By Dr. Vaqar Ahmed
Iranian authorities in August made an announcement regarding the handing over of Chabahar port to an Indian firm, which will operate the port on a decade-long lease. This will involve setting up two berths in the first phase of the port’s operation. India has committed an initial investment of $85 million for this purpose and annual expenditure amounting to approximately $23 million.
In March, a port very close to Chabahar, Gwadar in Pakistan, saw its first commercial consignment leave for international waters. This facility has gained the interest of Chinese traders. For example, the China Ocean Shipping Company expressed an interest in operating a cargo ship with a capacity of 5,000 containers on a weekly basis. The company is now using Gwadar port to send seafood consignments to the UAE. Due to the newly installed infrastructure, the containers are cleared in less than 48 hours at Gwadar, which in comparison to other ports of Pakistan is certainly more efficient. The storage issues that can be seen in the case of perishable items traded from Karachi are also not seen in Gwadar.
There have been several narratives put forward that envisage Chabahar and Gwadar as being competing ports. For example, the Indian government’s position has been that its investment in Chabahar could provide a strategic route connecting India, Iran and Afghanistan, which in due course could also have linkages with Central Asia. This would allow India to bypass Pakistan in terms of the inflow and outflow of merchandise from the West. Perhaps such an argument was necessary for the Indian government to justify the taxpayers’ money that will have to be spent in Iran.
However, this entire narrative of bypassing Pakistan now faces a critical challenge: US sanctions on Iran. Washington has warned any countries (read India) and enterprises that engage in business with Iran and it is closely watching developments in Chabahar that go against the spirit of its sanctions. While this could curtail the India-Iran plan to quickly operationalize the Chabahar port, the US also wishes to restrict Iran’s trade relations with the rest of the world. For example, India’s third-largest source of crude oil is Iran. However, this trade will become difficult once payment gateways to Iran are blocked from November. India’s investment interests may also face a jolt as it may not be able to go ahead with the Farzad B gas field development in Iran.
The US is also looking into ways through which it can create difficulties for India and Iran to resort to their past methods of trade, whereby the former used to buy oil from the latter in return for Tehran’s purchase of food and engineering products from New Delhi. Such barter trade may come under increased scrutiny after November this year.
Regardless of what happens as a result of the sanctions, it is good to see that Iran’s official position does not see Chabahar and Gwadar as competing ports. In fact, Iranian officials have stated that they see them as sister ports that could compliment the pursuits of both neighbors for greater trade, investment and transit cooperation. Iranian Foreign Minister Mohammed Javad Zarif, during his recent visit to Islamabad, also told of Iran’s desire to participate in the China-Pakistan Economic Corridor. The timing of such an announcement is important as Saudi Arabia has also expressed its intention to invest in the mega oil city project in Gwadar. This is a project that spans more than 80,000 acres of land and is expected to have facilities that could ensure transportation of oil from the Gulf region to China.
A final word for both Tehran and Islamabad. China, Russia and the US will continue to compete to support regional connectivity projects with countries in Central and South Asia. These competing projects have prevented a lack of shared vision toward seamless trade and investment integration between Central and South Asian economies. The competing funding mechanisms of China, Russia and the US have weakened the willingness of countries in the region to mobilize their own resources and drive the process of economic integration through indigenous means. Unfortunately this vicious cycle has further increased the dependence of Pakistan and Iran on foreign money to keep their economies afloat. The only way to come out of this cycle is to open more direct channels of dialogue between the two neighbors.
(Dr. Vaqar Ahmed is Joint Executive Director of the Sustainable Development Policy Institute, Pakistan. His book “Pakistan’s Agenda for Economic Reforms” was recently published by the Oxford University Press. Twitter: @vaqarahmed)