India and Iran have inked a deal allowing India Ports Global (IPGL) company to develop and control the management of an Iranian port for 10 years.

According to the deal, signed on Monday, IPGL is allowed to manage the transit operation of Indian goods to Afghanistan and Central Asia at the port in Chabahar, on Iran's southeastern coast along the Gulf of Oman.

Sarbananda Sonowal, India's Minister of Ports and Shipping, visited Iran today to participate in the ceremony and discuss boosting relations.

Since 2016, IPGL has invested $85 million in Chabahar to develop the Iranian port, aiming to create a rival to the Chinese-funded Pakistani Gwadar and Karachi ports – and to expand trade with Central Asia and Afghanistan.

The Indian company was supposed to have invested $250 million in Chabahar by now, but the investment has been delayed due to financial obstacles and Iran's procrastination in developing the Chabahar-Zahedan railway.

This railway is crucial for connecting the port to the national railway network and facilitating the transit of Indian goods to target markets.

Under the new agreement, the investment value is expected to reach $370 million. This project obtained a US sanctions waiver in 2018.

"As and when a long-term arrangement is concluded, it will clear the pathway for bigger investments to be made in the port," Indian Foreign Minister Subrahmanyam Jaishankar told reporters in Mumbai.

The Strategic Significance of Chabahar Port

Indian trade with Central Asia and Afghanistan remained unchanged at $2 billion during last year due to its dependence on Chinese and Pakistani territory to connect the target markets.

For comparison, Indian trade rival China had $90 billion trade turnover with Central Asian states, including Kazakhstan, Uzbekistan, Kyrgyzstan, Turkmenistan and Tajikistan in 2023 – which increased by 27% year-on-year, China Customs statistics indicate.

China also had $1.33 billion trade with Afghanistan last year, 40% more than India’s.

According to the International Monetary Fund, Central Asian states had $143 billion export and $95 billion import with foreign countries.

The Indian Commerce Ministry’s statistics show the mentioned states share only 0.5% of India’s total foreign trade.

India, Iran and Russia also signed a transit agreement in 2000, but neither India nor Russia transits good through Iranian territory due to its poor logistic infrastructures.

In terms of the logistics performance index (LPI), the World Bank has ranked Iran among the poorest countries.

Last year, the Islamic Republic ranked 123 of the 139 countries compared, marking the lowest score among all neighbors, except Afghanistan. Even Iraq outperformed Iran in terms of LPI, ranking 115 globally.

Given the current circumstances, while the transit of Indian goods through Iran to Russia seems unlikely, the Chabahar port holds significant potential for fostering trade between India and Central Asia or Afghanistan in the years ahead.

Last year, more than 4.2 million tons of goods were loaded or unloaded at Chabahar, sharing 2.2% of Iran’s total foreign trade volume. However, only 15,000 tons of goods were transit cargoes, corresponding to 0.1% of Iran’s total foreign cargo transits in 2023.

Therefore, almost all of the loaded or unloaded cargoes at Chabahar was related to Iran and India’s own trade.

India increased exports to Iran by 14% year-on-year to $1.66 billion in 2023, while its imports from Iran experienced a 45% growth to $672 million. Before US sanctions, India imported $11.1 billion and exported $2.65 billion goods to Iran in 2017.

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