India Signs 10-Year Deal to Develop Iranian Seaport

India's government has inked a 10-year agreement to build out and operate the port of Chabahar, Iran. The seaport has strategic and commercial appeal to New Delhi, both as a gateway to the Iranian market and as a terminus for  trade with Central Asia. If fully put into action, an Indian-run port at Chabahar would be a way to cut around arch-rival Pakistan to reach Afghanistan and other points inland.

The agreement was signed by Iran's ports authority and Indian Ports Global Limited (IPGL), a subsidiary of government-owned Sagarmala Development Company. It is the first multi-year agreement for the port's operation, and replaces the short-term annual contracts that IPGL held previously. This will provide more certainty for shippers, according to Indian news outlet Mint. It also calls for total investments of $370 million, including $250 million in loans. 

"This linkage has unlocked new avenues for trade and fortified supply chain resilience across the region," said Indian minister for shipping Sarbananda Sonowal. "The establishment of regular ship calls between Chabahar Port and Indian ports has instilled stability and confidence among traders, offering them visibility and predictability in their supply chain operations."

IPGL was set up in 2015 for the purpose of improving infrastructure and throughput at Chabahar. Over the past nine years, it has handled only 90,000 TEU of containerized freight and general cargo totaling about eight million tonnes.

India has been trying to set up a full-scale port in Iran for years, but progress has been slow, in part because of stiff U.S. sanctions on the Iranian economy. Only about $85 million has been spent on improvements at the port over the past decade. Sanctions penalties are still very much a possibility for anyone trading in Iran, U.S. State Department spokesman Vedant Patel told reporters on Monday. "Anyone considering business deals with Iran - they need to be aware of the potential risks that they are opening themselves up to and the potential risk of sanctions," Patel told Reuters.

The port's development also hinges on construction of the Chabahar-Zahedan railway, which would connect the harbor to the Iranian national rail network, then onwards to the border with Turkmenistan. It has been repeatedly delayed; according to Iranian state media, it was 65 percent complete last year and is expected to finish in 2024. 

At present, India does about $2 billion a year in trade with Central Asia, but it believes that it could grow this volume. China transacts  about $90 billion a year in trade with the same region; to date, India's exports have been hampered by more complex logistics.