Despite connectivity challenges, the Chabahar port in Iran is crucial for India’s regional presence. This port is part of broader efforts, including the International North-South Transport Corridor (INSTC), to charter alternative trade routes.
By Eldaniz Gusseinov
The Chabahar port in Iran represents a strategic opportunity for India’s access to Central Asian markets, bypassing the Pakistani ports of Karachi and Gwadar. Securing energy supplies, expanding trade, accessing new markets and resources, and exploiting mineral wealth are key economic interests for India in the region.
Despite connectivity challenges, the Chabahar port in Iran, managed by India Ports Global Limited (IGPL) under a ten-year agreement signed in May 2024, is crucial for India’s regional presence. This port is part of broader efforts, including the International North-South Transport Corridor (INSTC), to create alternative trade routes.
As a result of the intention of the sides to improve connectivity, the first container train consisting of 20 TEU containers with ceramic plates was successfully shipped from Bandar Abbas to Sarakhs with the destination of Chukursai station in Uzbekistan on 1 August, 2024.
Now, Iran, India and Central Asian sides should take more measures to use the capacities of Chabahar Port to increase trade in the region. As of 2023, trade relations between India and Central Asia have been characterized by fluctuating but significant exchanges in various key sectors.
India’s exports to Central Asia have shown a growing trend, particularly in pharmaceuticals, electrical machinery, and mechanical appliances. Total exports peaked in 2022, indicating a strengthening economic partnership. On the import side, India mainly receives mineral fuels, fertilizers and inorganic chemicals from Central Asia. Although there have been significant year-to-year fluctuations, 2023 marked a notable rebound in imports.
This dynamic trade relationship highlights the strategic economic engagement between India and the Central Asian republics, with potential for further growth and diversification in bilateral trade. The fluctuations indicate areas for stability and increased cooperation, with the aim of strengthening economic ties and mutual benefits in the long term.
This is because India needs routes to connect with the Central Asian market.
India’s commitment to expanding cooperation in developing this port was demonstrated by the presence of Indian Road Transport and Highways Minister Nitin Gadkari at the inauguration of the newly elected President of Iran. Both sides underscored that Chabahar Port would contribute to strengthening bilateral and regional trade, providing access to landlocked Afghanistan and Central Asian countries to regional and global markets.
“We look forward to continued collaboration and mutual growth, reaffirming our commitment to furthering India-Iran relations across various sectors for the prosperity and development of both countries,” says Gadkari.
Since IPGL started operations at Chabahar Port, India has shipped more than 90,000 containers and 8.4 mn tons of cargo through the port, significantly improving trade ties with the region. Chabahar Port plays a key role in INSTC by linking the Indian Ocean and the Caspian Sea via Iran, reducing the time and cost of transporting goods between India, Iran, Russia, and Europe.
Economic Investments and Trade Potential
Trade relations between India and Central Asian countries have significant growth potential. India’s main exports to the region include pharmaceuticals, information technology, automotive components and equipment, and agricultural products and prepared foods.
Under the agreement, IGPL will invest USD120mn to modernize the Shahid Beheshti terminal and provide a USD250mn credit line to improve the port’s infrastructure. These measures are planned to strengthen India’s trade ties with Central Asia and reduce dependence on Pakistani ports.
India’s involvement in regional agreements, such as the Ashgabat Agreement, further highlights its commitment to enhancing connectivity. The agreement facilitates the transit and transportation of goods between Central Asia and the Persian Gulf, bringing the countries of Central Asia, Afghanistan, Iran, and India closer together.
Geopolitical and Diplomatic Dynamics
Recent diplomatic strains between Afghanistan and Pakistan have significantly impacted trade dynamics. Pakistan’s restrictions on specific items under the transit agreement have led to a 50% decrease in transit trade between the two nations. Afghan officials have expressed concerns that these restrictions complicate trade, prompting many traders to seek alternatives, with Iran emerging as a more favourable option. Hassan Kazemi Qomi, Iran’s special representative, says that Afghan investors have injected USD35mn into commercial, residential, and administrative projects in Chabahar, Iran.
India’s relations with the U.S., Israel, and the Gulf states, as well as Iran’s rapprochement with China, create a complex political environment around the Chabahar project. The US, despite sanctions against Iran, has made an exception for the Chabahar port to support humanitarian supplies to Afghanistan and counter Chinese influence in the region.
China’s development of Gwadar port in Pakistan, as part of the China-Pakistan Economic Corridor and the broader Belt and Road Initiative, poses additional challenges for India. This increases geopolitical tensions and requires India to engage in more diplomatic work to protect its interests.
Regional Cooperation and Infrastructure Projects
The development of transport corridors through Afghanistan, such as the trans-Afghan railroad and the joint plans of Kazakhstan, Turkmenistan, and Afghanistan to build a new railroad connecting Turgundi, Herat, Kandahar, and Spin Boldak, is critical for Central Asian countries to diversify their transport routes. The success of these projects will depend on the evolving situation on the border between Afghanistan and Pakistan and the countries’ strategies in leveraging these corridors to access ports in Iran and Pakistan.
The Trans-Afghan Railway project, first proposed by Uzbekistan in 2018, aims to extend the Afghan rail network from Mazar-e-Sharif to Kabul and then to the Torkham border with Pakistan.
Once completed, the railway would have a planned capacity of up to 20 million tons of cargo per annum and significantly reduce transit times and costs for goods traveling from Uzbekistan to Pakistan. The railway is expected to have a capacity of up to 20 million tons of cargo per year and significantly reduce transit times for goods between Central Asia and South Asia. The project has garnered international interest, with feasibility studies underway and plans for collaboration involving multiple countries, including Qatar and the UAE.
The completion of the Trans-Afghan Railway is now projected for 2028, with Uzbekistan’s Deputy Minister of Transport stating that the project could significantly reduce goods delivery times from 35 days to just 5 days. The railway is expected to facilitate a transit capacity of up to 20 mn tons of cargo annually, connecting Central Asia with the Indian Ocean through Pakistan.
But the development of this route is fraught with difficulties due to the unstable situation on the border between Afghanistan and Pakistan, so it is always important to consider alternatives in view of the possibility of redirecting the route to Iranian ports. This may be one of the reasons why Kazakhstan and Turkmenistan are also developing another transportation route through Afghanistan. The parties are discussing the creation of a new route connecting Turgundi (Turkmenistan) – Herat – Kandahar – Spin Boldak (Afghanistan). This railroad corridor will facilitate the expansion of trade between Central and South Asia. It is planned to build a railroad from the Turkmen-Afghan border to the city of Herat. Kazakhstan intends to supply materials for the construction of this section.
Also within the framework of cooperation, an agreement was reached on the creation of a dry port in Herat, which will become an important hub for multimodal transportation, including a terminal for oil with an annual capacity of 1 million tons.
This line would provide an alternative route for Central Asian countries to access the Pakistani seaports of Karachi, Gwadar, and Qasim, reducing their reliance on existing transit routes.
The route itself provides an opportunity to redirect cargoes to Iranian ports at different sections of the route promoted by Kazakhstan and Turkmenistan. First, the city of Herat can be reached from Mazar-e-Sharif, and from there Iran. Secondly, during the route “Turgundi – Herat – Kandahar – Spin-Buldak” in case of some conflicts on the border between Pakistan and Afghanistan. For example, Afghanistan has started to redirect some of its cargoes on the Shindand-Dilaram section, where there is a fork in the road to Farah and from there to Zaranj, thus cargoes enter Iran from Afghanistan and reach Iranian ports for trade with India and the Persian Gulf countries.
The success of these projects will depend on several factors, including the evolving security situation on the border between Afghanistan and Pakistan, the ability of the countries involved to secure funding and technical expertise, and their strategies in leveraging these corridors to access ports in Iran and Pakistan
Challenges in Developing Chabahar Port
Despite its strategic importance, the Chabahar port project faces several significant challenges. International sanctions against Iran and the inability to access the SWIFT system for international payments severely restrict financial transactions, making it difficult to attract and secure investments. This situation limits the port’s operational capacity and complicates its overall development [ed – however, the announcement of BRICS rival international payment system announced in August 2024 will likely change Iran’s current predicament].
Moreover, political instability and the risk associated with sanctions have made private investors wary of committing substantial resources to the project. This caution can lead to a slowdown in the port’s modernization and expansion, which require significant financial input.
The Irano-Indian partnership and the development of the Chabahar port are cornerstones in India’s strategy to secure direct access to Central Asia. This initiative is crucial for India’s economic interests, including securing energy supplies, expanding trade, and accessing new markets. Despite the complex geopolitical environment, with challenges from international sanctions and regional competition, the Chabahar port stands as a vital gateway for India to bypass traditional routes dominated by Pakistan. Analytical planning to address these challenges will be essential in realizing the full potential of India’s trade and strategic ambitions in Central Asia.
Notes from the Editor: This feature has been edited from its original publication in Daryo here. Writer Eldaniz Gusseinov, is a Non-Resident Research Fellow at Haydar Aliyev Centre for Eurasian Studies of the Ibn Haldun University, Istanbul. This feature is courtesy of the Lowy Institute.
