By providing an alternative access to the sea, New Delhi and Tehran can play a long-term role in Kabul’s economic stabilization
The decision to provide impetus to the Chabahar project by the Modi Government is based on sound realpolitik and to ensure that the long-term strategic gains accrue to the Afghanistan and Central Asian States, which in turn, benefit India and Iran. A pragmatic assessment based on ground realities is needed to ensure that the project, which has been bedeviled by delays and lack of a cohesive and realistic assessment in Tehran and New Delhi, bears fruition.
Afghanistan’s economic integration
One of the biggest factors behind India’s push to develop Chabahar port is access to Afghanistan. By integrating Afghanistan into a regional trade and transit infrastructure, regional economic interdependence among Afghanistan’s neighbours would improve. Another key aspect for Afghanistan’s long-term security will be that an economically integrated Afghanistan with the region would lead to a reduction of Pakistani influence on Afghanistan as it has been historically dependant on Pakistan for access to maritime trade giving Islamabad undue influence over Afghanistan’s economy and politics. By providing an alternative access to the sea, New Delhi and Tehran can play a long-term role in Kabul’s economic stabilisation.
Intra-regional connectivity
Chabahar Port will serve to facilitate its emergence as the main trade and transit hub among Central Asia, the Indian subcontinent and the Persian Gulf. The port also successfully fits into Tehran’s desire to emerge as a significant regional player. Tehran is taking the initiative to develop infrastructure to link Central Asian states and Afghanistan to increase the utility for Chabahar. Tehran has already constructed a road from Chabahar to Milak on the Iran-Afghanistan border, which passes through Iranshahr and Zaehdan. From Milak, this route is connected to the Zaranj-Delaram highway constructed by India. The Zaranj-Delaram highway connects with the 2,200-km metalled road network circulating inside Afghanistan, connecting major cities in Afghanistan. Tehran has plans to connect Chabahar-Zahedan-Mashhad with a rail link which will be extended to Heart and Mazar-e-Sharif and finally connect with Termez in Uzbekistan. The transport infrastructure could then lead to building pipelines provided an improvement in Afghanistan’s security takes place which could give land-locked Central Asia energy producers’ greater access to consumers across Asia and India.
Nuclear sanctions cloud
There is no doubt that sanctions have had an impact on the energy sector in Iran. They have curtailed production of oil and gas. Iranian oil production in 2013 declined to a 20-year low due to under-investment and sanctions. Prior to the imposition of sanctions, Iran was the third largest global exporter, but has since dropped significantly. With revenue generated from oil exports a major share of government revenue, a drop in international oil prices is likely to hurt government revenues. It is estimated that Iran needs oil prices above $100 per barrel to balance its budget, especially since nuclear sanctions has led to a decline in volumes of crude. Given the falling crude rates and with Saudi Arabia, the largest crude producer, comfortable with oil at $80 per barrel, Tehran could face a budget squeeze.
The outcome of the nuclear talks between Iran and the P5+1 will have a major impact on the petrochemical hub being built near the port. It is the third major petrochemical hub in the country after Bandar Abbas and Assaluyeh. Iran has decided to invest heavily in the petrochemical complex and as per their estimates there will be about 16 basic petrochemical complexes built in three different phases. Tehran is looking at an estimated cumulative investment of $80 billion by the end of the proposed hub. Apart from Iranian investment, China is building an oil refinery in the area. Many Chinese investors are making a beeline for investment in the region subject to the outcome of the sanctions.
If talks are not fruitful for Iran, it could face a budget squeeze which could affect the outcome of its planned petrochemical projects in the Chabahar petrochemical hub. However, if the outcome of nuclear talks is positive and sanctions are lifted, the region could attract greater investment. The flipside of a positive outcome for Iran would mean a further lowering of oil prices as Iranian oil could be exported in greater volumes.
In the event of sanctions being imposed, India’s role in ensuring the viability becomes greater. Given the thrust in New Delhi to ensure the viability of the port project, New Delhi could expend diplomatic capital across West Asia, Europe and Washington to de-hyphenate the port project from sanctions on account of its connectivity it offers to Central Asia and Afghanistan, while agreeing to no cargo being exported which are under the sanctions list.
Project management
The Modi Government has shaken off the lethargy that had accrued in the project by sanctioning an investment of $85.21 million for developing the port and an annual revenue expenditure of $22.95 to support the effort. According to reports, for the first phase of the project, an Indian joint venture (JV) company — consisting of Jawaharlal Nehru Port Trust (JNPT) and Kandla Port Trust (KPT) — may partner with one or more Iranian concerns, with approval from the Iranian Ports & Maritime Organisation (P&MO), to execute the project on build-operate-transfer (BOT) basis. India should involve its private sector for the timely completion of the project as that is where India’s strength lies and explain it to Tehran as it is very likely that Tehran could insist on using local contractors for a share of the work pie. The effective execution of the project will mark a major change in India’s perception in the region.
Ceding ground to China
In the past decade, there are a few instances where China has moved in on various projects across the Indian subcontinent due to pusillanimity by the then political dispensation. China is keen on acquiring Chabahar port, after developing Gwadar port in Pakistan. Although Gwadar proved to be a bad investment for the Chinese, they are eyeing Chabahar as yet another port that they can develop as a strategic asset in the region. Chinese presence in Chabahar, which is closer to the Straits of Hormuz, is likely to unsettle a number of key players in the Persian Gulf and should sanctions be imposed, Chinese investments in Iran would be hurt.
India’s ‘Act’ policy
Chabahar provides India connectivity to Afghanistan and provides Afghanistan connectivity to the world. The port is a win-win project for India/Iran/Afghanistan and Central Asian states. The investment in Chabahar will yield strategic gains in the not-too-distant future, which will later yield commercial benefits through greater economic integration for all the key countries. India has been dragging its feet on the project for fear of annoying the US, but if the project is rightly implemented, it will lead to a stable Afghanistan, something that both India and US strive to achieve.
The interest evinced in the project under the Modi Government is an indicator of a recalibration of India’s foreign policy priorities. The recent announcement of the “Act East” policy by the Prime Minister in Myanmar in the ASEAN summit exposed lacunae in our earlier foreign policy. The project completion would result in a tectonic shift in perception. The successful implementation of the project will act as a force multiplier for Indian diplomacy in the region where historically India’s diplomacy has been reactive, due to lack of economic clout. It will signal the beginning of a metamorphosis in India’s diplomacy.
(The writer is a commentator on strategic issues)