GP Insights

GP Insights # 386, 18 July 2020

India and Iran: The Chabahar rail link issue exposes the bilateral challenges
Poornima B

What happened?
The Hindu on 14 July reported the following: "Four years after India and Iran signed an agreement to construct a rail line from Chabahar port to Zahedan, along the border with Afghanistan, the Iranian government has decided to proceed with the construction on its own, citing delays from the Indian side in funding and starting the project."

Later, a deputy of Ports and Maritime Organization of Iran - Farhad was quoted to have stated the report as false, as there was no deal between India and Iran and railway link. According to him: "...Iran has not inked any deal with India regarding the Chabahar-Zahedan railway...Iran has only signed two agreements with Indians for investment in Chabahar: one is related to the port's machinery and equipment, and the second is related to India's investment to the tune of $150 million."

The official spokesperson of India, responding to a question on the subject on 16 July stated: "IRCON was appointed by Government of India to assess the feasibility of the project. It was working with CDTIC, an Iranian company under their Ministry of Railways in that regard. IRCON has completed the site inspection and review of the feasibility report. Detailed discussions were thereafter held on other relevant aspects of the project, which had to take into account the financial challenges that Iran was facing. In December 2019, these issues were reviewed in detail at the 19th India-Iran Joint Commission Meeting in Tehran. The Iranian side was to nominate an authorized entity to finalize outstanding technical and financial issues. This is still awaited."

What is the background?
First, Chabahar port as India's gateway to Central Asia. Chabahar, Iran's only deep-sea port open India's route to reach the Central Asian Republics (CAR) and Afghanistan. Inaugurated in 2017, this port is located strategically close to the China-Pakistan Gwadar port. The Chabahar rail link is part of the connectivity project to reach Afghanistan and further to the CAR. The rail track is proposed to be laid between Chabahar and Zahedan, extending to a distance of 628 km. From Zahedan, the goods will be transported to Zaranj in Afghanistan and then to Central Asia. The railway line will hold 34 stations and is speculated to facilitate the shipment of 2.8 million tonnes of freight every year. 

Second, India has been eyeing to clinch the contract of the Farzad-B gas field since 2009. The ONGC Videsh Limited was part of initial exploration in the gas field. After the discovery stage, the negotiations to proceed with the exploration was halted owing to US' sanctions on Iran and inhibitions from both the Indian and Iranian sides. In 2008, a joint venture of ONGC, OIL, and IOC explored the field and estimated 21.7 trillion cubic feet of natural gas reserves. Nevertheless, last week, the head of the National Iranian Oil Company announced the award of the contract to develop the gas field to a local operator.  
What does it mean?
First, China- Iran relations will follow a course of its own.  China has been strengthening its hold recently in Iranian projects of late. More so, larger elbow room has been provided by the United States for Tehran and Beijing to build their relations based on a convergence of interest and threat perceptions. If the strategic deal between both the states, which is currently under the scrutiny of the Iranian Parliament (Majlis), sees the light of the day and China delivers its pledge of such handsome funding, Iran may latch on to China for its infrastructure projects, furthering itself away from India. 

Second, the impact of US pressure on India- Iran relations will cost India, dearly. Subsequent US sanctions on Iran have heavily impeded negotiations between New Delhi and Tehran on important infrastructure plans including the Chabahar rail project. Additionally, India's hesitation to purchase oil from Iran may block its strategic aspirations Iran, Afghanistan, and Central Asia. The rail-road will act as a transit corridor for India to cruise into Afghanistan and the CAR and as the project is slipping out of India's hand, Ne Delhi needs some rethinking of its priorities and strategies. 

Third, there is a diplomatic challenge to India. New Delhi has to ensure that the Iran-China relations do not impact India-Iran partnerships. Is Iran losing confidence in India as a reliable partner? Is it playing the Chabahar card to send strategic signals to New Delhi that it has found a better partner in China? The way things have rolled out now, it is clear that China's gain has transcended into India's space.

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