Iran has leased its strategic port, Chabahar, to India: this event will very seriously affect the markets of Central Asia and China as well as Russia will have a very serious competitor in the region which will be India.
And this all will happen shortly,in fact it already started and as soon as Chabahar will be included in the railway chain connecting it through Turkmenistan with other Central Asian Countries then the road for trade is paved.
On December 24th 2018, Iran transferred the port terminal of Chabahar to India for a period of 18 months with the possibility of extension to a ten year lease. Chabahar is a large port located in the southeastern Iranian province of Sistan and Baluchistan on the coast of the Gulf of Oman. Its strategic importance lies in the fact that it has direct access to the Indian Ocean. To get from other major ports of Iran – Bandar Abbas, Bandar Lenge and Bandar Khomeini – to the Indian Ocean, ships need to pass through the narrow Strait of Hormuz.
Formally, the lease of Chabahar to the Indian side was the practical implementation of an agreement between India, Iran and Afghanistan to provide freight traffic between Afghanistan and India, which was reached in 2016. This kind of freight traffic along the shortest route – through Pakistan – is impossible due to the political position of Pakistan itself.
Pakistanis and Indians are in a state of permanent conflict since both countries gained independence from Britain in 1947, the relations between Pakistan and Afghanistan are not better.
Currently the position of China, India’s main trade competitor, is important as well.
The Chinese use the Pakistani port of Gwadar. Gwadar is included in the ambitious Chinese project “One Belt – One Way” (please see our article in German) which will provide the shortest transit from China to the Indian Ocean. It is obvious that the Chinese are not interested in the appearance of a new transit corridor with a competitor.
At the same time, according to Indian media, Chabahar is not only an opportunity to establish a transport corridor with Kabul. For India, this is the “trade gate” to Central Asia. It may be true, in order for these gates to “open” fully, it is necessary to connect Chabahar with the rest of the Iranian railway network. At the moment the construction of a railway from the administrative center of the province of Sistan and Baluchistan in Iran, Zahedan, to Chabahar is ongoing. The total length of the segment is 500 kilometers. In early December 2018, the official representative of the railway department of Iran, Abbas Khatibi, reported that the road is almost 40% finished. It is planned to be commissioned in 2019 and fully operational.
Interestingly the conflict between the USA and the current regime in Iran is not adversely affecting the project: the United States- despite the fact that since the summer of 2018 the economic pressure on Iran has been increased and sanctions were reimposed – excluded the Chabahar port from the sanctions list.
Obviously, Americans do not want to harm the good relations with the Indians, who consider this port to be essential for their ambitious transport project.
To describe the global significance that Chabahar will have in the near future, it is necessary to describe the port, which is only 72 kilometers east of Chabahar, in neighboring Pakistan: Gwadar.
Usually, experts compare these two ports when they argue about the future of transport cargo routes in the Indian Ocean.
The Chinese are betting on this port in Pakistan. They established or plan to establish their transport routes all the way to Africa and through the Suez Canal to Europe. Since 2002, China has been investing in the development of the infrastructure of this port. In April 2016, the director of China Overseas Ports Holding, which since 2013 has been leasing the port of Gwadar, Zhang Baozhong said that the company could spend a total of $ 4.5 billion on roads, energy supply, hotels and other infrastructure projects in this Pakistani port town.
According to some experts, over the next decade, Gwadar may take the place of Dubai, which today is still one of the most important hubs (some say the most important) for trade in the world.
In 2015, the Pakistani authorities offered Tajikistan to use Gwadar for transit and trade. The Tajik side seems to be more patient before making a decision, and this is obvious that the competition of new routes has to be carefully evaluated, also in a more geopolitical context.
The main problem of Gwadar is that it is located in the province of Baluchistan. Baluchis are the second largest ethnic group in the world after Kurds, that do not have their own state . In territories of Iran, Pakistan and Afghanistan there are about 10 million Baluchis. The largest diaspora is in Pakistan with more than six million people. Moreover, relations with the Pakistani authorities, which consist mainly of Punjabis, are difficult. Once, when Pakistan and India were seperated, the Baluchis chose Pakistan, hoping to gain wide autonomy within its structure, which did not happen.
Separatist groups operate in the territory of Baluchistan, the Pakistani authorities call the province one of the most dangerous regions in the country.
The Chabahar port in Iran in comparison has a much safer environment in that sense.
India has already invested over $ 1 billion in the development of the Chabahar infrastructure. According to Dr. Abdol Sattar Dushouki from the Center for Baluchistan Study, located in London, the ambitious plans of the Indians are to increase the carrying capacity of the Chabahar port from 8.5 million tons of cargo per year to 80 million tons.
Until now, India has not had such a serious hub to enter the markets of Central Asia and further to Russia and Europe. Therefore, the recent transfer of Chabahar to India will increase the speed and volume of Indian money going into this port.
For Iran, India is literally a “window to the world,” because the US has announced that it will not impose restrictions on transactions with Indian companies that will work with Iranians in Chabahar. Therefore, it is highly likely that the Islamic Republic will simply transfer all of its exports or at least a significant share to India through Chabahar.
Another key advantage that should be noted is the connection to the Iranian railway network. Railways in Iran are sufficiently developed , through the railway network there is acess to Azerbaijan , Turkey and Turkmenistan. From Turkmenistan, Indian goods will be able to enter all the markets of Central Asia and vice versa.
After the construction of the railway section from Zahedan to Chabahar is completed, a massive trade contest between China and India for the access to Central Asian markets will start.
Tajikistan as well as other central asian countries could be faced with lucrative offers from Indians and Chinese at the same time.
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