The Chabahar Equation: Indian balancing act in changing world order

A cargo vessel is seen at Chabahar seaport during an inauguration ceremony for the first export convoy to India via Iran in Chabahar, Iran on February 25, 2019. Image: Fatemeh Bahrami/Anadolu Agency/Getty Images

The recently concluded BRICS Summit of October 2024 in Russia's Kazan highlighted the momentum behind an emerging global order distinct from the Western-dominated framework. As Brazil, Russia, India, China, and South Africa welcomed new members—the UAE, Iran, Egypt, and Ethiopia—the world watched as BRICS strengthened its commitment to fostering bilateral ties and exploring an alternative economic structure beyond the dollar-led system.

Against this backdrop, Iranian President Masoud Pezeshkian and Indian Prime Minister Narendra Modi discussed the strategic potential of the Chabahar Port project, a venture promising to enhance cooperation and mutual benefit for both nations. With Iran now formally part of the BRICS alliance, India's partnership with Iran stands to grow, allowing India to leverage its dual roles as a BRICS member and a Western ally.

However, this ambitious undertaking also faces the challenge of potential US sanctions, adding an intricate layer of geopolitical tension. As potential shifts in US leadership loom, the trajectory of US foreign policy toward India's expanding alliances with non-Western actors remains uncertain.

This article delves into the dynamics of the recent India-Iran Chabahar port agreement and examines how India might navigate the opportunities and challenges of this partnership in a changing world order.

On May 13, 2024, India embarked on a bold 10-year venture to develop and operate Iran's strategically vital Chabahar Port. Union Minister of Shipping Sarbananda Sonowal visited the site to witness the signing of the deal, which is being portrayed as a move to revolutionise India's trade links with Afghanistan, Central Asia, Russia, and Eastern Europe. Discussions about the port began in 2003, but US sanctions on Iran delayed progress until the 2015 Iran nuclear deal temporarily lifted them. During Indian Prime Minister Narendra Modi's 2016 visit to Iran, a tripartite agreement was signed, committing $500 million to developing the port.

In July 2022, during the 'Chabahar Day' event in Mumbai, which included high-level diplomatic interactions with delegates from five Central Asian countries, India highlighted its dedication to reducing logistics costs and boosting trade with Central Asia. Plans to increase the port's capacity from 8.5 million to 15 million tonnes upon completion of Phase I were also emphasised.

Shortly after India signed the agreement with Iran on May 2024, the US State Department representative Vedant Patel reiterated that "any entity, anyone considering business deals with Iran, they need to be aware of the potential risk that they are opening themselves up to and the potential risk of sanctions." When asked if any exception would be granted to India, he confirmed that no country would receive any such exception.

Indirectly responding, Indian Foreign Affairs Minister Shri Jaishankar, during a press conference, stressed that the US should consider the broader benefits of the Chabahar Port, which advantages all parties involved. This stance underscores India's continuous efforts to boost international trade relations by leveraging its reputation as a non-colonial power that respects other nations' sovereignty.

India has previously lobbied for exemptions from US sanctions for Chabahar, citing its importance for Afghan trade and humanitarian aid. However, the geopolitical dynamics have shifted since the withdrawal of US troops from Afghanistan, reducing its strategic interest in the region.

Interestingly, India's Ministry of External Affairs secured a waiver from the US by highlighting the port's assistance to Afghanistan.

However, the biggest reason, one may say, for India's continued decades-long interest in developing the Chahbahar Port is to act as a counterweight to China's Belt and Road Initiative (BRI), which has grappled the subcontinent with several of India's neighbours like Pakistan, Sri Lanka, Nepal, Maldives and Myanmar becoming key members. The China-Pakistan Economic Corridor (CPEC), a flagship BRI project, passes through the disputed region of Gilgit-Baltistan, exacerbating India's security concerns. Additionally, the increasing Chinese presence in the Indian Ocean through ports and infrastructure in countries like Pakistan's Gwadar, Sri Lanka's Hambantota, and the Maldives threatens India's maritime dominance and strategic interests.

By developing the port, India secures a crucial strategic foothold in Iran, merely 170 kilometres from Pakistan's Gwadar Port—a central element of China's BRI and CPEC. This allows India to counter China's maritime influence and directly compete with the Gwadar project.

The strategic importance of Chabahar Port has motivated New Delhi to sustain its investment. India has invited Armenia to join the development, potentially upsetting Azerbaijan, which has previously expressed concerns over Indian weapons entering Armenia. This move aims to balance the India-Iran-Armenia axis against the Pakistan-Azerbaijan-Turkey alliance.

Additionally, India will seek support from landlocked Central Asian nations like Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, Uzbekistan, and Afghanistan, which stand to benefit from trade through Chabahar.

Chabahar Port is a crucial component of the INSTC, which aims to reduce cargo transport time and costs between India and Europe via Iran. This 7,200-kilometer multi-modal network connects India, Iran, and Russia through Azerbaijan, with links to Eastern Europe and Central Asia, enhancing trade connectivity. The INSTC offers an alternative to the unstable TAPI (Turkmenistan-Afghanistan-Pakistan-India) route and integrates sea, rail, and road transport to streamline cargo transit.

The Agro Express Train through Chabahar will boost agricultural trade among participating countries. IPGL's past involvement in Chabahar operations showcased India's expertise, particularly during the COVID-19 pandemic, facilitating the delivery of six mobile harbour cranes and other essential equipment worth $25 million. The port has also been key in supplying wheat (2.5 million tonnes) and pulses (2,000 tonnes) to Afghanistan and 40,000 litres of environment-friendly pesticides to Iran.

By 2030, India's export potential is expected to exceed $1 trillion, underscoring the need for robust connectivity with Greater Eurasia. Chabahar Port aims to boost trade with Central Asia, with potential trade estimated at $200 billion. India's current trade with Central Asia is relatively minimal, with exports at $744 million (0.17 percent of the total) and imports at $278 million (0.04 percent of the total), compared to China's $100 billion trade with the region. Chabahar offers significant potential for India to increase trade volumes and incorporate resources like oil and natural gas from Kazakhstan, Turkmenistan, and Uzbekistan.

The Federation of Freight Forwarders Association in India (FFFAI) estimates that the INSTC will cut transit time to 25-30 days from 45-60 days and reduce freight costs by 30 percent compared to the Suez Canal route. Additionally, Chabahar provides access to Iran's substantial oil and gas reserves, bypassing naval chokepoints like the Strait of Hormuz, thereby enhancing India's energy security. By diversifying energy sources and supply routes, Chabahar strengthens India's resilience amidst geopolitical shifts and global energy market uncertainties.

India's support for connectivity projects like Chabahar, emphasising sustainability, transparency, and respect for national sovereignty, presents a proactive alternative approach to infrastructure development.

Chabahar Port is vital for Afghanistan's trade, offering an alternative to Pakistan's Karachi Port, especially post-US withdrawal. It enhances Afghanistan's connectivity to international markets, reduces trade costs, and integrates the country into the INSTC, contributing to stability by providing economic opportunities and mitigating factors leading to unrest.

Despite exemptions, US sanctions on Iran have previously affected India's Chabahar projects. New sanctions targeting Chabahar could complicate India's plans, though broad economic sanctions on India are unlikely. Targeted sanctions might slow operations, but with Russia also facing US sanctions, India needs alternative routes like the INSTC and Chabahar Port to Eastern Europe. The port's development is expected to benefit Iran's Sistan-Balochistan province economically. Given the US-China rivalry, sanctions on Chabahar could benefit China's BRI, which the US wants to avoid by not boosting China's regional influence.

Today, India has greater leverage over the US than it has at any point since 1947. She is indispensable to the preservation of US power in the Asia-Pacific, which has much to lose from an antagonistic and distrustful India. Therefore, India must put the greatest weight on discouraging the US from being rash with sanctions.

India's commitment to Chabahar Port underscores its strategic importance for regional trade and connectivity. While the threat of US sanctions looms, India's investment in Chabahar signals its intent to enhance geopolitical and economic influence in Central Asia. The port provides alternative routes to Eastern European markets and reduces dependency on Chinese-controlled pathways. Initiatives to boost private sector participation in the port enhance its operational efficiency, promoting a balanced regional development model.

India is in a challenging position as a 'sea-locked' nation. Abandoning the Chabahar Port project would expose it to economic and oil supply shocks, while US sanctions could disrupt trade. India, already facing a trade deficit and dependent on oil imports, cannot afford sanctions.

India will continue promoting economic integration by leveraging its strategic partnership with the US in the Asia-Pacific. It aims to avoid sanctions while demonstrating that its closer ties with Iran do not imply an anti-West stance. India's stance, including reservations on certain Russia—and China-backed proposals within BRICS and positioning the Chabahar Port as a counter to China's Gwadar Port under the BRI, underscores this approach. Recognising its value to the US, India remains committed to expanding market connections while carefully balancing complex geopolitical interests.