This week marked a new chapter in India’s 20 year old interest in a port in Iran- Chabahar. On a visit to Tehran, Shipping Minister Sarbananda Sonowal and his Iranian counterpart oversaw the signing of an agreement to develop the Shahid Beheshti terminal- one terminal in the warm water port just off Iran’s Sistan Baluchistan province.

Broadly, here are the terms of the agreement.

The Long term contract signed is for 10 years- earlier, the two sides had signed an MoU in 2016, part of a trilateral agreement with Afghanistan for the development of the port, but it could not be converted into a long term contract for a number of reasons- changes in the jt venture partners, the slow pace of Indian investment etc.

India has committed US $120 million, and a credit line of US $250 million to develop the terminal. This is a small amount compared to the other big projects in the region, but it’s a start.

Thus far the terminal has a modest operation, 6 harbour cranes, and other equipment worth $25 million- to handle about 8.5 million metric tonnes of cargo, mostly between India and Iran and India and Afghanistan, but the plan is for a 4-phase development of its capacity to 82 million tons per year and 32 jetties.

The Contract is between India Ports Global and Ports and Maritime Organisation of Iran. Earlier the joint venture was with the Aria Banader Iranian Port & Marine Services Company. The contract contains a clause to extend the lease of the port terminal to India after 10 years as well.

But here’s where trouble struck. In a US State department briefing, its spokesperson, when asked about the deal, raised the risk of potential sanctions. When asked if there would be an exemption for this, the spokesperson said no.

That “No” at the end is the most significant part of his statement. Why? Because in 2018, the US had introduced an amendment to its Iran Freedom and CounterProliferation Act (IFCA), allowing an exemption from very stringent sanctions on any company doing business in Iran –

1. For Humanitarian aid to Iran

2. For any assistance and support to Afghanistan (which is what Chabahar was designated as).

3. A temporary waiver of 6 months to India, China and other countries for the import of oil from Iran. While China continued its oil imports from Iran after the 6 months ran out, India bowed to the Trump administration’s pressure, and stopped all oil imports.

The US State department has not clarified its statement so far- but if it is changing policy, it may be for a number of reasons:

1. The US pulled out from Afghanistan in 2021, and no longer wishes to support Kabul under the Taliban regime.

2. The US wants to dissuade India from broadening Chabahar’s scope to the INSTC and trade with Russia – even with the exemptions, India has had to slow down investments in Chabahar, has found it hard to find suppliers and insurers for its shipments, and plans to build the Chabahar Railway line have been dropped.

3. The Biden administration is getting tougher on Iran, especially under fire from Trump in an election year, and is narrowing its exemptions for Chabahar as well.

On the other hand, many believe the US is unlikely to follow through on its threat, given its previous records on threatening sanctions.

1. In 2017, the US had threatened sanctions on Chabahar as well as India’s oil imports from Iran and Venezuela. On Chabahar it gave an exemption, but India pulled out of a number of oil investments and cancelled imports from Iran and Venezuela.

2. Prior to 2018, US had threatened India in 2012 to cancel Iranian oil imports, but New Delhi at the time had not agreed, no sanctions followed.

3. With Russia- the US threatened CAATSA sanctions over India’s purchase of the S-400 systems, but has not followed through, although its acted against China and Turkey.

The US has banned a handful of Indian companies in its sanctions regime, including one for selling dual use tech to Russia, but nothing like it has done with other countries including China- a testament to India’s importance.

Why Chabahar, Iran connectivity ties matter

1. Ties with Iran part of traditional diplomacy, alternative to Pakistan, access to central asia.

2. Chabahar and INSTC balance India’s west asia policy with I2U2 and IMEEC.

3. India is part of multilateral platforms with Iran: SCO and BRICS.

4. Backtracking on oil imports, other deals has cost India, Chabahar is now the lynchpin of ties

Worldview Take

With all the problems the US has this year, including Ukraine, Gaza, the Iran-Israel tussle, ties with China and others, it is hardly likely to open a new front with India over Chabahar. However, New Delhi must keep an eye on US Congress, which could take a tougher line, even after US elections, even as it moves to shore up flagging ties with Iran. Eventually, diplomacy is the art of letting others have your way, and not one of constant brinkmanship.

Script and Presentation: Suhasini Haidar

Production: Shibu Narayan and Ananyaa Desikan