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The Big Game of Central Asia

Payment lethargy could cost dear as lifting of sanctions opens many doors for Iran

Based on a preliminary agreement signed between the two countries last May, India will invest $85 million over the construction of two berths at Chabahar port which is located in Iran’s southeasternSistan-and- Baluchestanprovince.Chabahar is the closest and best access point of Iran to the Indian Ocean and Iran has devised serious plans to turn it into a transit hub for immediate access to markets in the northern part of the Indian Ocean and Central Asia. EPC World researches why Chabahar Port is the most important strategic investment for India.

India is eyeing investments to the tune of ` 2 lakh crore at Chabahar port in Iran in various infrastructure projects.The investments, however, will depend on the outcome of the negotiations on gas price as Iran has offered to supply natural gas at $2.95 while India wants rates to be lowered. With the US and other western powers easing sanctions against Iran, India has been in talks with Tehran to set up a gas-based urea manufacturing plant at the Chabahar port, besides developing a gas discovery ONGC had made.

“Meanwhile, three more countries have offered gas to India, which will be examined. India is ready to invest ` 2 lakh crore at Chabahar SEZ in Iran but the investments would depend on gas prices as India wants it to be lowered.” said NitinGadkari, Road Transport, Highways and Shipping Minister at an interaction with media at Indian Women Press Corp. Minister also added that various Indian companies are ready to invest in Iran in various projects ranging from road and rail to shipping and agriculture. The total investment in the projects will be around ` 2,00,000crore, Gadkari said.

The rate offered by Iran is less than half the rate at which India currently imports natural gas from the spot or current market. Long-term supplies from Qatar cost four-times the Iranian price.India imports around 8million tonnes of the nitrogenous fertiliser, and is negotiating for a price of $1.5 per mmBtu with the Persian Gulf nation in a move which if successful will see a significant decline in the country’s ` 80,000 crore subsidy for the fertilizer .India has already pledged to invest about $85 million in developing the strategic port off Iran’s south eastern coast, which would provide India a sea-land access route to Afghanistan, bypassing Pakistan.

The Islamic Republic of Iran has been in the news off late, post the announcement of Nuclear Deal with Washington DC, resulting in its re-entry on the geo-political scene after years of being a pariah by the Western world and its allies. Apart from the vast reserves of oil and natural gas that it holds, Iran’s geo-strategic position and subsequent transformation into a key transit link for the most cost-effective transportation corridor for European-Indian Ocean trade will determine its growing influence on the world at large. An important cog in this wheel is The Chabahar Port.

The Need for Chabahar

Iran’s biggest weakness in seaborne trade is the absence of deep sea ports. Iran’s most important port is Bandar Abbas(also referred to as “Hormirzad” during Alexander’s conquest of the Persian Empire) tracing its history during the reign of Darius the Great

who’s commander Silacus used the route from Bandar Abbas to India and the Red Sea way back between 586 &522 BCE. It is located on the southern coast of Iran, on the Persian Gulf and strategically on the narrow and congested Strait of Hormuz constantly patrolled by the US Navy. Bandar Abbas handles 85 percent of Iranian seaborne trade and can only receive 100,000 ton cargo ships. Since most shipping is conducted via 250,000 ton cargo vessels, this entails first offloading of cargo in the United Arab Emirates and then sent on smaller ships which can dock in Iran. Aside from the hundreds of millions of dollars lost to the UAE, this also makes Iran vulnerable to a UAE closure of its seaborne trade in the case of conflict between Iran and the UAE or GCC and Western allies.

During the war between Iran and Iraq, the Iranian Government noticed the important role of the port of Chabahar in Iran’s trade, because of its unique characteristics such as being out of the Strait of Hormuz and the Persian Gulf, ensuring continuity of operations in all situations plus the reduction of Iran’s vulnerability to international pressure immeasurably. The port of Chabahar is located in the south of Sistan and Baluchistan Province on the Makran coast (overwhelming majority [of the city’s inhabitants are ethnic Baluch) located 300 km east from the Strait of Hormuz and is the only Iranian port with direct access to the Indian Ocean as well as the Oman Sea and Persian Gulf. It is also officially designated as a Free Trade and Industrial Zone by Iran’s government. The master plan of the port of Chabahar was brought up in 1973, and its related contracts were signed with contractors but were delayed due to financial crutches post the Islamic Revolution and only parts of this plan of quick berth and breakwater were started and finished. The 2 main ports of Chabahar are Shahid – Beheshti and Shahid- Kalantari.

Strategic investments by Iran in Chabahar

The Chabahar Port and Free Trade Zone serves to facilitate Tehran’s objective of emerging as the main trade and transit hub among Central Asia, South Asia and the Persian Gulf and thus a significant regional player. The Chabahar Port currently has a capacity to handle 2.5 million tons per annum, which Iran would like to increase to 12.5 million tons. Iran has invested close to US$ 340 million in developing and expanding the capacity of the Chabahar Port and is now open to private investment., Iran has not only already taken the initiative to develop infrastructure but has also engaged with other countries to enhance its own transit potential. Iran has signed a memorandum of understanding (MoU) with Afghanistan and Tajikistan on the construction of railway lines, water pipeline and energy transmission lines, and is also keen to extend the Khvaf-Herat rail line to be connected with the railways of Central Asia, Turkey and Europe. Iran has also agreed to finance the Kyrgyz portion of the Iran-Afghanistan- Tajikistan- Kyrgyzstan-China road project. It has funded the Anzob tunnel in Tajikistan, which is part of Iran’s envisioned road route to Tajikistan and China via western and northern Afghanistan, and is also a part of a railroad project that will connect Uzen in Kazakhstan with Gyzylgaya, Bereket and Etrek in Turkmenistan and will terminate at Gorgan in the Iranian province of Golestan. Iran has also signed MoUs with Iraq and Syria to facilitate border trade and expand border


terminals. It has entered into an agreement with Oman, Qatar, Turkmenistan and Uzbekistan to establish a transport and transit corridor between these countries and has agreed to transit electricity from Turkmenistan to Turkey.

Chabahar and the North South Transport Corridor

The International North- South Transport Corridor (INSTC) is said to connect South and Central Asia to North Europe via Russia. Iran is a partner nation in INSTC along with Russia, India, Azerbaijan, Armenia, Kazakhstan, Kyrgyzstan, Tajikistan, Turkey, Ukraine, Belarus, Oman, Syria and Bulgaria. Iran’s efforts to enhance the utility of the Chabahar Port by developing linkages that will connect it with Afghanistan and Central Asian Republics most economically should also be seen in this context. In April 2013, the Iranian Ambassador to Afghanistan had said, “Afghanistan will be connected to the Central Asian 14 states by bringing the Chabahar route to operation”. Iran has already constructed the route from Chabahar to Milak on the Iran-Afghanistan border. From Milak, this route is connected to the ZaranjDelaram route that India built for Afghanistan for about $100 million which connects with the main Kandahar – Herat highway from where goods can be transported to other parts of Afghanistan. A number of other initiatives have also been announced or are in the process of completion. These include the Chabahar-Faranj-Bam railway, the rail link between Hajigak and Chabahar and the Chabahar-Zahedan-Mashhad rail link, which will be further, extended to Herat and Mazar-e- Sharif and be finally connected to Termez in Uzbekistan.

Chabahar and India

India and Iran have a long standing agreement, signed in 2002, to develop Chabahar into a full deep sea port. The port is also central to India’s efforts to circumvent Pakistan and open up a route to landlocked Afghanistan where it has developed close security ties and economic interests. India is also eyeing trade with Europe via Chabahar port and the International North-South Transport Corridor. For India, the Chabahar port will serve as the Indian Ocean outlet for New Delhi’s grand International North- South Transit Corridor (INSTC) initiative. With India’s overland access to Central Asia blocked by Pakistan, the Chabahar deep-sea port and the INSTC running northward through Iran and Afghanistan will provide New Delhi vital access to Central Asian, Russian, and ultimately European markets, enabling India to effectively compete with China. Compared to the current Indian Ocean-European transport route via the Red Sea, Suez Canal and the Mediterranean, the Chabahar-based INSTC is estimated to be 40% shorter and will reduce the cost of Indian trade by 30%. Recently India also proposed membership for Turkmenistan for NSTC.

Chabahar also opens up the possibility of importing gas from Iran via Mundra Port along with enhanced trade and oil import opportunities. Important here is the South Asia Gas Enterprises Pvt Ltd (SAGE) undersea pipeline to bring gas from Oman and Iran to India So far, India’s gas imports are only from Oman. The gas pipeline project SAGE when implemented, could see over 31 million cubic meters of gas per day delivered to India. The 1,200 -1,300 km pipeline, set

to cost around $4.5 billion, is the best energy option for India.

For the protection of its interests in Afghanistan, India requires a viable access to the country, and, at present, Iran provides India the most viable transit. India has also announced its intentions to build a 900 kilometer rail link from the Hajigak iron ore mines in Bamiyan to the Chabahar Port and is also working with Iran to build a 600 kilometer road from Chabahar to the Iranian city of Zahedan. India is also considering investing in the Chabahar-FarajBam railway. The Chabahar port will serve as a cost-effective outlet to bring the iron ore to the market.

Until 2012, India ceased construction of the Chabahar port under pressure from the United States as part of Washington’s efforts to toughen the international sanctions against Iran. However in 2012, when a Chinese state-owned firm took over administration of the Gwadar port approximately 72 km east of Chabahar, New Delhi resumed construction of the Chabahar port, overriding Washington’s objections. Whereas the original Chabahar port project and transit corridors involved a trilateral agreement between Iran, India and Russia, the Indian- led 2012 resumption of the project involves the participation of 11 additional countries from Middle East, the Caucasus, Central Asia and Europe, each lured by the benefits of easier access to the Indian Ocean.

Trade between Afghanistan and Chabahar will bolster Iranian and Indian influence in Afghanistan after NATO’s 2014 withdrawal, providing a measure of counter- balance to Pakistani influence. India’s substantial investment present and future in Chabahar and traditional old ties with Iran, also provide India with an opportunity to become a player in the Middle East and Indian influence over Chabahar could be leveraged in many ways.

Chabahar vs. Gwadar: India vs. China

Chabahar is located on the Arabian Sea’s Makran coast in Sistan and Baluchistan Province. Pakistan’s Gwadar port also is situated on Pakistan’s Baluchistan province’s Makran coast, only 72 nautical miles southeast of Chabahar. Both offer direct access to the Indian Ocean. India is helping to underwrite the development of Iran’s Chabahar, while China has been financing Gwadar since 2002 complicating the ports’ developments as a subset of Eurasia’s new “Great Game. Both China and India are seeking closer relations with Afghanistan and Central Asia. The planned transport and trade routes cut off thousands of kilometers for certain trade routes and will have the obvious effect of building solid ties.

For India, Chabahar is the nearest port to the Indian Ocean providing direct access to the Middle East and Central Asia. The port is an economic gateway thanks to its location on the Gulf of Oman outside the Strait of Hormuz. Chabahar should provide India with access to Afghanistan via the Indian Ocean. India, Iran and Afghanistan have signed an agreement to give Indian goods, heading for Central Asia and Afghanistan, preferential treatment and tariff reductions at Chabahar.

For China, Gwadar with a substantial head start over Chabahar could be a terminus for pipelines in its oil and gas supply chain from Africa and the Middle East, allowing it to bypass the congested pinch point that is the Strait of Hormuz. Gwadar also brightens the prospects for a pipeline corridor bringing oil and gas to China from the Middle East as an alternate route to transport oil around the Indian Subcontinent and through the increasingly disputed territorial waters of the South China Sea. The route will be cheaper, less vulnerable and give Beijing greater freedom of action to pursue its claims to sovereignty over the South China Sea.

Direct access to the India Ocean would give China a strategic post of observation and a key location for its navy and a listening post from where the Chinese may exert surveillance on hyper-strategic sea links as well as military activities of the Indian and American navies in the region, and second, dual-use civilian-military facilities providing a base for Chinese

ships and submarines. For India, Gwadar port being so close to the Straits of Hormuz has implications for India as it would enable Pakistan to exercise control over energy routes along with challenging Indian assertion over the Indian Ocean.

Iran is more stable than Pakistan, it has better relations with Afghanistan and the Central Asian states, the Chabahar route goes through relatively stable parts of Afghanistan and Iran already has good relations with everybody along the route leading north (including the local “warlords”) into Tajikistan. And significantly, it is in Tajikistan where Iran has already been financing several transport projects including the Anzob tunnel. Luckily for the Iranians, the U.S. constructed a bridge over the Amu Darya that fits in nicely with the Chabahar to Khojent route. The problem with Gwadar is that while the port has been built -the supporting infrastructure of railroad link, industrial capacity, and civic structures at Gwadar is almost non-existent and the proposed Gwadar route also goes through more problematic areas of Afghanistan.

The countries of Central Asia will likely benefit from both Chabahar and Gwadar. As for the competition between the two ports, it will not be a “winner take all” outcome but rather one port earning the greater share of trade. And the “winner” in this respect will likely be Chabahar.

Road to Success

Any transportation or military problems in the Straits of Malacca, the Straits of Hormuz, and the Suez or anywhere along Asia’s southern coastline will further boost the importance of Central Asia as a transport and trade corridor. The Sea Politics is getting complex with an increase in the world’s commercial activities. Now the world is not only focusing on the militarily important places but it is also in the search of places that will be productive from the business point of view in future. It is important to note that many countries in Asia are so huge, that their access to the sea via their own land route for international trade is very costly.

Iran is at the center of Eurasian transport corridor for international trade in which a significant number of nations have developed vital interests. Chabahar’s ability to play kingmaker will thus depend on how well it is able to leverage the transit routes in the region. Indian investment in Chabahar and its success to harness Central Asia and not only gain access but exert significant influence economically and diplomatically will also determine the scope of Chabahar’s success. Both these factors are heavily dependent on the stability of one nation – Afghanistan. Afghanistan is the gateway for West to Central Asia as well Subcontinent to Central Asia.

Post NATO’s withdrawal from Afghanistan (now being phased out) there is a window of opportunity for India as well as China to become the dominant player in the region. Also as per Iran’s strategic calculation as the NSTC’s operational timeline of December 2016 gets closer, the time window to apply greater pressure to abandon its nuclear weapon program is diminishing. Thus it is perhaps no coincidence that keeping in mind, the looming threat of Chinese influence in Central Asia, the Washington Consensus may have chosen this timeline to legitimize Iran’s cause thus paving the way for significant Indian influence in the region alongside seeking own gains from it as well.

But it’s not as clear cut as it seems. NATO is trying to bring the “Good Taliban” in mainstream Afghan politics and how well this experiment could work is anyone’s guess. This could also result in a similar electoral situation in Pakistan’s political scene creating further instability in an already volatile country. Another significant factor is the location of both Chabahar and Gwadar in the regions of Baluch influence which is witnessing a nationalism agenda which could be of benefit to the players that have invested heavily in the region vs. the weak institutions of Pakistan. However it’s a catch 22 as a resurgent Baluch could mean a divided Pakistan, resulting in a potential spillover of ISIS mercenaries into their home nations such as Russia, Iran, China etc. to name a few. It would be fair to assume that with such strong stakeholders backing Pakistan’s survival, the Baluch movement may not meet with great success anytime soon or perhaps till such and such time that Afghanistan is under “control”, thus raising question marks on the actual success percentage of Chabahar.

In conclusion it could be stated that Chabahar is an important cog in the Great Game of Central Asia and how well the respective players play their game and adapt to the ever changing dynamics that will determine who will be the King. After all is the Victor to who go the spoils!

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