India and Iran’s Chabahar deal challenges US-backed trade corridor
F.M. Shakil, The Cradle, May 20, 2024 —
The 10-year India–Iran partnership to develop Chabahar Port could revolutionize regional geopolitics by bolstering the INSTC, undermining US influence and its IMEC project, and amplifying Indian and Iranian influence in Afghanistan despite US sanctions warnings.
On 13 May, India and Iran agreed to a 10-year partnership to establish a trade route connecting Iran, India, and Afghanistan through the strategic Chabahar Port. This move undermines hopes for a US-backed India–Middle East–Europe Corridor (IMEC) linking India with Europe, West Asia, and the Israeli occupation state.
The signing of a long-term agreement on Chabahar Port is strategically significant due to its anticipated role in the International North–South Transport Corridor (INSTC), an extensive land, rail, and seaside transport initiative linking Russia with Iran and India.
The Chabahar Port’s development under the Afghan–Iranian–Indian trilateral agreement will undoubtedly impact regional dynamics, as Iran and India will intensify their involvement in Afghanistan, further isolating the US and Pakistan.
Ziaul Haq Sarhadi, former director and coordinator of the Pakistan–Afghanistan Joint Chamber of Commerce and Industry (PAJCCI), tells The Cradle:
Pakistan has already lost an 80 percent share of the transit trade with Afghanistan, despite Chabahar’s partial commissioning. With the signature of this deal, the remaining transit business would move to Iranian ports, cutting Pakistan completely out of the picture.
Sarhadi notes that Islamabad itself discouraged the Afghan importers by levying heavy duties and taxes on the transit trade business, including a 100 percent bank guarantee on containers carrying Afghan transit goods.
US response to the Iran–India corridor
Washington’s dismay over the Iran–India corridor reflects a shift in priorities due to the realignment of tactics. Initially, the US did not object to India’s participation in the Chabahar project, believing it would rival China’s multibillion-dollar Belt and Road Initiative (BRI) and counteract Beijing’s expanding influence in the Indian Ocean and Arabian Sea. The US perceived the Iranian port as direct competition to the Chinese-funded Gwadar port in Pakistan’s Balochistan province, which softened its stance on Chabahar Port.
However, as Delhi and Tehran sealed the deal, the US prompted Iran’s neighboring countries to refrain from engaging in any trade with the Islamic Republic, which is already under US sanctions. Pakistani political circles assert that the US felt a geopolitical threat in the Indian endeavor, apprehending a more substantial economic and military partnership between Iran, Russia, and India through the establishment of Chabahar Port and its subsequent synchronization with the INSTC.
“India and Pakistan have already entered into multimillion-dollar agreements with Iran, and India is committed to integrating the Chabahar Port with the INSTC. That explains why the US feels the heat,” Zahid Khan, the Central Information Secretary of the Awami National Party (ANP), tells The Cradle.
Khan attributes the impulsive US response to Washington’s declining reputation and vulnerable position in the area as a result of its military and financial support of Israel’s genocidal campaign in Palestine.
“They didn’t want Tehran to steal the spotlight in regional and international trade because it would completely undermine the whole purpose of the US–Middle East policies,” he says, adding that the US is playing a major game in West Asia, where they believe Tehran doesn’t stand a chance.
India put on notice
On the same day India and Iran signed the agreement, the US State Department promptly stated that India would not be exempt from US sanctions if it continued to invest in Iran.
The day after the US warned India of a “potential risk of sanctions,” Indian External Affairs Minister S Jaishankar emphasized that the project will benefit the entire region, saying, “One should not take a narrow view.” He reminded Washington that they had previously recognized Chabahar Port’s significance.
The US also served a similar warning to Pakistan last month when the late Iranian President Ebrahim Raisi visited Pakistan from 22 to 24 April. During this visit, Islamabad pledged greater security and economic cooperation, and Iran promised to increase bilateral trade to $10 billion from the current $2 billion in the next five years.
The two sides also agreed to collaborate in the energy sector, including trade in electricity, power transmission lines, and the Iran–Pakistan gas pipeline project. On the last day of Raisi’s visit, the US cautioned Pakistan without naming it.
“We advise anyone considering business deals with Iran to be aware of the potential risk of sanctions,” the State Department’s spokesperson, Vedant Patel, said during a news briefing on 24 April.
Does Pakistan cave in?
There have been few or no activities on Pakistan’s part to show that it is serious about ignoring US pressure on the Iran–Pakistan Pipeline Project. In March of this year, Minister for Petroleum Dr Musadik Malik told journalists that the government would seek exemption from US sanctions for the gas pipeline project.
However, a week earlier, the Foreign Office gave a contradictory stance in a press briefing, saying there was no room for any discussion or waiver from a third party. Pakistan’s foreign office spokesperson, Mumtaz Zahra Baloch, said that Pakistan’s decision to move forward on the pipeline was of the country’s sovereignty, as it wanted to construct a pipeline within its own territory. “So, we do not believe that at this point there is room for any discussion or waiver from a third party,” she added.
Strangely, the US has already rejected a waiver on the Iran–Pakistan Pipeline and conveyed in March that there was no room for an exemption for the Iranian gas supply to Pakistan because the US stand on Chabahar was irreversible. However, in February, Pakistan’s departing caretaker government approved construction of an 80-kilometer stretch of the pipeline, primarily to avoid paying Iran $18 billion in fines for years of project delays.
Why was the IMEC launched?
At the G20 summit in New Delhi last year, the US, the UAE, Saudi Arabia, and the EU signed a preliminary agreement, initially hinting at the establishment of a new corridor by enabling smooth and efficient movement of goods and services among Israel, the EU, the UAE, and India.
In addition to its declared objective, the IMEC’s underlying motivation was to contest the BRI. The proposed trade route spans 4800 kilometers and consists of two main corridors: the east corridor, which connects India to the Persian Gulf, and the northern corridor, which links the Gulf to Europe.
The US intended to integrate Israel’s economy into West Asia with India’s assistance and establish connections between Israel and the West Asian, European, and East Asian markets.
The establishment of the IMEC has challenged not only the Iran–Russia–India joint endeavor on the INSTC but also the Iran–India venture at Chabahar Port, putting India in a difficult position. Washington was hesitant to overly rely on these projects, which could potentially increase India’s dependence on Russia and Iran and even encourage Pakistan to go ahead with the gas pipeline project. Keeping these points in mind, one can easily deduce why the US reacted so fiercely to the Iranian port.
Given the BRICS’s plans to replace the dollar with a BRICS medium of exchange at their upcoming summit in Russia this year, India has seized a unique opportunity to sign the Chabahar Port deal, hoping that Washington will think twice about imposing sanctions on India during this delicate period.
Did sanctions affect Iran’s non-oil exports?
Numerous economic data point to considerable imbalances in Iran’s non-oil foreign trade in 2023, with major trading partners cutting back on their imports of Iranian goods. Iran International published a study that presents a dismal picture of the first ten months of the current fiscal year, which began on 21 March 2023.
Estimates place Iran’s non-oil trade deficit at approximately $14 billion. Non-oil exports have decreased by 10.7 percent yearly to $40.47 billion, while imports have climbed by 12 percent to $54.4 billion.
China, the UAE, Iraq, Turkiye, and India are among Iran’s principal trading partners. The imports of the other four partners from Iran fell sharply last year, except for the UAE, which primarily re-exports Iranian goods. China saw a 28 percent reduction, Turkiye saw a 33 percent decline, India saw a 7 percent drop, and Iraqi exports saw a 14 percent drop. In contrast, exports to the UAE increased by 8 percent to $5.2 billion.
Iran’s trade with the UAE should have hit the skids due to sanctions, as the UAE was aligned with US policy on the Islamic Republic, according to Mahjoob Zweiri and Nael Abusharar, writing for Middle East Policy. However, the sanctions had a positive impact on Iran’s trade with Qatar, partially compensating for the UAE’s decline.
Iran’s trade with Qatar skyrocketed after 2017, but its trade with the UAE took a nosedive due to policies that put a squeeze on Iranian companies doing business in Dubai, as per the report. The surge in exports to the UAE during the current fiscal year is indicative of Iranian companies importing goods in Dubai for further export to other destinations.
The strategic partnership between India and Iran to develop the Chabahar Port represents a pivotal shift in regional geopolitics, with profound implications for trade routes and alliances. This collaboration not only strengthens the INSTC but also challenges US influence in the region, which is already on the decline.