Geopolitics likely to weigh on Chabahar trade volumes, say experts

With Russia's borders with Europe shut and Iran under sanctions, port to focus on Central Asia

India on Monday signed a decade-long contract to develop and run the Shahid Behesti terminal at Iran's Chabahar port, but changing global events and a shift in geopolitics may lead to a slower rise in traffic than initially expected, experts said.

"The Shahid Behesti terminal may see much lower oil volumes than what was earlier considered, given that India has stopped importing crude from Iran in 2018-19," a Federation of Freight Forwarders' Associations in India (FFFAI) functionary said.

Iran was India's third-largest source of crude oil till 2018-19 when imports had topped $12.1 billion. In June 2019, the US Presidential administration under Donald Trump placed fresh sanctions on the country due to its nuclear programme.

However, the route may take advantage of India's regular trade with Russia being enhanced in the mid to long term, officials at the Ministry of External Affairs said. Earlier this year, New Delhi began trade negotiations with the Eurasian Economic Union (EEU) bloc of countries, officials added.

The EEU is an economic union of five post-Soviet states -- Armenia, Belarus, Kazakhstan, Kyrgyzstan, and Russia, with an integrated single market. Coming into force in 2015, the EEU currently consists of 183 million people and a gross domestic product of over $2.4 trillion.

Apart from helping India gain a strategic foothold in the marine trade in the Gulf of Oman, the port is also the starting point for the International North South Transport Corridor (INSTC). India's 7,200-kilometre-long alternative trade route to Europe through the Iranian deserts, INSTC incorporates thousands of kilometres of all-weather highways from Chabahar in the south, up north to Tehran, Azerbaijan, and onwards to Russia.

The Western route of the INSTC can cut down average transit times for goods travelling between India and Europe to 24 days, down from 40-plus via the Suez canal route. While the first dry run was conducted in 2014, the first shipment along the route was dispatched in 2021.

But with Europe's borders with Russia frozen for the past 2-years as a result of the war in Ukraine, the route will effectively serve the Russian and central Asian markets for the near future, a senior functionary at the Federation of Freight Forwarders' Associations in India (FFFAI) said under conditions of anonymity.

"The government emphasises that Chabahar serves as a trade gateway to Afghanistan and Central Asian nations. Therefore, it warrants a longer-term, strategic perspective for maximising its potential benefits in regional trade and connectivity," said Rajnish Gupta, partner, tax and economic policy group, EY India.

US flags sanctions risk after India-Iran port deal

Any country having business dealings with Iran runs the “potential risk of sanctions”, the US has warned, noting that it is aware that Tehran and New Delhi have signed a deal concerning the Chabahar port.

US sanctions on Iran over its suspected nuclear progra­m­me had slowed the develop­ment of the port. 

“We’re aware of these reports that Iran and India have signed a deal concerning the Chabahar port. I will let the government of India speak to its own foreign policy goals vis-a-vis the Chabahar port as well as its bilateral relationship with Iran,” State Department Deputy Spokesperson Vedant Patel said on Monday.

The US had given an exemption to the port earlier since it was used to provide humanitarian supplies to war-torn Afghanistan, Federation of Indian Export Organisations (FIEO) Director General and Chief Executive Officer Ajay Sahai said. It has to be seen if the US will exempt the port from sanctions when it will be used for commercial trans-shipment. He also flagged the need for ensuring suitable infrastructure at points along the INSTC route such as Bandar-e-Anzali.

While the threat of sanctions has hovered over the project for the longest time, the US had in 2019 assured India it would not seek to extend sanctions on it, foreign ministry officials said on Tuesday. Subhayan Chakraborty & PTI