Thursday, August 22, 2013

Will China Checkmate India on Chabahar? Printer-friendly version

Radhakrishna Rao, 
Visiting Fellow, VIF

In a development that could very well upset India’s geo-strategic apple cart, China is making deft and vigorous moves to woo Iran to accept its offer of US$80-million to upgrade the Chabahar port located on the coast of Gulf of Oman, off the Strait of Hormuz. Perhaps it could be a well thought out move on the part of China, which through its “string of pearls” strategy is busy expanding its area of influence across the Indian Ocean region, to keep India away from the project and slowly intrude into the Indian geo-political space in Tehran. A toehold in Iran could drive China to cast its “net of influence” far and wide, across the West Asian landscape, with serious consequences for the American presence in this oil rich part of the world.

From building the deep sea ports and launching satellites to constructing all weather highways and putting in place telecom networks, China has become a “partner in progress” for many countries in the Indian Ocean region. Sri Lanka, Maldives, Myanmar, Nepal and Bangladesh are among the Indian neighbours where an impressive “Chinese presence” has become a fait accompli. In the context of the administrative control of the Gwadar port located on Makran coast, overlooking the Arabian sea, in Pakistan’s sparsely populated and restive Balochistan province, passing on into the Chinese hands, Chabahar has come to assume immense strategic and economic significance for India. Clearly and apparently, India’s participation in Chabahar port development could, to some extent, work as a counter-poise to the advantages that China could derive from managing Gwadar port.

Gwadar port, which stands out as a vibrant symbol of strategic partnership between China and Pakistan, could very well give China an easy access to the key energy markets in the Middle East. Further, it could also provide China a convenient access to the warm waters of Indian Ocean and a listening post near the Strait of Hormuz. Incidentally, about 20% of the world’s petroleum and 35% of the petroleum traded by sea pass through the Strait of Hormuz, described as one of the world’s busiest and most strategically located sea lanes.

As part of the ambitious US$18-billion economic corridor project connecting Kashgar in China with Gwadar, it is planned to build a pipeline as well as road and rail links that will involve engineering of around 200-kms of tunnels across the treacherous mountainous landscape. The road link will involve upgrading and realigning the strategically located Karakoram highway. Kashgar is located in China’s disturbed western Xinjiang province where Muslim Uighur separatists are quite active.

Of course, the Gwadar-Kashgar pipeline may help China reduce its dependence on Malacca Strait in so far as transporting oil from West Asia is concerned. Further, it could help meet a part of the energy needs of the Western parts of China. More importantly, this pipeline makes a strategic sense for China in terms of strengthening its long term energy security. On another front, in order to bring down its reliance on the Strait of Malacca for transporting crude, China has invested heavily in building an oil and gas pipeline in Myanmar. As things stand now, China is expected to overtake US as the world’s largest crude importer in 2014.Currently,three fourth of China’s crude import from Middle East are channelled through the Strait of Malacca which is vulnerable to piracy and geo political uncertainties. But then the economic corridor project is still at a conceptual stage and it would be sometime before it gets going. However, both the countries, while highlighting the economic importance of the project, have downplayed its strategic aspects. Meanwhile, reports emanating from Beijing quote Chinese Government officials as saying that security concern could hinder the 2000-km long economic corridor project.

On their part, US security analysts believe that China could very well make use of its control over Gwadar for furthering its military interests. In the ultimate analysis, there are many strategic gains that China can derive from the port with particular reference to protecting its long term interests in the Indian Ocean region in addition to ensuring its energy security. Significantly, Gwadar is located just 72 nautical miles east of Chabahar. However, the daring pre dawn attack on a check post of coast guards near Gwadar in late July has exposed the vulnerability of the port to the prevailing volatile conditions in Pakistan’s restive Balochistan province. This attack is believed to be the handiwork of the banned militant group, Balochistan Liberation Front.

Though the development of the Chabahar port has been on the agenda of India-Iran bilateral discussions since 2003, the political leadership in New Delhi was far from serious about Indian participation in this vital maritime project from which India can stand to make substantial gains. After sitting on this project proposal for nearly ten years, the ruling elite of the country has suddenly realized the vital importance it holds for country’s long term geo political interests. This appears to be a sequel to Chinese move to edge out India.

Of course, India’s External Affairs Minister Salman Khurshid during his visit to Teheran earlier this year had driven home the point that India could provide upto US$100-milliion assistance to upgrade the port. About the project, Kurshid had this to say, ”The two sides have pushed for transit pact between India, Iran and Afghanistan which would help India get access to the land locked and resources rich countries in Central Asia. We are going ahead with the Chabahar project. Cabinet has already cleared it”. As things stand now, Iran is yet to give its final clearance for the Indian investment in project. However, political observers are clear in their perception that India should seek fast track negotiations with Tehran to pave the way for the Indian participation in the up-gradation of this port. This could prevent China from upstaging India.

But then USA has all along been hostile to the Indian proposal of joining hands with Iran for this maritime project. Unfortunately, India’s track record in standing up to the US “political pressure and psychological intimidation” is far from impressive. As such, in the backdrop of the Chinese move to corner India, New Delhi should be driven by its own domestic compulsions and interests and get the decks cleared for Indian participation in Chabahar port development without any loss of time. There is no need for India to buy the American argument that Iran should be isolated for its nuclear weapons development programme.

Meanwhile, in Tehran, in early August, the new Iranian President Hassan Rouhani while addressing the Majlis (National Parliament) stated that if the West wants an “adequate response” from Iran, it should not speak the language of sanctions but that of respect. There is no denying the fact that Iranian economy has suffered heavily due to US and European sanctions and threat against the countries that continue to do business with Iran.

But the grim ground reality is that the routine trade between India and Iran have been affected by payment issue following sanctions. The recent visit of an Iranian business delegation to the tea gardens in north east India has raised the hopes of exporting an “appreciable volume” of high end tea varieties to Iran. As it is, early last year, the powerful American Jewish Committee had told the Indian Ambassador to USA, Nirupama Rao, that it was “deeply troubled” by the recent reports of India’s efforts to intensify trade relations with Iran” at the very moment when the US and fellow democracies are applying new economic pressure to persuade Tehran to halt its nuclear programme.”

In May this year, Hassan Nourian, Consul General of Iran in Hyderabad, had observed that the bilateral trade between the two countries is poised to cross US$25-billion within four years. ”We have already entered the second year. Currently, most of the exports from Iran to India are primarily based on oil and petroleum products. To effect this, both have encouraged focussing on non oil exports from India in order to strike a balance between the two countries,” he said. Following sanctions, the annual Iranian crude import by India valued at US$15-billion is being paid for in the Indian Rupee. However, the annual Indian export to Iran is pegged at around US$2.5-billion per annum. It is planned to boost this to S$4-billion.Even with this figure, it means a surplus credit balance of US$11-billion in favour of Iran. How to offset this huge trade imbalance happens to be the crux of bilateral trade discussions between the two countries.

There is no denying the fact that Indian investment in Chabahar is important for India to protect its “business and commercial interests” in the landlocked Afghanistan as Pakistan has denied India transit access to Afghanistan through its land route. It is planned to construct a railway network connecting Chabahar with Zahedan in Afghanistan. Moreover, the port is already linked to the city of Zarang located in south western Nimroz province of Afghanistan. This road link can serve as India’s entry point to Afghanistan, Central Asia and beyond. Indeed, Chabahar could invest India with ability to move quickly goods and supplies and if necessary even defence personnel straight to Afghanistan through Iran which assumes significance in the backdrop of US and allied troops planning a phased pull out from the war torn Afghanistan. Of course, India should nudge Iran to agree to the idea of moving military forces to Afghanistan through Chabahar. But this would again be subject to Iran getting some long term strategic benefits in such an arrangement. However, India is yet to take up this issue with Iran.

Chabahar has been designated as a Free trade and Industrial zone by Tehran. It has also been described as Iran’s best access point to Indian Ocean. Iran has already spent US$350-million on the development of this port. Without doubt, Indian participation could help the port, which because of the sanctions, has not been in a position to corner the business in proportion with its potential, to earn more revenue from catering to the Indian needs on a variety of fronts. India, Iran and Afghanistan have signed an agreement to give Indian goods heading for Central Asia and Afghanistan preferential treatment and tariff reductions at Chabahar. With many of the Indian enterprises keen on entering the lucrative mining sector of Afghanistan, Indian participation in Chabahar project could prove a win win deal for India Inc.

As it is, India’s growing role in Afghanistan focuses on the plan to extract iron ore from the mountain ranges at Hajigak, located about 100-kms to the northwest of the capital city of Kabul. According to Ali Jalali, a Professor at the US National Defence University in Washington and a former Afghan Interior Minister, Indian and Chinese investment will be a major contributor to Afghanistan’s stability as the US is preparing to withdraw its main combat forces between now and 2014.”

On another front, India and Iran are also discussing building a gas pipeline between the two countries along the bed of the Arabian Sea to bypass Pakistan using Chabahar port. Rattled as it is by India’s drastic reduction in purchase of its oil, Iran deemed it prudent to offer India oilfields on lucrative terms along with a proposal to route the gas through the undersea pipeline. Of course, in the wake of sanctions, New Delhi has difficult times paying for the imported Iranian oil in foreign currency. Further, there is also difficulty in getting ships to ferry oil along with the insurance cover.

As it is, India was forced to pull out of Iran-Pakistan-India pipeline project on account of a variety of factors including security issues, differences over pricing as well as US pressure. The security concern stemmed from the fact that the pipeline will pass through Balochistan where Baloch separatists and Islamic radical outfits could pose a threat to the safety of the pipeline. But then a section of strategic analysts hold the view that India’s withdrawal from this vital energy pipeline project was a sort of geo-political blunder as India lost an opportunity to create a new equation in the region.

As envisaged now, a consortium with state owned JN Port and Kandla port on-board, is likely to take up the development of Chabahar port. The Indian side is proposing a phase wise development of Chabahar on long term operations, maintenance and transfer basis spread over 60-90 years. Iran has successfully positioned Chabahar as the focal point for development of the east of the country through expansion and enhancement of transit routes among the countries situated in the northern part of the Indian Ocean and Central Asia. But then as is the case with Gwadar, Chabhar too could face a threat from Sunni Baloch insurgents who have no love lost for the regime in Teheran.

For quite sometime now, India has been more than keen on getting a convenient access route to the landlocked Afghanistan through Iran. And in this quest lays the importance of Chabahar for India. By all means, Chabahar is the best option left for the country to reach Afghanistan in a hassle free manner .Indeed, India, Iran and Afghanistan are now edging closer to concluding a transit treaty that would facilitate easier linkage between India and Afghanistan through Iran. As it is, both New Delhi and Kabul are keen on ending their dependence on Pakistan for transit. Both India and Iran have agreed that “the project would provide connectivity with Afghanistan and provide an impetus to Afghanistan’s economic development.”

Going beyond Indian investment on the development of Chabahar, Iran has also made a proposal to India for joint investment and production sharing contract for oil exploration. Indeed, this offer has tremendous strategic significance from the point of view of ensuring Indian energy security. But then New Delhi will have to devise ingenious ways and means to circumvent sanctions if it wants to participate in the Iranian oil exploration venture. For the energy deficit India, collaboration with Iran in the area of oil and petroleum cannot but be a positive development.

By all means, India’s interest in developing strategically important south eastern Iranian sea port of Chabahar as well as New Delhi’s craving for better bilateral relations is seen as a positive step towards regional cooperation and economic gains for the participating countries. India’s construction plans for Chabahar port could also be viewed as reviving of old links and building new bridges of friendship through collaboration. While Iran is all set to derive benefits from positioning Chabhar as a logistical hub and a potential alternative to Bandar Abbas, for Afghanistan, Chabahar could be an alluring alternative to the dependence on Pakistan’s Karachi port for carrying out its international trade. In the ultimate analysis, it is advantages all the way from the Chabahar project for Afghanistan, India and Iran.

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