RISRIS Policy Brief slow duetoUnited States (US)sanctionsover However,port. theprogress ofwork wasvery investment todevelop theinfrastructure ofthe “under whichIndia committedtomakebulkof wasoffered Chabaharin2003 by politics did not happen overnight.of the desert where predictions gotodie”. Minister of Israel. Middle East “The is a region to thesayingofEhud Barak, formerPrime control theoilbuckets,India true hadstruck among the members of the Gulf nations who by notshowing especially anypartisanship future of the competing countries. Till recently begun tomakeaguessabouttheeconomic implications fortheenergybusiness,India has As furiouschangesroil theregion withdeep to Indiaof port for 18 months. agreement toleasetheoperationalcontrol from Pakistan. BothPakistan neededGwadar grants. The remaining $50millionistocome a costof$198millionthrough loansand was tofundthree-quarters oftheproject, at former. Under theoriginalagreement, China at in the $248 million deep-sea port China signedadealinApril 2002tobuildthe Iran”. and India Chabahar Port This Policy Brief hasbeen prepared by RIS History On February 10, 2018, Iran signed an 2 Policy Briefs The offercameayear afterPakistan and : The changesinIndian appraisal are prepared onspecificpolicy issuesforthepolicy-makers. — Research shaping thedevelopment agenda

Mr. Subhomoy Bhattacharjee, Consultant,RIS. provide aninvestment boostinasanctionsera. andIran neededChabaharto port investors are also expectedtobepresent in notesAfghanAfghanistan tradeministry Asia. AsanOECDnoteprepared by the and dutyfree with linkagetocentral import) of afree tradezone (20year taxexemption government plannedtobuilditasthemouth Afghanistan”. of minerals from markets…to facilitate import for New Delhi toreach theCentralAsian said “the isthemostcost-effective route port external a Indian government ledby UPA too. Former (sic) This has been underscored by the former water accesstoboththewest andtheeast”. Central Asianstatestheirmostefficientwarm- Oman intends totakeonotherGulf especially ports, toreachports Southern . “Pakistan Gwadar isthattheywere notenvisagedas pointtonoteaboutChabaharandcrucial of settingthedatesforitscompletion. The India andIran couldnoteven reach thestage to becompletedin2005whileforChabahar In the case of Chabahar, the Iran Both projects moved slowly. Gwadarwas todevelop fresh linkswithpost ’ s Salalah andUAE ffairs

o 80January2018 No. 4 minister Salman Khurshid ’ s Jebel Aliandoffer 1 3 the proposed free trade zone. To make some tons from the current 2.5 million tons. As of of those possible India built the now the investment from India is expected to to Highway for $135 million.5 The be about $85 million but the overall Indian highway, designed and constructed by India’s exposure to the project is estimated at $ 500 Border Roads Organisation was opened for million. commercial traffic in January 2009 by then The shipping ministry set up Indian Ports Afghan President Hamid Karzai. The highway Global, an unusual state led venture for India brings Afghanistan freight traffic to the Iranian in the ports sector. It is a joint venture between border at Zaranj. “The city of Zaranj serves JNPT and Kandla Port Trust and is expected as the border crossing between Afghanistan to follow up the Chabahar project with more and Iran, and historically it is of significant such in other countries. One project where importance to the trade route between it plans to bid is Payra in Bangladesh. It is , South Asia and the Middle East. The highway thus provides land-locked unusual because the Indian government had Afghanistan an alternative way to access the assiduously avoided such an exposure in the and the , instead of international arena for any projects it had a relying solely on the Pakistani routes”.6 These stake in, except for those involving trade in considerations explain the position of both commodities. ports. Chabahar, for instance, cuts the distance The change in tactics for India has become to by 700 kilometres than , necessary after one element of the future had creating a huge potential savings of $ 1000 become clear. China’s inexorable march to per container.7 secure its energy supply is determining its Post sanctions: The circumstances outreach among the nations of became propitious for Chabahar, once Iran and the Middle East and forcing India to react. signed landmark nuclear agreement with Djibouti in Africa, Gwadar in Pakistan and P5+1 nations in 2015. It lifted the sanctions Hambantota in Sri Lanka are all Chinese run on the country making it possible for India ports coming up too close to Indian coasts. to push investments in the country. The lead While Wickremesinghe has emphasised that was taken by the ministry of shipping from Chinese navy will not call at Hambantota, that October 2014 onwards by sending delegation is more of an exhortation than a statement of to Tehran and receiving reciprocal ones to position. Sri Lanka owes $ 8 billion in debt to march from an MoU signed in 2016 to an China, the port is like a sale of real estate to investment contract. The MoU was signed meet its dues. Djibouti is a port for Chinese between Indian Prime Minister Narendra navy and so will be Gwadar. Possibly next on Modi, Iranian President and the cards is the proposed deep sea port, Payra Afghanistan President to build in Bangladesh though India too plans to bid a trilateral Transit and Transport Corridor for it through the same SPV that it has set among the three countries using Chabahar up for Chabahar—Indian Ports Global. An Port as one of the regional hubs. energy blockade from the seas may seem far fetched at this juncture for India to encounter, Under the MoU, India Ports Global but instead of a difficult war that nuclear will refurbish a 640 meter long container nations cannot wage, it is quite a plausible handling facility, and reconstruct a 600 threat to reckon with since it can be waged at meter long container handling facility at far less cost but with devastating impact for the port. The company will modernize the economy. ancillary infrastructure by installing four rail- mounted gantry cranes, sixteen rubber-tire Would one Chabahar ensure a checkmate gantry cranes, two reach stackers, two empty in India’s favour. Hardly so! Yet it is the handlers, and six mobile harbor cranes. Upon beginning of a long running detente for India completion of the works Chabahar’s shipping around the Persian Gulf. India has already handling capacity will be increased to 8 million begun to use the two berths it has committed

2 RIS Policy Brief # 80 to develop at the Shahid Beheshti port to send longer accept payment for gas and oil in Indian the first few consignments of grain to Kabul. rupees even though it was a currency to bypass With Afghanistan in tow, India will need the strict sanctions regime imposed on it to to work towards integrated development of restrict its access to banking channels.9 There connectivity infrastructure including ports, are some common to both. As India and Iran road and rail networks to open up greater looked across the waters from Chabahar, the opportunities for access to regional markets hitherto politically solid bloc on the other side, and “integration of the three economies”. Gulf Cooperation Council, the alliance of six The Indian participation in the expansion states led by Saudi Arabia (which established it of Chabahar port is also in keeping with the in 1981 at its capital Riyadh) almost dissolved Iranian government’s priorities. The port lies in the same week. Earlier this year, Qatar outside the one of the three was accused of breaking ranks with the other choke points in the Indian Ocean, the others members of the bloc that included Kuwait, being Straits of Malacca and Bab el Mandab the (UAE), Bahrain, Strait and so largely insulated from any and Oman for having cultivated relations with conflagration in the Gulf. As D. P. Srivastava, Iran. The others broke off diplomatic relations former Indian ambassador to Iran, who had with Qatar and enforced a crippling blockade. curated the Chabahar deal in its infancy notes: Though Kuwait has invited Qatar back to “Expansion of the port will also bring more the annual meeting of the six, in response UAE trade and development to Sistan-Balochistan, and Saudi Arabia have formed a new “joint a strategic province bordering Pakistan and cooperation committee”. India has so far been Afghanistan with few natural resources. In used to deal with the GCC as a bloc that is recent years, the region has also witnessed an largely Sunni against the Shia majority countries upsurge in terrorist attacks by groups based that are led by Iran. It was a relatively easy in Pakistan”.8 There are other advantages too. equation that has now broken down. To ramp India plans to invest in an urea plant adjacent up investments back home, India has in the past to the port. For Iran, this makes sense to couple of years fostered competing relations raise productivity in its investment starved with these countries. For instance, UAE has farms. There are also plans for setting up an operationalised a $ 75 billion sovereign fund alumina plant by India’s state owned Nalco. for India. Of this $ one billion has already been So energy especially gas, other commodities transferred to India’s National Infrastructure and trade with land locked central Asia is and Investment Fund while the volume of oil the troika of benefits India and Iran plan to imports from Saudi Arabia is competing for harness through Chabahar. For India a key the number one rank against a resurgent Iran.10 requirement from Chabahar is, of course, gas. The kingdom is now the second-largest crude Iran has already built a 900 km pipeline, from oil supplier to India after Iraq.11 India sourced the gas fields of Assaluyeh in the west of the 19 per cent of its oil and 29 per cent of LPG country to Iran Shahr which is just north of imports from Riyadh in 2016-17. Playing cosy Chabahar at about 100 km. The gas berth is with Tehran at this juncture, despite its role the next stage India will look to develop. as a traditional heavy weight partner for New Prospects: These plans read great on Delhi, has costs. paper. The problems are, however, plenty It is a study in contrast how China plays and the solutions, as yet, few! At least none this great game.12 Beijing has plans to use its that some nation will not veto. Iran itself has fat purse to buy influence like its plans to buy not been fully transparent in its deals with shares in Saudi Arabia’s state run Aramco, whose India. Indian shipping ministry officials were IPO is due in the new year. Its Belt and Road surprised at the raising of fresh demands in Initiative is also meant to provide opportunities their negotiations with their counterparts. to Chinese firms to invest in mega infrastructure In March 2014, Iran told India it would no projects in the region just as they hope to do

RIS Policy Brief # 80 3 in other regions of Asia and Europe. India 4 Official: Iran, India, Afghanistan to Ink is instead waking up to the possibility that Joint Agreement, Fars News Agency; March its huge internal market can provide rich 2014, http://en.farsnews.com/newstext. investment avenues for the oil states to aspx?nn=13930105000145 deploy their petro-dollars into, as a counter 5 India hands over strategic highway to opportunity to put those in US bonds. But Afghanistan; , January 2009 http:// investments in projects like Chabahar would www.thehindu.com/todays-paper/India- still need India to put its hand into its thin hands-over-strategic-highway-to-Afghanistan/ purse. To make the choices harder, New article16358624.ece Delhi’s new found investment partner Japan 6 https://www.oecd.org/aidfortrade/casestories/ has seemingly decided not to get involved in casestories-2017/CS-61-NTP-MIP-Chabahar- Chabahar, despite initial enthusiasm. Japan port-New-transit-gateway-for-Afghanistan.pdf has deep economic relations with the USA. 7 ibid Since the Trump administration has come 8 India and Iran: Connectivity Matters. Trade close to rescind the nuclear deal with Iran, and Investment Matters More; DP Srivastava; 13 Japan is left with very little options. The Wire June, 2016 https://thewire.in/39583/ In a region with so many competing india-and-iran-roads-matter-trade-matters- interests a wrong call as Ehud Barak has more/ warned, can have consequences. But with a 9 Iran’s new government scraps oil and gas dragon at the ocean door, India has to make connections to India; Indian Express http:// some choices and Chabahar seems a right call indianexpress.com/article/india/india-others/ to make if it is pushed with gusto. irans-new-government-scraps-oil-and-gas- connections-to-india/ Endnotes 10 http://pib.nic.in/PressReleseDetail. 1 http://www.pib.nic.in/PressReleseDetail. aspx?PRID=1506267 aspx?PRID=1520840 11 https://tradingeconomics.com/india/imports/ 2 https://www.oecd.org/aidfortrade/casestories/ mineral-fuels-oils-distillation-products casestories-2017/CS-61-NTP-MIP-Chabahar- 12 Chabahar port: Between the dragon and the port-New-transit-gateway-for-Afghanistan.pdf deep sea; Subhomoy Bhattacharjee; Business 3 Gwadar and Chabahar: competition or Standard, December, 2017 http://mybs. complimentarity? Rizwan Zeb October 2003 in/2Ub7l1k https://www.cacianalyst.org/publications/ 13 Japan ‘cautious’ about investing in Chabahar analytical-articles/item/8475-analytical- port http://bit.ly/2A0OmvD articles-caci-analyst-2003-10-22-art-8475. html?tmpl=component&print=1

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