India braves US sanctions in latest investment in Iran

On May 13, Indian and Iranian officials signed a 10-year contract for the development and operation of the Chabahar port, in southeastern Iran. Despite the relatively low value of the contract, worth $370 million, this agreement reflects India’s commitment to the decades-old project despite geopolitical tensions in that it is ready to brave potential US sanctions so as not to lose the port to its rival China. 

Key points 

• Iran’s Chabahar port encapsulates a commercially sound logistics project which has suffered years of under-development due to the specter of US sanctions and poor management. Nonetheless, its relevance throughout decades shows it is a missing link for Eurasian connectivity, potentially linking Mumbai to St-Petersburg. 
• Despite its strong ties to Western powers, Modi’s India is intent on showing it is non-aligned and strongly values ties with Russia, hence its continued interest in Chabahar port. While there is skepticism as to whether the project will advance under sanctions, the agreement between Tehran and New Delhi shows that the latter is ready to indefinitely hold its position in the port, in the hope of reaping rewards in a distant future. 
• Since the 2018 reimposition of US sanctions, Tehran has increasingly and overwhelmingly become dependent on Beijing for an economic lifeline via discounted oil sale - reaping $35 billion in 2023. Concurrently, the country is seeking avenues to resume oil sales to India, which used to import sanctioned Iranian oil between 2012 and 2016.

Chabahar as the INSTC’s stepping stone

The multi-modal International North-South Transport Corridor (INSTC) has the potential to boost Eurasian trade connectivity across 7,200 km by linking Russia to the warm waters of the Persian Gulf and Indian Ocean. It was first inked in 2002 by India, Iran, and Russia, and began gathering interest across Central Asia, the Caucasus, and even Eastern Europe in the mid-2000s before losing momentum due to Iran’s growing isolation under Mahmoud Ahmadinejad’s presidency. While the idea of a north-south corridor survived, with Iran and India discussing cooperation regarding the development of Chabahar port as soon as 2003, it took a long time before progress took shape.

In 2016 - when US sanctions were temporarily lifted - Iran eventually signed a Build, Operate, Transfer (BOT) contract with the India Ports Global Limited (IPGL) to develop Chabahar with $85 million of investments. According to Iranian media, only $25 million of this amount has so far been disbursed with the Indian partner delivering only two of six Mobile Harbour Cranes (MHC). The port currently has a cargo handling capacity close to 9 million tons but only operates at 30% of this capacity, and the Iranian side has waited since 2021 for a long-term contract commitment from its Indian partner.

This reality is highly behind aspirations for the port, aiming to reach 82 million tons capacity by the end of its four phases, and for the INSTC which was hailed as a way to halve travel time between North Europe and South Asia to 30 days while competing with the Suez Canal as well as China’s east-west corridor linking Yiwu to Duisburg. 

Reasons for delaying Chabahar’s development