and trade.
4. Given that Pakistan had blocked Indian aid to Afghanistan and all trade over land, Chabahar provided India an alternative to permanently bypass its troublesome neighbour.
5. As a result, the government fast-tracked plans for the project, and in 2016, Prime Minister Narendra Modi was in Tehran to sign a trilateral trade and transit agreement with Iranian President Hassan Rouhani and Afghanistan President Ashraf Ghani.
6. According to the MoUs, India would be granted a 10-year lease to develop and operate two terminals and five berths, access to the Chabahar free trade zone, and the opportunity to build the 628 km rail line from Chabahar to Zahedan, just across the border from Afghanistan.
7. The government acted quickly to develop Chabahar port facilities, sent exports to Afghanistan in 2018, and has moved over half-a-million tonnes of cargo, including grains and food supplies, for Afghanistan again, through the port.
8. Indian Railways Construction Ltd (IRCON) had promised assistance to the railway line project besides financing worth $1.6 billion. However, the work was never started as the United States imposed sanctions on Iran.
9. While there was a waiver on US sanctions for the specific railway line project, India found it hard to pick equipment suppliers who were worried about possible action from the US.

Concerns for India due to delay in projects:

1. The Iran-China deal impinges on India’s strategic ties with Iran and the use of Chabahar port.
2. However, the rail line has never taken off for a number of reasons despite a commitment from state-owned IRCON, to undertake its construction at an estimated $1.6 billion.
3. While contract changes by the Iranian side and delayed responses from the Indian side were part of the problem, the main hurdle has been the fear of American penalties.
4. Even though India was able to negotiate a sanctions waiver for the Chabahar port and rail line from the U.S., few international construction and equipment partners were willing to sign on to the project; New Delhi has also dragged its feet on the matter.
5. After appeals to India, including one issued by its Foreign Minister when he visited Delhi in January this year, Iran decided to go on its own, by beginning to lay tracks for the line connecting Chabahar to Afghanistan and Turkmenistan.
6. Bandar-e-Jask lies to the west of Chabahar and right before the Strait of Hormuz which would allow China to extend its control along the Pakistan-Iran coast.
7. Each of these possibilities should be watched closely by India and it should strengthen its relations with the concerned countries.

25-year Strategic Partnership: Iran and China:

Meanwhile, complicating matters further, Iran and China are close to finalising a 25-year Strategic Partnership which will include Chinese involvement in Chabahar’s duty free zone, an oil refinery nearby, and possibly a larger role in Chabahar port as well.

“Comprehensive Plan for Cooperation between Iran and China”, being finalised by officials in Tehran and Beijing, the cooperation will extend from investments in infrastructure, manufacturing and upgrading energy and transport facilities, to refurbishing ports, refineries and other installations, and will commit Iranian oil and gas supplies to China during that period.

Iranian officials denied a report that also suggested Chabahar port, where India took, will be leased to China.

However, Iran proposed a tie-up between the Chinese-run Pakistani port at Gwadar and Chabahar last year, and has offered interests to China in the Bandar-e-Jask port 350km away from Chabahar, as well as in the Chabahar duty free zone.

Conclusion:

Regardless of the reasons for India’s inability to join the railway project, the decision can only be seen as an opportunity lost.

The impression that India wavered due to U.S. pressure, especially after India cancelled oil imports from Iran, also questions India’s commitment to strategic autonomy.

While Iran claims it will fund the railway using its own resources, it seems to have embarked on the Chabahar-Zahedan project with a confidence borne from an imminent deal with China for a 25-year, $400 billion strategic partnership on infrastructure, connectivity and energy projects.

In a world where connectivity is seen as the new currency, India’s loss could well become China’s gain, and India must watch this space, created by its exit, closely.