India, Iran get back to Chabahar port, INSTC route eyeing renewed Russia trade

Map of North South Transport Corridor route vs standard trade route from India to Russia | Wikimedia Commons

The Chabahar port in Iran and the transcontinental trade route that originates from that country, have received renewed interest from Iran and New Delhi, on increasing overland trade with Russia. The issue has been a core point of discussion during the visit of Iranian Foreign Minister Hossein Amir-Abdollahian to Delhi, officials said.

A monitoring group for operational issues will soon be formed by officials of both nations to ease a series of issues at the Shahid Beheshti terminal at the Chabahar port in Iran. The terminal is one of two at Chabahar, Iran’s only ocean port. It has been developed by India, which formally took over operations in December 2018.

Officials at the Ministry of External Affairs (MEA) said the latest push has come as both nations take a relook at the potential of the International North South Transport Corridor (INSTC). The 7,200-km long INSTC is India's grand plan to cut short the time taken for trade shipments to reach Russia and Europe, and enter the central Asian markets, and vice versa.
It incorporates thousands of kilometres of all-weather highways from the city of Chabahar in the south, through Azerbaijan in the north, and onwards to Russia and Europe.

Road to Russia

The Russian invasion of Ukraine and the subsequent sanctions against Russia have led to an exodus of Western businesses from the country. India is keen on filling up the economic vacuum thus created. Multiple exporters have also begun discussions with Russian buyers and importers to supply retail and industrial goods.

India's exports to Russia stood at $3.24 billion in 2021-22, up from the pre-pandemic figure of $3 billion. Meanwhile, imports from the country have risen to $9.86 billion, of which $5.25 billion was crude oil, processed petroleum and coal. Total imports had stood at $7 billion in 2019-20.

“To ensure more overland trade with Russia, the INSTC is important. However, it is even more important in the light of Chinese traders too, rushing to enter the Russian market,” a senior Commerce Department official said.

The route is also part of India’s overall efforts to establish greater connectivity and trade with the high-potential markets of the adjoining Commonwealth of Independent States (CIS) countries, officials say.

"This grouping of ex-Soviet nations spread across East Europe and Central Asia often have had tenuous relations with the West in the past, and have increasingly hiked their imports from China. After the Ukraine crisis, western penetration in the area is set to decrease further,” he added. Eight of the nine CIS nations are now part of the INSTC, along with Oman, Syria and Bulgaria.

Exports to Central Asia stood at only $678 million, but New Delhi estimates the optimal trade potential to be at least eight-nine times this amount. Major exports to the region are pharmaceuticals, machinery, coffee, tea and spices. Countries in the region are considered underserved markets and are potential suppliers of energy and minerals to India.

Challenges galore

In 2016, India signed a deal with Iran promising an $8-billion investment in the port and industries in the Chabahar Special Economic Zone, including an aluminium smelter and a urea-making facility.

But while the port has now emerged as a commercial transit hub for the region and especially Central Asia, the spate of financial sanctions against Iran by the United States has led to commerce suffering and Western companies unwilling to set up base on the premises.

"The United States had exempted the multinational project from its sanctions at India’s insistence back in November 2018, but the rest of the country is still under sanctions. This has stymied the natural growth of the port," a senior official said. The US decision had also partially been due to the port's economic importance to landlocked Afghanistan.

In February 2019, Afghanistan launched a new export route to India through the port. The country had been an important node of the INSTC, and Kabul had been keen on the route as it provided the country an opening to global supply chains and trade networks while bypassing Pakistan.

But the Taliban takeover of the country ended the country's participation in the project and effectively stopped plans of Indian goods reaching Afghanistan. Subsequently, the quadrilateral nation grouping of India, Iran, Afghanistan and Uzbekistan, which had cooperated on the port, also saw activities die down. These nations were set to meet in 2021 to paper over the issues facing the INSTC, but the meeting has not taken place yet.