US air raid struck and killed Qassem Soleimani, the head of Iran's elite Quds Force. US alleged that General Soleimani was actively developing plans to attack American diplomats and service members in Iraq and throughout the region. Iran vowed harsh retaliation and launched a series of missile attacks on two Iraqi bases housing US troops Iran abandoned nuclear deal limits prescribed under Joint Comprehensive plan of Action (JCPOA).
- 2015 JCPOA or Iran nuclear deal, between Iran and the P5+1 group — U.S., U.K., France, Russia, China and Germany — on Tehran’s nuclear programme to stop Iran from producing its own nuclear weapons, and set up a framework limiting the amount and degree to which Iran was allowed to enrich uranium
- 2018 USA unilaterally announced to decertify the nuclear deal on account of non-compliance by Iran and announced two rounds of economic sanction on it.
Global Implications
- Threat of emergence of new proxy wars and escalation of ongoing conflicts destabilize the already vulnerable region.
- Wide-ranging implications on economy: economic and financial shocks that could significantly worsen operating and financing conditions
- Effect on global oil trade via Strait of Hormuz: Roughly a third of the world's oil tanker traffic travels through the strait. Any blockade by Iran could quickly lead to a 30% drop in daily global oil exports resulting in a steep rise in Oil prices.
- Disturbance in Rules based world order: The US has set an alarming precedence of killing government officials on foreign soil.
Implications on India
- Volatility in Oil prices and Its impact on India’s economy: could deplete our country’s foreign reserves. The embargo by USA has also restricted India from buying oil from Iran
- Effect on security of India's Diaspora in Iran and the middle east In case of a fully-fledged war
- Remittance: More than 50% of total remittance received by India last year came from the gulf region. Disturbance in the region would lead to decline in such remittances
- Trade:heavily reliant on the Strait of Hormuz and its blockade would adversely affect trade. Chabahar Port may also come in question. Iran dropped India’s IRCON as partner in construction of Chahbahar Zahedan Railway line
- Security: The US has ordered resumption of military training to Pakistan, which it had suspended in 2018 after accusing it of not doing enough to counter terrorist groups, as part of its wider West Asia strategy. This could impact overall security of the region as several terrorist outfits may become active in the region.
- Increased role of China with the 400 billion dollar deal
Chabahar Zahedan Railway Line
- In 2016, the Trilateral Agreement on Establishment of International Transport and Transit Corridor was signed among India, Iran and Afghanistan.
- allows Indian goods to reach Afghanistan through Iran, bypassing Pakistani territory, and complements the Zaranj-Delaram highway built by India in Afghanistan in 2009
- developing Chabahar port as well the land-based route connecting the port to Afghanistan.
- signed a pact with Iran to provide requisite services for the construction of Chabahar-Zahedan railway line, that cuts down travel time from the Chabahar port to the Iran-Afghanistan border.
- Delays due to U.S. sanctions: after withdrawal from Joint Comprehensive Plan of Action. While India was given a special waiver for Chabahar port and rail line, the project suffered due to-
- bureaucratic delays in USA for actual clearance of the import of heavy equipment.
- difficulties in finding equipment suppliers and funding partners due to worries they could be targeted by the U.S
- Bureaucratic and diplomatic hurdles in India: such as operational hurdles, delays in dispersal of funds, lack of effective communication and diplomatic coordination etc.
- Iran is also going ahead with developing the Farzad-B gas block without India.
- Chinese influence: Iran might be using the proposed China-Iran 25-year deal, to play potential investors against each other
Possible impact on India
- Access to Afghanistan: result in reduced Indian presence, influence, and leverage at Chabahar, affecting India’s relationship with Afghanistan
- Countering China’s presence in the region: easier for China to expand its footprint in the region
- India’s leadership in regional connectivity: Chabahar port and the rail project was envisaged to be connected to the proposed International North-South Transport Corridor (INSTC) that could link Mumbai to Moscow by sea and land.
Way forward
- India needs to improve its implementation record of foreign infrastructure projects by fast tracking diplomatic talks and timely dispersal of funds
- India should leverage on mutual interests, as it is the only partner that enjoys a sanctions waiver from the US for development in Iran and has an aversion to a Taliban takeover in Afghanistan
- India should try to revive talks on INSTC to counter increasing engagement of Iran with China under BRI.
- Diplomatic channels with Iran should be established to convey India’s concerns related to Chinese investments near or in Chabahar port.
- India needs to find a balance between its diplomatic ties with Iran and U.S.A. It should watch and work diplomatically with new American president Joe Biden in ensuring it safeguards its interests in the region.
Rising Chinese influence in Iran
- Belt and Road Initiative (BRI): strengthening its ties with Iran, Saudi Arabia, UAE, Egypt and other Middle East countries using engagements such as construction of stadiums, railways, industrial parks, 5G highways, clean energy project etc.
- 25-year comprehensive strategic cooperation between Iran-China: draft $400 billion agreement includes allocations in Iran’s transport, manufacturing sector and hydrocarbon industries which will give way to Chinese companies, equipment and workers in Iran.
- Gwadar-Chabahar connectivity: can impinge on India’s strategic ties with Iran, restrict the use of Chabahar port for India and aggravate India’s security calculus in the immediate Western Indian Ocean.
- Bandar-e-Jask port: Iran has offered interests to China in this port located just 350km away from Chabahar can extend China’s control along the Pakistan-Iran coast.
- Expanding presence of Chinese submarines in the Indian Ocean.
- Iran leveraging China and Pakistan as potential investors for the Chabahar Special Economic Zone.
- 2019 joint naval exercise between China, Iran, and Russia in Gulf of Oman.
Why India’s connectivity with Chabahar port holds strategic importance?
Chabahar is India’s first-ever overseas port investment. It would help India meet the following strategic goals
- India’s gateway to Central Asia and Europe: bypassing Pakistan, will be linked with the INSTC enhance India’s trade with Eurasia up to $170 billion.
- could also be integrated with the proposed transit corridor under the Ashgabat Agreement (transit and transportation of goods between Central Asia and the Persian Gulf).
- Enhance trade opportunities among India-Iran-Afghanistan: geographical integration in addition to the agreement that grant preferential treatment and tariff reductions at Chabahar to Indian goods.
- alternative to Belt and Road Initiative (BRI) of China: Chabahar is the shortest opening to the India Ocean for their maritime trade.
What steps have been taken by India to make the investment in Chabahar port meaningful?
- Managing exemption from US sanction: not only continued to invest in Chabahar but also was allowed to ship goods to Afghanistan through the Chabahar port.
- Quick operationalization of the port: The 1st wheat consignment from India to Afghanistan via Chabahar port was sent in 2017. In 2018, India took the control of operation of the Shahid Beheshti Port and since then the volume and transit of shipments through the port have increased significantly. In early 2019, Afghanistan started exporting goods to India using the port
- Doubled budgetary allocation: In budget 2020, nearly US$ 14 million was allocated for the development of the port.
- 40% subsidy on charges for cargo and vessels moving to Shahid Beheshti Port to boost the trade through Chabahar port.
What are the challenges India is facing in harnessing the strategic potential of Chabahar Port?
- India’s investment in Chabahar has always been held hostage to International policy on Iran
- India’s receding economic influence on Iran: Iran has dropped India from the project to build a rail line from the Chabahar port to Zahedan owing to delay in the proposed $400 million funding from India. Iran also cut off India’s ONGC Videsh Ltd (OVL) from the development of an Iranian gas field project, Farzad B
- Iran gravitating towards China: draft $400-billion long-term agreement (for 25 years partnership). There is a fear of Iran falling to debt trap of China and leasing the Chabahar port to it.
What should India do to make its Chabahar port diplomacy a success?
- Prioritize strategic interests: India and Iran will have to continue to explore ways to further strengthen their partnership by taking pragmatic steps based on their respective national interests
- Join the Chabahar-Zahedan railway line development project forthwith
- Make the Chabahar port lynchpin of trade: hook onto ongoing corridor plans and programmes like Transport Corridor Europe-Caucasus-Asia (TRACECA), Central Asia Regional Economic Cooperation (CAREC) and other multilateral transport initiatives in the region.
- Allay the psychological fear of private sector: Despite the waiver by the U.S. for the Chabahar port, private companies in India are afraid of attracting the US sanctions if they were to use the use Chabahar port for trade. This needs to be addressed to make the use of waiver.
Geographical proximity, the need for regional connectivity, economic integration, and common security challenges in Afghanistan and West and Central Asia demand close cooperation between India and Iran. “Chabahar” literally means a place where all four seasons of the year are like spring. For India’s economic and strategic reach, it’s time to make that a reality now.