India has key first-mover edge on China in Iran

When China clinched a massive $400 billion bilateral investment pact with Iran, a 25-year deal that seeks to revive the heavily sanctioned and economically isolated nation, few noted that India was already well-engaged.

By the end of May, India will begin full-scale operations in its first foreign port venture at Iran’s Chabahar, a facility that opens on the Gulf of Oman that will aim to facilitate more South Asia, Central Asia and Middle East trade while bypassing Pakistan.

India’s US$500 million investment represents a clear and potent commercial challenge to China’s massive port investment in neighboring Pakistan’s Gwadar, a key component of Beijing’s Belt and Road Initiative (BRI).

It’s not immediately clear how the new China-Iran deal will work, if at all, to develop Iran’s trade and port infrastructure as the precise terms of the bilateral partnership have not been made public.

If it does, India will have a distinct first-mover advantage through its nearly completed development of two terminals at Chahabar’s Shahid Beheshti complex that opens onto the Gulf of Oman.

The 10-year lease agreement, a deal first clinched by Prime Minister Narendra Modi in Tehran in 2016, has until now been hobbled by US sanctions imposed under the Donald Trump administration.  

Indian suppliers and engineers, some with interests in the US, were reluctant to deliver essential machinery and services to Iran on fears they could somehow be sanctioned, despite clear exemptions on Chabahar in Trump’s sanction order. That led to certain speculation that China may take over the project from India.

But New Delhi has doubled down and accelerated the project with the shift from Trump to Biden, banking like others on a new breakthrough on the Joint Comprehensive Plan of Action (JCPOA) nuclear agreement and a broader US-Iran warming trend.

“I will inaugurate the fully operationalized Chabahar port in April or May,” Mansukh Mandaviya, India’s ports and shipping minister, said in a recent virtual discussion on Iran’s Chabahar port.

India has supplied two large cargo-moving cranes and will deliver two more in the coming weeks before the facility’s expected ceremonial opening next month.