Chabahar Port: India-Iran Deal & US Sanctions

Anil Trigunayat

On May 13, India and Iran formally signed a 10-year agreement for management and development of the strategically located Chabahar Port in southeastern Iran. Until now there has been an annual contract awarded to India Port Global Ltd (IPGL). Indian Minister of Shipping Sarbanand Sonowal travelled to Iran to witness the signing ceremony of this important connectivity initiative which provides access to Afghanistan and Central Asia as well as larger Eurasia and the Caucasus. However, this progress was quickly eclipsed by a sanctions warning from the US.  

Chabahar Port’s inclusion in the International North South Transport Corridor (INSTC) has further enhanced its outreach and efficacy. Chabahar also obviates the dangers of escalation in the Red Sea and Strait of Hormuz choke points.

In addition, the uncertainty even for humanitarian assistance to Afghanistan via Pakistan will be addressed even as Islamabad has offered its Gwadar port, just across Chabahar, to the Chinese under the rubric of China Pakistan Economic Corridor (CPEC). Even the Taliban regime has agreed to invest $35 million in the Chabahar Port to diversify Karachi Port dependency.

Besides Chabahar can also be useful for maritime freight to African continent, which is India’s natural partner. All these factors attribute to the strategic dimension of the port.

Although India and Iran have been talking about this connectivity project since 2002 when the Iranian president visited India, the hubris, inertia and the fear of sanctions kept it from realisation until 2016 when Prime Minister Narendra Modi visited Tehran and signed a trilateral agreement with Iran and Afghanistan.

Hope for  removal of sanctions, pursuant to Obama Administration agreeing to the JCPOA Nuclear deal with Iran, became stronger and some progress was made. India even got exemptions for importing crude oil from Iran. But with the onset of Trump presidency changed it yet again as he walked out of the JCPOA and reimposed stringent sanctions while removing any exemptions despite India’s core concerns.

Indian companies have been hesitant due to secondary sanctions and hence Indian imports of Iranian crude virtually became nil from nearly 11-12% of its total crude requirements. But the relationship at the political interactions, high level exchanges and at the P2P levels continued apace. India also supported Iran’s entry into Shanghai Cooperation Organization (SCO) and the BRICS.

Prime Minister Modi had met late President Raisi at Johannesburg Summit and spoke to him several times. Dr Jaishankar was the first foreign leader to meet Raisi post his election and also met him in January this year when the contours of the deal were finalised. Even at the funeral of Late President Raisi and Foreign Minister Abdollahian despite ongoing elections, India was represented at the highest level of Vice President Dhankhar which clearly attests to the importance India attaches to its relationship with Iran.

As USA had been embroiled in Afghanistan for two decades until 2021 it had provided exemptions to Chabahar Port to ensure alternate supply routes under the Iran Freedom and Counter-Proliferation Act of 2012 allowing the development of Chabahar port in 2018. India had developed the Shahid Beheshti Terminal and continued to use it for supply of humanitarian assistance to Afghanistan and even to Iran.

Even now India will need to further expand the capacity by bringing in more cranes and development of infrastructure for full utilisation of its potential as a critical transit hub. Fortunately the Indian operator IGPL — a SPV will be investing $120 Mn  with $250 million credit line to upgrade the infrastructure of the Chabahar Port.

But threats of US sanctions lurk all the time driven by its geo political ambitions and machinations in which it often fails to distinguish between its larger geo political and geo economic interests. As such the efficacy of sanctions is debatable and unilateral actions more so could become a major headache even for the hyper power if applied indiscriminately.

The case with India, which is USA’s Global and Comprehensive Strategic Partner, is pretty evident. USA need not look at the Chabahar Port deal from the Russian or Iranian perspective but India’s core interests and critical connectivity perspective which it had done in the past. But the Deputy Spokesperson was quick to conclude that there will be exposure to US sanctions for the companies involved.

Clarifying that there was no exemption for India-Iran port deal he warned that all entities considering business deals with Iran faced the “potential risk of sanctions”.  India has not believed in unilateral sanctions and only subscribes to UNSC mandated measures against any State. But in this case Indian companies were forced to be far more cautious as they had significant exposure to the West and hence CAATSA sanctions dampened their enthusiasm for proactive engagement in Chabahar and with Iran.

This time round, it appears that India is more confident of being able to persuade the US and other partners, as mentioned by Foreign Minister Dr S Jaishankar. Hopefully, US will not take a narrow view and look at India as a potential interlocutor for regional stability and connect. Since the unilateral sanctions’ regime in this ‘Jungle Raj’ has become routine rather than an exception, it is important that India devises suitable mechanisms of sanction-immune Special Purpose Vehicles (SPVs), requisite bilateral financial arrangements and like minded group of trade complementing nations. But in the meantime, hopefully good sense and reason will prevail.

The author, Amb. Anil Trigunayat, is a former Indian Ambassador to Jordan, Libya and Malta, and currently heads the West Asia Experts Group at Vivekananda International Foundation. 

The article was first published in CNBC TV 18 as ‘Chabahar Port Agreement | Why this India-Iran strategic deal is caught between US sanctions and essentials‘ on May 27, 2024.

Disclaimer: All views expressed in the article belong solely to the author and not necessarily to the organisation.

Read more from the author at:

Leadership Crisis in Iran: The Aftermath of President Raisi’s Death

Acknowledgment: This article was posted by Ankita, a Research intern at IMPRI.