India’s $500 Million Bet on Iran

India’s plan to spend $500 million on a new port complex on Iran’s Indian Ocean coast caps a decade-long quest to find a way to get sorely needed supplies of energy. But the Chabahar port deal also offers India a way to outflank Pakistan and elbow its way into the economic and diplomatic jockeying that is reshaping Central Asia.

During a visit to Iran this week, Indian Prime Minister Narendra Modi announced a spate of deals that included the long-sought accord to develop the port of Chabahar, which sits less than 50 miles from Gwadar, the deepwater port China is developing in Pakistan. The development plans will give Iran its first deepwater port, to finally allow it to conduct global trade with big cargo ships rather than the small ships its ports can currently handle, thus ending its reliance on the United Arab Emirates as a shipping intermediary.

The Chabahar plans also include factories as well as road and rail links to Afghanistan and beyond. Once complete, the new port could help India bypass Pakistan and deepen its ties with energy-rich countries in Central Asia like Turkmenistan and Uzbekistan. Chabahar also promises to give Afghanistan an outlet to the sea, potentially boosting the trade prospects of the landlocked and war-torn nation.

“It’s meant to ease access to key markets,” said Michael Kugelman, senior associate for South Asia at the Wilson Center. The port and rail connections will give India, which has become one of the biggest energy consuming countries in the world, access to natural gas from Iran and countries in Central Asia, as well as offering quicker transit for Indian trade as far afield as Russia.

“For India, it’s about economics and energy,” he said.

Chabahar has been on the drawing board for more than a decade, but was stalled due to Iran’s international isolation. But Iran and India have long had close ties: Even when Iranian oil exports were sharply limited by U.S. sanctions, India remained one of Iran’s biggest customers. Now that sanctions are being lifted as part of the nuclear deal, India is rushing to take advantage.

But closer ties with Iran could also complicate India’s relations with the United States just ahead of Modi’s long-awaited visit to Washington next month. Spurred by concerns over Chinese expansion in Asia, and particularly in the South China Sea and in the Indian Ocean, New Delhi and Washington just opened the door to greater defense cooperation, especially between their navies.

The United States is keeping a close eye on the Indian investment in Iran, a State Department official told Congress this week. But since the deal is mostly meant to give India trade access it currently doesn’t have — rather than deepen military ties with Tehran — it won’t likely raise red flags, Nisha Desai Biswal, the assistant secretary of state for South and Central Asia, said at the hearing.

That would be good news for New Delhi, which has long been seeking alternative ways of addressing its growing energy needs without relying on an ambitious, quixotic, $10 billion plan to build a pipeline that would snake from Turkmenistan across Afghanistan and Pakistan to India.

Groundbreaking has begun on the project, known as TAPI, but the pipeline’s viability is threatened both by terrorism and instability in Afghanistan and by long-standing enmity between Pakistan and India. Chabahar could pave the way for India to tap the vast deposits of natural gas in Central Asia without worrying about shipping its energy supplies through war-torn Afghanistan or through Pakistani territory. And if post-sanctions Iran is able to attract enough foreign investment to rejuvenate its natural gas fields, the Shiite republic could also become a source of gas for India.

That’s not to say that broader geopolitical calculations don’t enter into New Delhi’s thinking. In recent years, China has pushed its own plan to integrate Central and South Asia with a so-called “new Silk Road” that includes overland road and rail links and a maritime route across the Indian Ocean from China to Europe. Chinese investment in Gwadar is part of that, as is another port deal in Sri Lanka and a military base in Djibouti. Just this week, a Chinese firm inked a deal to develop port and industrial facilities in Oman. The deepening diplomatic and military ties between Beijing and Islamabad in particular make many in New Delhi nervous.

“The Chinese penetration into the subcontinent is of course a concern for India,” said C. Raja Mohan, the director of Carnegie India.

That concern about China combines with the legacy of the 1947 partition of India and Pakistan, which at a stroke pushed Indian borders away from both Iran and Afghanistan. Ever since, Pakistan has refused to allow India access through its territory, cutting it off from Afghanistan and essentially locking India out of China’s Silk Road projects.

For India, said Mohan, Chabahar offers a route to sidestep the geographical legacy of partition and regain direct access to its former neighbors. It’s a way to not only push back against perceived Chinese encirclement, but also gives India a path to play a bigger part in developing Afghanistan and Central Asia. Indeed, some Chinese commentators have concluded that the Chabahar port plus the road and rail links will give India a much bigger voice in Afghanistan’s future.

“Basically, it all comes down to the historical consequences of partition,” Mohan said.

Photo credit: POOL/Iran Presidency/Andalou Agency/Getty