Context

The Iranian government has decided to proceed with the construction of the rail line from Chabahar port to Zahedan on its own, citing delays from the Indian side in funding and starting the project.

Analysis

• Four years after India and Iran signed an agreement to construct a rail line from Chabahar port to Zahedan, along the border with Afghanistan, the Iranian government has decided to proceed with the construction on its own, citing delays from the Indian side in funding and starting the project.
• The railway project, which was being discussed between the Iranian Railways and the state-owned Indian Railways Construction Ltd (IRCON), was meant to be part of India’s commitment to the trilateral agreement between India, Iran, and Afghanistan to build an alternate trade route to Afghanistan and Central Asia.
• Despite several site visits by IRCON engineers, and preparations by Iranian railways, India never began the work, ostensibly due to worries that these could attract U.S. sanctions.
• The U.S. had provided a sanctions waiver for the Chabahar port and the rail line to Zahedan, but it has been difficult to find equipment suppliers and partners due to worries they could be targeted by the U.S. India has already “zeroed out” its oil imports from Iran due to U.S. sanctions.

Iran-China deal connection

• The development comes at a time when Iran is seeking to finalize a 25-year economic and security partnership with China. The deal is worth $400 billion.
• The deal between Iran and China — if finalized — could result in a vast expansion of Chinese presence in various sectors of Iran including banking, telecommunications, ports, railways, and numerous other projects.
• In return, China will receive a heavily discounted supply of Iranian oil regularly for the next 25 years. An 18-page document listing the proposed agreement also talks about deeper military cooperation.

Concerns for India

• Considering that Iran has been an important strategic ally for New Delhi, the deal could hurt India’s prospects in the region, especially at a time when its relations with China have soured further in the aftermath of the recent border standoff.
• The development of Chabahar and the future of the India-Afghanistan-Iran Trilateral Agreement for the development of Chabahar has also not seen anticipated progress. Similarly, China-backed Pakistan-Iran-Taliban alignment emerging in India’s immediate neighborhood is also a reason for Indian concern.
• India’s relations with Iran cooled off substantially after India agreed to reduce its trade relations with Iran after the imposition of sanctions. The visit of President Trump and increasing Indo-US economic and strategic partnership seems to have been the last straw. It is unlikely that relations with Iran would improve in the near term.
• From the Indian perspective growing Iran -China relationship is a reason for worry and changing strategic landscape. It points to growing Chinese dominance in alignment with Pakistan which threatens our relationship with not only Iran but also on Afghanistan and Central Asian nations.

Chahbahar Project

• In May 2016, India signed a series of twelve memorandums of understandings that centered upon the Port of Chabahar.
  
  
• The trilateral transit agreement signed by India, Iran, and Afghanistan allows Indian goods to reach Afghanistan through Iran. It links ports on the western coast of India to the Chabahar port and covers the road and rail links between Chabahar and the Afghan border.
• The bilateral agreement between India and Iran gives India the right to develop two berths of the Chabahar port as agreed in 2015 and allows them to be operated for 10 years by India Ports Global, a joint venture between Jawaharlal Nehru Port Trust and Kandla Port Trust, in partnership with Iran's Aria Banad.
• India has already built a 240-km road connecting Afghanistan with Iran. Also in planning was a rail route connecting Chabahar with the India-promoted $11-billion Hajigak iron and steel mining project in central Afghanistan, as seven Indian companies in 2011 acquired rights to mine central Afghanistan's Hajigak region, which contain Asia's largest deposit of iron ore.

Reasons why the Chabahar port is crucial for India:

• The first and foremost significance of the Chabahar port is the fact that India can bypass Pakistan in transporting goods to Afghanistan. Chabahar port will boost India's access to Iran, the key gateway to the International North-South Transport Corridor that has sea, rail and road routes between India, Russia, Iran, Europe, and Central Asia.
• Chabahar Port provides direct access to India's Farkhor Air Base in Tajikistan. Chabahar route will result in a 60% reduction in shipment costs and a 50% reduction in shipment time from India to Central Asia.
• Chabahar port will be beneficial to India in countering Chinese presence in the Arabian Sea which China is trying to ensure by helping Pakistan develop the Gwadar port. Gwadar port is less than 400 km from Chahbahar by road and 100 km by sea.
• With Chabahar port being developed and operated by India, Iran also becomes a military ally to India. Chabahar could be used in case China decides to flex its navy muscles by stationing ships in Gwadar port to reckon its upper hand in the Indian Ocean, the Persian Gulf, and the Middle East.
• With Chabahar port becoming functional, there will be a significant boost in the import of iron ore, sugar, and rice to India.
• Chabahar port will ensure the establishment of politically sustainable connectivity between India and Afghanistan. This is will, in turn, lead to better economic ties between the two countries.
• From a diplomatic perspective, Chabahar port could be used as a point from where humanitarian operations could be coordinated.

Conclusion:

Regardless of the reasons for India’s inability to join the railway project, the decision can only be seen as an opportunity lost. The impression that India wavered due to U.S. pressure, especially after India canceled oil imports from Iran, also questions New Delhi’s commitment to strategic autonomy. While Iran claims it will fund the railway using its resources, it seems to have embarked on the Chabahar-Zahedan project with a confidence borne from an imminent deal with China for a 25-year, $400 billion strategic partnership on infrastructure, connectivity and energy projects. In a world where connectivity is seen as the new currency, India’s loss could well become China’s gain, and New Delhi must watch this space, created by its exit, closely.