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Why is the US upset with India's Chabahar port deal with Iran? Explainer

The United States threatening to impose sanctions on India is leading to speculation regarding potential political and economic impacts faced by the U.S due to the Chabahar Port deal with Iran. A variety of complex geopolitical issues surface underneath the maritime initiative.

Edited By: Varun Sharma @Poldip New Delhi Updated on: May 21, 2024 13:02 IST
Minister of External Affairs, S Jaishankar
Image Source : PTI Minister of External Affairs, S Jaishankar

India's negotiations with Iran to take over operations of the landmark Chabahar port are reportedly seeing fruition after 21 years. Since the proposal in 2003 under the government led by former PM Atal Bihari Vajpayee, the port has presented promising prospects for the Indian economy and entry into the Middle Eastern market. However, amid tensions between the United States of America and Iran, India has become a key geopolitical and economic security interest for the international superpower, inviting criticism from its primary trade partner over its deal. Recently, the United States warned India of potential sanctions if the nation does not halt negotiations, causing increased political tensions between the powers. Why is the United States upset over India's maritime interests and what implications does the Chabahar port hold for both countries?

What is the Chabahar port deal about?

The Chabahar port is located on Iran's southwest coast and 72 kilometres away from Pakistan's Gwadar port. The port links India's west coast and Iran, opening a transit route for faster maritime trade. The Chabahar port bridges India, Afghanistan, and Central Asia, opening the market for Indian goods in the Gulf. As mentioned earlier, discussions began in 2003 and since then have been undergoing negotiation and scrutiny from its foreign policy stakeholders. India's decision to collaborate with Iran and finalising negotiations to operate the port has received criticism from the United States which has imposed more than 600 sanctions against entities associated with Iran. This is after pulling out from a joint nuclear deal with Iran in 2018 under the Trump administration, which at the time put pressure on several international stakeholders.

Recently, the United States warned India of potential sanctions being issued against the country if India does not back out of the deal with Iran. External Affairs Minister S Jaishankar advised citizens not to have a "narrow view" of the deal and emphasised geopolitical benefits for the entire region.?

To understand the implications of the deal for the US, it's important to look back at its foreign relations with Iran historically. In 1979, Iran held American personnel hostage after an attempt to overrun the US Embassy in Tehran. Despite attempts at negotiation by former President Jimmy Carter, the situation escalated further, calling for the involvement of the United Nations. By 1980, the United States officially severed diplomatic relations with Iran. The severed relations between the country and India's strengthening relations with Iran pose a direct threat to America's economic and geopolitical dominance in the global sphere.

Counteracts against Iran-US nuclear deal and sanctions

In January 2016, the Joint Comprehensive Plan for Action was put into effect, a deal that imposes restrictions on Iran's nuclear power conquests. The key negotiators were the US, China, France, Russia, the United Kingdom and Germany. Collectively, they are known as the P5+1. Additionally, Middle Eastern countries such as Saudi Arabia, most vulnerable to a nuclear-armed Iran, voiced their desire to be included in the negotiations but were firmly rejected by Israel. The deal demanded Iran limit the production of nuclear material and centrifuges to avoid the rapid production of nuclear weapons.

Furthermore, in the circumstances that Tehran chooses to produce a nuclear weapon, the restrictions should cause the development to take at least one year, providing the other powers with enough time to respond. In exchange, the United States and other powers would relieve sanctions which could be imposed again if Iran does not comply with the agreed terms. However, in 2018 the Trump administration backed out of the deal and reinstated bank and oil sanctions which had significantly affected the country's oil exports and economy. Since the deal collapsed, Iran has been exporting oil to countries through independent relations with China and Malaysia, exporting approximately 1.1 million barrels daily in 2022.

Threat to USA's dominance over trading network

If India proceeds with the Chabahar deal, Iran's dependency on the US sanctions relief would enable a greater export of oil and trade relations with India and its allies. According to the Embassy of India, Tehran, India-Iran bilateral trade was worth $2.33 billion for the fiscal year 2022-23. The opening of the port will increase that revenue further as trade routes become shorter and more freely accessible. This can act as a counter to trade sanctions imposed by the US and facilitate better trade between India, China, Russia, and Iran creating potential risks of a stronger trading network and threatening the United States' dominance of being the world's strongest trading network. Furthermore, the integration of the port with the International North-South Transport Corridor (INSTC) will allow India to trade directly with Russia and circumvent Pakistan while gaining access to Central Asia.

The Russia-Ukraine dilemma

Russia and Ukraine together account for 30% of the global wheat and barley supply, Russia is globally the second largest oil exporter and the world's largest exporter of natural gas. It is also part of the top two suppliers that export 5% of the fertilisers used worldwide, vital to India's agricultural economy. India's position on the conflict aims for "peace" between the two nations through "dialogue and cooperation". In the two years since the conflict, India has continued to maintain trade relations with Russia and recently held a meeting with Foreign Minister Dmytro Kuleba to restore relations between India and Ukraine and boost trade. The operation of the Chabahar port will reduce the cost of transporting among these countries and recover the disruptions caused by the Ukraine conflict on maritime transportation. Consequently, it will reduce the cost of transportation and time taken for India, reducing geopolitical pressure on India.

The United States, which has publicly condemned Russia, faces political risks if India does not align itself with its position. This is because along with India (the largest democracy), China (the world's second-largest economy) has also abstained from voting at the United Nations General Assembly and sat out of talks to impose economic sanctions on Russia. This sets the United States in a weakened position as the central mediator for peace talks and a dominating force in global politics. The Chabahar port will reopen economic trade between the three powers, also leading to decreased American influence on the international stage.

Sanctions on India: Empty threat or possible consequences?

The United States is threatening to impose sanctions on the Indian economy if India does not halt further discussions with Iran over the Chabahar port deal. However, several experts question the impact of such sanctions on the Indian economy and its political legitimacy. America cannot sanction the entire economy and can at best only sanction the entities at the port. As the Indian economy continues to grow, such sanctions may not significantly affect annual GDP growth and revenue. Furthermore, due to the network being out of America's geographical control, India can easily devise alternate routes to continue trade based on maintaining individual relations with the countries that are a part of the new trade network. However, India continues to mediate with the United States and push for the Chabahar deal to secure its best economic and political interests.

(Written by Arpit Khurana)

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