Could the new deep sea port in Chabahar alter Asia’s trade dynamics?
by Reza Akhlaghi
Originally Published in Canada International Council’s OpenCanada.Org
News of the seemingly never-ending negotiations over Iran’s nuclear program, a key attention-grabber in international relations, continue to dominate the news because of the implications signing of a deal would have for the region as well as for world economy.
Briefly put, an end to the Iranian nuclear crisis would enable Iran to emerge from years of economic isolation and reassert itself on the global stage in pursuit of its yet-to-be-fulfilled strategic goals that by many regional states are considered hegemonic and imperial.
But behind the barrage of headlines concerning Iran’s nuclear program, the quiet construction of the deep sea port of Chabahar in the southeastern most part of the Iranian plateau is promising to change trade dynamics in much of the Asian continent.
The Chabahar port is in the east of the Strait of Hormuz at the intersection of the Gulf of Oman and the Arabian Sea. It is 70 kilometres from Pakistan’s strategic port of Gwadar (under development by China) and 1,400 kilometres to Mumbai in India. Through Iran’s network of railways and highways, the port provides access to Afghanistan to the east and nearly all of Central Asia and the Caucasus to the north of Iranian plateau and, depending on the destination, it can cut the time it takes to transport products and goods by between third and fifth of what it presently takes.
A Port of its Own
For import and export of products in and out of the country, for years Iran has relied heavily on Bandar Abbas, its biggest and ageing port in the Persian Gulf, but Bandar Abbas is not a deep sea port and its small size relative to Iran’s growing trade needs has hampered the country’s efforts to become a serious maritime trade bloc. This explains why a large portion of Iranian imports are unloaded in another littoral sate, Dubai, before arriving in Iran.
The construction of the first phase of Chabahar port began in 2002 with $86 million in initial investment from a joint venture by two state-owned Indian port authorities: Jawaharlal Nehru Port Trust and Kandla Port Trust. The two companies will invest a total of $300 million in the port’s construction. India’s first foreign port project, Chabahar carries high geo-strategic value for India — and increasingly for other Asian countries — as the port connects the Indian subcontinent to Afghanistan and Central Asia without passing through India’s arch enemy, Pakistan.
Fearful of punitive measures by Washington, the administration of India’s Prime Minister Manmohan Singh postponed investment in the port, but a few weeks upon assuming office in May, 2014, the government of Prime Minister Narendra Modi re-ordered investment in the project.
The Chabahar port, through new roads and highways under construction by Iran, also gives India much needed access to the vast and untapped markets of former Soviet republics of Central Asia, a market that New Delhi has seriously lagged behind China in building a presence in. The project has also garnered support for additional investment and transfer of know-how from over a dozen other countries.
What’s in it for Iran?
Leveraging its unique geographic vicinity to Central Asia, the Caucasus, the Indian Ocean, and its central position in the Middle East, Iran has long envisioned asserting itself in global trade as an energy and export hub. Iran not only enjoys geographic vicinity to Central Asia, but it also maintains centuries-old cultural affinity with the region.
But Iran’s international isolation, which has been fuelled by its post-revolutionary ideals and anti-Western principles of its foreign policy and worsened by its controversial nuclear program, has impeded its efforts in realizing its lofty goals in global trade. The completion of Chabahar port, however, could afford Iran an unprecedented opportunity to meet some of its goals of altering the dynamics of trade in Asia by becoming a key export and transport route. Iran already has a free trade zone in its Sistan-va-Baluchestan province, which Chabahar is part of, and Tehran is intent on providing preferential treatment to trade partners that are willing to invest in the port’s development and its transport infrastructure.
With the Phase One of the project expected to be completed by mid-2016, the port will reduce Iran’s reliance on its trade rival UAE and enable Tehran to attract more cargo from various port authorities in Asia and Europe, thus increase volume of its export. Tehran has added further strategic value to the port; through construction of new roads and highways it has already connected the port to Zaranj in Afghanistan, facilitating land entry for India and other Asian powers like China and making it easier for land-locked Afghanistan to export products from its massive mineral resources to international markets. Iran is also constructing highways from the port to the states of Central Asia, enabling the latter to export their products to international markets and reduce their reliance on Russia, which handles much of their export.
Another Iranian long-term goal in Chabahar is the export of energy from mostly landlocked states of Central Asia. As the latter develops infrastructure for its massive energy sector, it needs to find new markets for its hydrocarbon products. Much of Central Asia’s energy export is handled through a Soviet-era network of transport routes managed by Russia today. To reduce their reliance on Russia, these states are eager to find new transport routes, which Iran will be able to offer in the future through a network of pipelines to the Chabahar port.
Chabahar port’s geo-strategic significance lies in its potential to alter trade patterns in Asia by making key Asian economies, mainly India and China, reconsider some of their existing trade routes and enabling them to gain new foothold in hitherto inaccessible markets. The construction of land transit roads to Afghanistan and Central Asia by Iran, for example, would grant India long-sought foothold in the region to counter growing Chinese influence and at the same time contribute to Afghanistan’s stability, which remains a key component of Indian strategic security objectives in the region. However, despite traditional rivalry between New Delhi and Beijing over natural resources and geopolitical influence, the security and stability in Afghanistan and Central Asia remain a shared objective for both countries, especially in light of planned NATO drawdown from Afghanistan.
The potential rise of Chabahar as a trade corridor is also a strategic fit for China, which, as part of its Silk Road Economic Belt vision, has been investing in a vast array of infrastructure from westernmost part of China in Xinjiang spanning westward throughout Central Asia to the northern borders of the Iranian plateau. Chinese investment in infrastructure includes networks of roads, highways, energy transport pipelines, schools, and advanced telecommunication networks. China and Iran, in addition to a shared sense of historic primacy, also have common geo-strategic interests in Central Asia. Beijing and Tehran are determined to contain and reduce geopolitical risks in Central Asia and Afghanistan that could arise from a self-declared transnational extremist Islamic movement like ISIS that could potentially wreak havoc on the region’s stability and economic development.
Iran’s ability to draw investment and technology for the development of the remaining phases of Chabahar port will be influenced by how it can manage to ease international sanctions against it particularly if it can reach a successful nuclear accord with the P5 + 1 countries. Cognizant of the full potential of the port and its subsequent impact on trade dynamics in Asia and beyond, Iran would have to woo participation of greater number of port authorities and financial institutions from Asia and Europe and their access to new technology. However, with the sanctions in place many interested parties will shy away from participation in the port’s next stages of development as doing business with Iran is replete with all sorts of punitive measures by Washington. Iran could continue the development of the port by solely relying on Chinese and Indian investment, but without participation of international firms and removal of harsh international sanctions, Chabahar will not be able to emerge as a key maritime trade bloc.