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Rivalry by the Sea

The Gwadar-Chabahar Standoff

06 June 2024

Introduction: The Gwadar-Chabahar Dynamic

The involvement of two global powers in projects situated within a proximity of just over 100 miles presents a notable geopolitical dynamic: the Gwadar port in Pakistan, spearheaded by China, and the Chabahar port in Iran, backed by India.

The question arises: Will the enduring rivalries between India and China extend to these strategically significant ports? 

While these projects have long histories, they have continually faced internal and external challenges. However, there is potential for these ports to serve as conduits for cooperation between rival nations, rather than intensifying their competition. It is conceivable that both countries could collaboratively enhance the region's security and economic landscape.

Chabahar Port: A Strategic Hub with Challenges 

India-Iran agreement and development goals:

On May 13, India and Iran inked a decade-long agreement aimed at the development and administration of the Shahid Beheshti terminal at Chabahar port. Situated strategically along the Makran Coast, the port is a mere 106 miles from Pakistan's Gwadar port.

One aim of Chabahar is to establish a corridor connecting India to Central Asia and Europe, potentially reshaping India's trade landscape. This corridor holds the potential to benefit landlocked countries like Afghanistan and various Central Asian states, including Turkmenistan, Kazakhstan, Kyrgyzstan, Tajikistan, and double-landlocked Uzbekistan. 

Upon completion, Chabahar could furnish India with a vital trade route to Central Asia, circumventing Pakistan and unlocking fresh avenues for economic expansion. India's imperative to augment trade with Central Asia, especially for accessing resources such as gas, oil, and uranium, underscores the necessity of utilizing Iranian ports. This access is pivotal for the realization of the proposed 7,200-kilometer International North-South Transport Corridor (INSTC), which envisages linking India to the Persian Gulf, Central Asia, Russia, and segments of Europe.

US sanctions and geopolitical landscape: 

However, the road ahead for Chabahar is not without its challenges. Just a day after the signing of the agreement between Indian Shipping Minister Sarbananda Sonawal, and Iran's Urban Development Minister, Mehrdad Bazrpash, the United States voiced opposition to the accord. This highlights the complex geopolitical landscape in which these ports operate and the need for careful navigation of these challenges.

Vedant Patel, a deputy spokesperson for the US State Department, issued a reminder[1] that US sanctions on Iran remain in force. Patel emphasized, "Any entity, anyone considering business deals with Iran, they need to be aware of the potential risk that they are opening themselves up to and the potential risk of sanctions." 

The Iran Freedom and Counter-Proliferation Act[2] of 2012 (IFCA), signed into law on January 2, 2013, as part of the National Defense Authorization Act for Fiscal Year 2013, introduced extensive sanctions targeting Iran. Initially, India was granted an exemption, allowing it to gradually reduce oil imports from Iran and continue to develop Chabahar, acknowledging the port's critical significance for the region.

The 2015 Joint Comprehensive Plan of Action (JCPOA), a nuclear deal between Iran and world powers, led to the partial lifting of sanctions on Iran and paved the way for the resumption of some long-awaited foreign investments. Iran seized the opportunity to attract new investors, who cautiously explored opportunities in Iran's energy sector. India, as the original partner in the development of the Chabahar port, intensified its bilateral trade with Iran. 

The development of the $500 million Chabahar project encompassed various components, including the commencement of work on the Shahid Beheshti terminal following the agreement's signing in 2017. Additionally, efforts were made to enhance connectivity between Iran's northern and southern regions. 

The Chabahar project and International Relations

An integral aspect of the Chabahar project was the establishment of a railway link between Chabahar and Afghanistan. This vision materialized on October 29, 2017, when India dispatched the inaugural shipment of wheat to Afghanistan through Chabahar. The introduction of railways holds the potential to alleviate Afghanistan's reliance on Pakistan's Karachi port, particularly significant given the intermittent tensions between the two nations, which frequently result in delayed shipments of Afghan goods at border crossings.

In 2018, the United States unilaterally withdrew from the JCPOA and reimposed sanctions. Despite this, the Trump administration opted to grant exemptions for Chabahar from sanctions, recognizing the project’s critical importance for Afghanistan. However, following the US withdrawal from Afghanistan and the Taliban's return to power in 2021, the US stance shifted, driven by concerns that the Chabahar project could potentially benefit the Taliban regime. If this is the case, the United States is permanently severing ties with Afghanistan and leaving the $trillion wealth of minerals to the Taliban[3] and other countries such as China. The Taliban is believed to have made the minerals their source of cash.[4]

The Biden administration's inability to revive the JCPOA, compounded by a series of fresh disputes with Iran, notably supporting[5] Russia in the Ukraine conflict, has triggered an escalation in sanctions against Iran. These sanctions, aimed at different sectors and individuals, have intensified pressures on Iran's economy. They pose the risk of constraining, or potentially obstructing altogether, vital partnerships and investments, thereby complicating the prospects of initiatives like the Chabahar project.

Whether there are behind-the-scenes discussions or potential negotiations between the US and India regarding the Chabahar port remains to be seen. Historically, India has maintained its relationship with the US despite issues related to Iran and is unlikely to risk sanctions over the Chabahar project. However, India's Foreign Minister Subrahmanyam Jaishankar said the project could benefit the region. “I think it is a question of communicating, convincing, and getting to understand that this [Chabahar project] is actually for everyone’s benefit.' People should not take a narrow view of it,” he added.[6]

As a consequence of the reimposition of US sanctions on Iran after 2018, India was unable to fulfill its commitment to provide funds for the development of the Chabahar port. Consequently, Tehran shifted its focus to domestic companies for support. Notably, the Chabahar-Zahedan-Milk-Sarakhs railway, a pivotal corridor project for Iran, is anticipated to link Iran's Sistan-Baluchestan region with North and Central Asian countries. The inauguration of this railway, projected[7] by the end of the current Iranian year (concluding on March 20, 2025), holds the potential to catalyze significant development for Sistan and Baluchestan province.

The significance of access to Iran's ports, including Chabahar and Bandar Abbas, for landlocked Afghanistan has been underscored by historical negotiations. In 1969, during discussions between representatives of Iran and Afghanistan concerning the sharing of transboundary water from the Hirmand/Helmand River, Afghanistan made an offer to Iran. This offer, formalized in a treaty signed in 1973, proposed granting Iran increased water resources in exchange for unconditional access to Bandar Abbas and Chabahar ports.[8] [9]

The Taliban has recently voiced interest in the Chabahar project, labeling it "a vital point in trade and relations between Iran and Afghanistan."[10] Against the backdrop of escalating tensions between Afghanistan and Pakistan, the Taliban appears keen on reducing Afghanistan's reliance on the Karachi port for both imports and exports.

Gwadar Port: A Gateway to CPEC

The 15-year mega Gwadar project commenced in 2015 during President Xi Jinping's visit to Islamabad and is widely regarded as the gateway to the extensive $62 billion China-Pakistan Economic Corridor (CPEC). In terms of scale, the Gwadar project dwarfs the Chabahar undertaking. Gwadar is intricately linked to an economy valued at approximately $20 trillion, whereas Chabahar interfaces with an economy of roughly $8 trillion. Additionally, the projected capacities of the two ports differ significantly: By 2030, Gwadar is anticipated to handle up to 400 million tons of cargo[11]annually, a figure vastly surpassing Chabahar's projected capacity of 10 to 12 million tons.

In contrast to India, China enjoys direct connectivity to Central Asia via its western borders and has established robust trade and investment relations in the region. China's annual trade with Central Asia currently stands at $50 billion and is projected to reach $70 billion by 2030[12]. In comparison, India's annual trade with Central Asia is estimated at approximately $2 billion.[13]

China and Chabahar: Cooperation or Competition?

Chinese companies have indeed begun investing in Chabahar's petrochemical sector.[14] The full extent and specifics of Iran-China economic plans, including a 25-year strategic partnership valued at $400 billion, remain somewhat ambiguous. However, there are indications that it encompasses Chinese investments across multiple sectors, including infrastructure, manufacturing, and energy. These investments may potentially extend to projects such as the Chabahar port.[15]

In 2021, then-Foreign Minister Javad Zarif made a statement at an event in New Delhi, emphasizing Iran's stance on the Chabahar port. He stated, "We have made it very clear to our Indian and Chinese friends that Chabahar is open to cooperation with everybody. Chabahar is not against China, it is not against Gwadar." Zarif underscored that Chabahar serves as a platform for collaborative efforts aimed at fostering development and prosperity in the region. Pakistan has previously articulated its interest in establishing a linkage between Gwadar and Chabahar, with proposals to designate the two ports as "sister ports.”[16]

Challenges and Opportunities for Gwadar and Chabahar

Pakistan's economic challenges are considerable. The nation has a notable history of acquiring loans from the International Monetary Fund (IMF), with a recent $3 billion package among the latest examples. As of the end of November in the fiscal year 2023-24, Pakistan's total debt burden amounted to Rs 63.399 trillion, equivalent to approximately $222.45 billion USD. Notably, Chinese loans comprise a significant portion of Pakistan's external debt, constituting approximately 23%. 

In May this year, UAE made the commitment to invest US $10 billion in multiple sectors in Pakistan, and Saudi Arabia is to invest $25 billion over the next five years.[17] This certainly comes as some relief. 

The United States has previously voiced concerns that loans from the International Monetary Fund (IMF) to Pakistan might be utilized to repay some of Islamabad's debt to China. [18] However, the Biden administration has indicated support for the new IMF bailout to Pakistan.[19]

Uplifting Sistan and Baluchestan Province

Gwadar, situated in Pakistan's Balochistan province, is home to nearly 15 million people, making it the largest province in Pakistan. The region has been severely impacted by insurgency, poverty, and discrimination.[20]

Despite its significant size, Balochistan faces limited access to education, healthcare, and infrastructure. High unemployment rates and insufficient investment in critical sectors like agriculture and industry contribute to the perpetuation of the poverty cycle. The rugged landscape and sparse population further hinder governmental service distribution and infrastructure advancement. While the development of the Gwadar port and associated projects has created job opportunities in various fields, poverty persists due to factors such as unequal distribution[21] of benefits and infrastructure challenges, including inadequate roads, power supply, and water resources[22], which impedes broader economic growth and investment in the region.

Undoubtedly, one of the most pressing challenges in Pakistan's Balochistan province is security. Persistent security threats and political instability in certain areas have acted as significant deterrents to investment and have impeded the complete realization of the economic potential of projects such as Gwadar.

Balochistan has witnessed several Balochi insurgencies and separatist movements, some of which have targeted Chinese workers and infrastructure in the region. Recent attacks included incidents targeting a Pakistan naval air base utilized by China in Baluchistan.[23]

Despite the challenges, there remains hope that the development of the Gwadar port will significantly alter the fate of Balochistan. It is seen as a potential catalyst for Balochistan's journey towards stability and security.[24]  

In Iran's Sistan and Baluchestan province, there are also insurgencies with distinct causes. Baluchestan is Iran’s most deprived region, plagued by ethnic and religious discrimination. The Shia-centric governments and leadership in Tehran have exhibited mistrust toward the Baluchi people, including moderate Sunni religious leaders.[25] [26]

The development of Chabahar has the potential to bring significant benefits to the impoverished region of Sistan and Baluchestan. If it is indeed the case that Iran's domestic companies completed the Chabahar-Zahedan-Milk-Sarakhs railway after India withdrew from the project due to sanctions[27], it suggests that internal investment within the Baluchestan region could continue and potentially alleviate the hardships faced by its residents.

Cooperation Over Competition: The Path Forward

While Iran and Pakistan face distinct challenges, with Iran contending with economic sanctions and Pakistan grappling with security issues, cooperation between the two nations is crucial across various sectors, including security. To ensure the success of projects like Chabahar and Gwadar without disruptions, it's essential to minimize unnecessary competition. One approach could involve inviting involvement from various countries to increase the likelihood of success. Although it may seem far-fetched, Iran inviting GCC investors, as well as China and Pakistan, into Chabahar, and Pakistan inviting India and Iran into Gwadar, could be beneficial. Until such collaborations materialize, Iran must navigate the challenge of sanctions, while Pakistan must effectively manage its finances.

[1] (United States Department of State, "Department Press Briefing – May 13, 2024")

[2] (Office of Foreign Assets Control, treasury.gov)

[3] (Reuters, "What are Afghanistan's untapped minerals and resources?")

[4] (Foreign Policy, "Afghanistan's Mineral Resources Are the Taliban's Cash Cow")

[5] (AP News, "US promises new sanctions on Iran for its support of Russia's war in Ukraine")

[6] (BBC, "S Jaishankar: India backs port deal with Iran after US caution")

[7] (IRNA, "افتتاح عظیم ترین پروژه ریلی کشور تا پایان سال")

[8] (Aman, “Water Dispute Escalating between Iran and Afghanistan”)

[9] (Alikhani, The Shah and I)

[10] (Arab News, "Taliban set sights on Iranian port for access to international markets")

[11] (VOA News, "China Turning Pakistan Port Into Regional Giant")

[12] (Eurasia Review, "India’s Central Asia Outreach: Countering China’s Expanding Footprint – Analysis")

[13] (Eurasia Review, "India’s Central Asia Outreach: Countering China’s Expanding Footprint – Analysis") 

[14] (Donya-e-Eqtesad, "تفاهم با چینی‌ها برای سرمایه‌گذاری در چابهار")

[15] (Tribune, "India kicked out of Chabahar rail project")

[16] (Tribune, "Pakistan considering to link Gwadar with Chabahar")

[17] (Reuters, "Pakistan PM office says UAE has committed $10 bln in investments")

[18] (Congressional Research Service, "IF11270/2")

[19] (DAWN, "US supports Pakistan’s efforts for IMF bailout")

[20] (World Bank, "Pakistan: Addressing Poverty and Conflict through Education in Balochistan")


[22] (Springer, "Water resources of Balochistan, Pakistan—a review")

[23] (Eurasia Review, "Breaking The Resistance: Battlefield Capture Of Baloch Insurgent Leader Gulzar Imam")

[24] (Eurasia Review, "Balochistan’s Path To Stability: Progress, Prospects, And Challenges")

[25] (Stimson Center, "Protests Have Brought Iran’s Ethnic Minorities & Persian Majority Closer")

[26] (Middle East Institute, "Iran’s Uneasy Relationship with its Sunni Minority")

[27] (IRNA, "افتتاح عظیم ترین پروژه ریلی کشور تا پایان سال")