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India-Iran Seal Chabahar Port Deal
May 25, 2016

Prime Minister Narendra Modi was on an official visit to Iran on May 23-24. After his talks with Iranian President Hassan Rouhani, both countries signed 12 pacts, including the agreement to develop Chabahar port—a significant development given the strategic location of the Iranian port with direct access to the Indian Ocean region.

Key Points

  • The Chabahar port will allow India to counter China’s expanding influence in the Indian Ocean region.

  • It will allow also allow India to bypass Pakistan and access global markets.

  • India will develop the Chabahar port and related infrastructure, with Indian earmarking about 500 million dollar for this purpose.

  • The deal has been signed after India, Afghanistan and Iran finalized the text of the Trilateral Agreement on Transport and Transit Corridor, in New Delhi last month.

  • The agreement is to pave way for India to access Afghanistan via the Iranian port of Chabahar, bypassing Pakistan, which has limited trade relationship with India amid diplomatic tensions.

  • The finalization of the terms of the agreement came on the back of the lifting of sanctions against Iran which were a major impediment for the trio to move forward with the project dating back to 2003.

  • The investment underlies development of a multiple-use cargo jetty and two container terminals that would decrease transport costs of Indian goods by around 30 percent when compared to the country’s other waterways.

  • The three countries also agreed to enhance interaction between their respective defence and security institutions on regional and maritime security.

  • The Port of Chabahar is the only Iranian port with direct access to the ocean. It is located in south-eastern Iran and has access to both the Oman Sea and the Persian (Arabian) Gulf.

  • Chabahar port, located in the Sistan-Balochistan Province on the energy-rich Persian Gulf nation’s southern coast, lies outside the Persian Gulf and is easily accessed from India’s western coast, bypassing Pakistan.

  • Chabahar is about 100 km from Pakistan’s Gwadar seaport which China is developing as part of a $46 billion China-Pakistan Economic Corridor.

  • The Chinese project, coming on top of investments in Sri Lanka, Bangladesh and the Maldives has raised raised concerns in India about China’s expanding reach in the region.

  • The bilateral agreement to develop Chabahar was an important milestone in relations between the two countries.

  • The development of the port of Chabahar expands a trade route for the land-locked countries of central Asia that bypasses Pakistan.

  • This major effort would boost economic growth in the region.
  • India described cooperation in the oil and gas industries as key components of economic cooperation between Iran and India.

  • The two countries also signed a number of agreements to enhance technological, petrochemical and banking cooperation.

  • In the pipeline since 2003, this agreement will open new trade vistas for India. State-run railway body IRCON International will set up a railway line at Chabahar to transport goods right up to Afghanistan. The 500-km rail link between Chabahar and Zahedan will link India to the rest of Iran’s railway network.

  • NALCO (National Aluminium Company Limited) is looking to set up an aluminium smelter at Chabahar free-trade zone.

  • A joint venture between the Jawaharlal Nehru Port Trust and the Kandla port will invest $85 million (Rs 575 crore) to develop two container berths, 640-metre long and three multi-cargo berths.

  • India also plans to set up a fertiliser plant through a joint venture with the Iranian government.

Energy security is key for the government, and a renewed friendship with Iran will go a long way. Iranian crude is very suitable for Indian refineries and its demand is high. Renewed ties could make the under-sea pipeline for evacuating Iranian gas a reality.

India is one of the biggest buyers of Iranian crude and is set to import at least 400,000 barrels per day from the country in 2016-17. But it built up a backlog of payments when Iran was under sanctions—$6.4 billion is due from Indian refiners Essar Oil and MRPL.

After the end of bilateral talks between Narendra Modi and Iranian President Hassan Rouhani, the Indian government said “India is keen to settle the entire oil due, keeping in mind the emerging economic relationship with Iran."

Part of this relationship will be to allow ONGC Videsh to drill the Farzad gas fields in the Persian Gulf. Discovered by ONGC Videsh in 2008, the gas fields have not yet been developed as India failed to enter into a contract with Iran.

First Payment to Iran in Euro: Ahead of Prime Minister Narendra Modi’s visit to Iran, Indian refiners have made first Euro payments in four years to clear a part of the 6.4-billion dollar in past oil dues. Mangalore Refinery and Petrochemicals Ltd (MRPL) has paid 500 million dollar and Indian Oil Corporation 250 million dollar. Private sector Essar Oil is to pay 500 million dollar. The refiners cleared part of their outstanding towards crude oil they buy from Iran, through Union Bank of India which in turn transmitted the payment to National Iranian Oil Co (NIOC) through HalkBank of Turkey. They bought US dollars and deposited with Union Bank which did an onward transmission in euros. This the first payment by Indian refiners in a foreign currency since lifting of sanctions against Iran in January this year. The payments had been held up due to international sanctions over Iran’s disputed nuclear program.


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