If India’s involvement in the rail project that would link the Chabahar port to regional land routes were to diminish, it would be a strategic setback for India. Indian involvement in Chabahar dates back to a 2003 agreement between India and Iran to construct a port

According to some media reports, Iran has decided to exclude India from the 628 km railroad project that links its port in Chabahar to Zahedan, Tehran. On the other hand, India has signalled that it is open to resuming its involvement in the project at a later date. The proposed Chabahar-Zahedan railroad is an extension of the Chabahar port project, completed in 2017 with India’s assistance. Located in a free trade zone, India has played a prominent role in the operation of the Chabahar port since its inception. If India’s involvement in the rail project that would link the Chabahar port to regional land routes were to diminish, it would be a strategic setback for India.

Indian involvement in Chabahar dates back to a 2003 agreement between India and Iran to construct a port. Given the deep mistrust in Indo-Pakistan relations, India decided to invest in regional connectivity projects like Chabahar that would bypass hostile Pakistani territory. The Chabahar port is particularly salient for India’s bilateral trade with landlocked Afghanistan which has traditionally been heavily constricted due to the latter’s dependence on Iran and Pakistan for access to the sea. The relative proximity of Iran’s Chabahar port to India’s west coast made it an attractive option for Indian policy makers to resolve this dilemma. The Chabahar port complements the 215-km Zaranj-Delaram highway built by India in Afghanistan. The Chabahar-Zahedan railroad is a crucial component of this regional transportation network as it cuts down travel time from the Chabahar port to the Iran-Afghanistan border. The bigger plan is to connect the Chabahar port to the proposed International North-South Transport Corridor (INSTC) to link Mumbai to Moscow by sea and land. The INSTC has the potential to open up a more reliable and cost-effective trade route for India to Europe, Russia and Central Asia.

Unfortunately, work on the Chabahar port project was delayed for several years. India’s risk-averse approach to the project was guided by the concern that it would attract the negative attention of the US that had been operating a tough sanctions regime on Iran for several years. In particular, India was unable to call the US’s bluff when it threatened to impose additional sanctions to penalize third-parties doing business with Iran. Indian actions seem to betray the deep rooted belief that the financial viability of the Chabahar port would be a function of the status of US-Iran relations.

In 2015, Iran signed a nuclear deal with a group of major powers that included, US, UK, France, China, Russia and Germany. This deal removed a huge impediment for India to proceed with its investment in the Chabahar port project. In 2016, Indian Prime Minister Modi visited Iran and the project picked up speed after the Trilateral Agreement on Establishment of International Transport and Transit Corridor was concluded among India, Iran and Afghanistan. Under this agreement, New Delhi committed $500 million towards developing Chabahar port as well the land-based route connecting the port to Afghanistan. In early 2016, work on the Chabahar port project began in earnest and the port began handling shipments by October 2017. One of the successes of Indian diplomacy in recent years has been to shield the operation of the Chabahar port from US sanctions. The US granted the exemption on the grounds that the Chabahar port operations aligns with its strategic objectives in Afghanistan. US exemptions for the port have survived the rapid deterioration of US-Iran relations under President Trump who decided to walk out of the nuclear deal in May 2018.

Iran has justified its decision to proceed without Indian participation on the basis of cost overruns and delays by the Indian public sector undertaking, IRCON that was given the responsibility of building the tracks and rakes in the rail line project. India has cited the US sanctions on steel as the overwhelming reason for its failure to meet its commitments. Although Iran’s concerns are legitimate, its freedom of action on this issue could have been facilitated by a recent deal with China. It is too much of a coincidence that this move by Iran accompanies the unveiling of a deal between Iran and China to increase Chinese investments in banking, telecommunications, ports, railways to the tune of more than $400 million over the next 25 years. In return for this largesse, China will get confirmed access to Iranian oil supplies at heavily discounted rates.

If India is excluded from the Chabahar-Zahedan rail project, it would serve China’s interest in isolating and undermining India’s regional interests. Given the deterioration in China-India relations, China would be willing to commit resources to diminish the strategic advantages India has gained by investing in the Chabahar port. Based on available reports in the public domain, it would appear that the Indian commitments to its regional connectivity is once again going to be determined by the state of US sanctions regime vis-a-vis Iran. Indian policymakers appear to be betting that US-Iran relations will improve if Joe Biden were to come to power after the US presidential elections in November this year. Given that the Iran deal was a signature achievement of the Obama-Biden administration, it is likely that the US will come back to the negotiating table with Iran. However, if India truly considers these regional connectivity projects to be vital to its national interest, it cannot remain hostage to the vagaries of US foreign policy.