The Iranian government has decided to proceed with the construction of Chabahar Rail Project on its own, citing delays from the Indian side in funding and starting the project.

What is the issue?

• Four years ago, India and Iran signed an agreement to construct a rail line from Chabahar port to Zahedan, along the border with Afghanistan.
• The Iranian Railways will proceed without India’s assistance, using approximately $400 million from the Iranian National Development Fund.
• The development comes as China finalizes a massive 25-year, $400 billion strategic partnership deal with Iran, which could cloud India’s plans.

The Chabahar Rail Project

• It is a 628 km Chabahar-Zahedan line, which will be extended to Zaranj across the border in Afghanistan.
• The entire project would be completed by March 2022.
• It was meant to be part of India’s commitment to the trilateral agreement between India, Iran and Afghanistan to build an alternate trade route to Afghanistan and Central Asia.

Why did Iran omit India from the project?

• Despite several site visits by engineers, and preparations by Iranian railways, India never began the work, ostensibly due to worries that these could attract U.S. sanctions.
• The U.S. had provided a sanctions waiver for the Chabahar port and the rail line to Zahedan, but it has been difficult to find equipment suppliers and partners due to worries they could be targeted by the U.S.
• India has already “zeroed out” its oil imports from Iran due to U.S. sanctions.

The contentious partnership with China

• Iran and China are close to finalising a 25-year Strategic Partnership which will include Chinese involvement in Chabahar’s duty-free zone, an oil refinery nearby, and possibly a larger role in Chabahar port as well.
• The cooperation will extend from investments in infrastructure, manufacturing and upgrading energy and transport facilities, to refurbishing ports, refineries and other installations.
• It is also rumoured that the Chabahar port will be leased to China surpassing India.
• Iran had proposed a tie-up between the port at Gwadar and Chabahar last year and has offered interests to China in the Bandar-e-Jask port 350km away from Chabahar, as well as in the Chabahar duty-free zone.

Back2Basics: India-Iran Partnership over Chabahar Port

• In 2016, India signed a deal with Iran entailing $8 billion investment in Chabahar port and industries in Chabahar Special Economic Zone.
• The port is being developed as a transit route to Afghanistan and Central Asia.
• India has already built a 240-km road connecting Afghanistan with Iran.
• All this were expected to bring cargo to Bandar Abbas port and Chabahar port, and free Kabul from its dependence on Pakistan to reach the outer world.
• Completion of this project would give India access to Afghanistan and beyond to Turkmenistan, Uzbekistan, Tajikistan, Kyrgyzstan, Kazakhstan, Russia and Europe via 7,200-km-long multi-modal North-South Transport Corridor (INSTC).

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