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Business News/ Opinion / India’s Chabahar conundrum

India’s Chabahar conundrum

India might be better off building an international consortium with the likes of Japan and South Korea to invest in the project

Photo: PTIPremium
Photo: PTI

Prime Minister Narendra Modi’s visit to Tehran—the second by a leader from an emerging power after sanctions were lifted (though months after Xi Jinping’s January visit)—has three primary objectives: first, to diversify (and increase) India’s oil and gas supplies; second, to enhance connectivity and trade with Afghanistan, Central Asia and beyond via Iran; and third—given Iran’s growing regional influence—to hedge its geopolitical bets in the region vis-à-vis other players, notably Pakistan, Saudi Arabia and the Gulf Cooperation Council members. A secondary objective is to balance China’s growing influence and also to engage the US in ensuring that India’s interests are protected in the region. For India’s objectives, the port of Chabahar has become the crucial gateway to step up relations with Iran.

Located on the Makran coast, Chabahar is a relatively underdeveloped free trade and industrial zone, especially when compared to the sprawling port of Bandar Abbas further west. For India, Chabahar is of strategic importance for two reasons. First, it is the nearest port to India on the Iranian coast, which provides access to the resources and markets of Afghanistan and Central Asia. Second, it is located 76 nautical miles (less than 150km) west of the Pakistani port of Gwadar, being developed by China; this makes it ideal for keeping track of Chinese or Pakistani military activity based out of Gwadar.

Despite the strategic import of Chabahar for India, there has been very little progress on it for several reasons. First is Iran’s unenthusiastic support for the project. Although the idea was first mooted in 2003, it was only in 2012 on the sidelines of the 16th Non-Aligned Movement Summit in Tehran that Iran (then reeling under sanctions for its nuclear activities) conceded to set up a joint working group to operationalize the port project as part of the trilateral cooperation agreement between Afghanistan, India and Iran on investment cooperation, trade and transit. A key factor behind Iran’s reluctance to allow an Indian presence at Chabahar was the opposition by the Army of the Guardians of the Islamic Revolution (the so-called Revolutionary Guards), which reportedly uses the port to ship arms to Yemen and militant groups in the region. For instance, India’s 2011 detention of Nafis 1, a vessel that sailed from Chabahar, on suspicion of carrying arms and ammunition for terrorist groups in Somalia raised the hackles of the Revolutionary Guards.

Second, its strategic significance notwithstanding, the economic viability of the project is suspect. India, which has had trouble raising funds for the project, has so far been able to invest only $85 million to build a couple of berths. While India recently indicated that it was willing to invest up to $20 billion—one of its largest overseas ventures—to develop the port, petrochemical and fertilizer plants in the Chabahar SEZ, it remains to be seen if it can raise the funds.

Moreover, given the presence of Gwadar next door, where China has already invested over $1 billion and committed another $46 billion for the 3,000-km long economic corridor to link Gwadar to Kashgar in Xinjiang province and its One Belt, One Road project, it is unclear whether the Chabahar route will generate enough trade and traffic to justify the investment. In fact, Tehran, which has been playing hardball with India and demanding greater Indian investment in Chabahar, itself plans to invest $4 billion to build a refinery in Gwadar to process 400,000 barrels of oil per day.

Clearly, resolving the Chabahar conundrum is vital to securing India’s interests in Iran and beyond. However, given the challenges in manifesting this project, New Delhi is unlikely to succeed on its own. India might be better off building an international consortium with the likes of Japan and South Korea to invest in the project. Otherwise, the future of India’s interests will remain uncertain.

W.P.S. Sidhu is a senior fellow at the New York University’s Center on International Cooperation.

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Published: 23 May 2016, 12:09 AM IST
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