Dr. Syama Prasad Mookerjee Research Foundation

Prime Minister Modi’s Iran Visit: of Commerce, Connectivity and Culture

By M. Mahtab Alam Rizvi

Prime Minister Narendra Modi’s two-day visit to Iran (May 22-23, 2016) has added a new significance to the bilateral relations. Post-sanctions Iran is the next big story and not surprisingly there has been a flurry of diplomatic activities. India’s announcement to spend USD 500 million to develop the Chabahar port and related infrastructure on Iran’s coast is an important breakthrough. India also announced to invest an additional USD 16 billion in the Chabahar free trade zone. Chabahar will become Iran’s first deep-water port allowing it to conduct global trade with big cargo ships. Coincidentally, the visit to Iran marked two years of the NDA government. And as has been the central theme of Modi’s foreign policy, Iran’s visit was about connectivity, trade, investment, science and technology and also revitalising age-old cultural links with the great Persian civilization.

Significance of Chabahar Deal

The changed international environment brought about by the nuclear deal between Iran and P5+1 and lifting of international sanctions, provided opportunities for India and Iran to strengthen their cooperation in various sectors including trade and economy, connectivity and combating threats of terrorism, radicalism, drug trafficking and cybercrime. The visit was historic. The long awaited agreements on Chabahar and Trilateral Transport and Transit Corridor agreement between India, Iran and Afghanistan were signed. Chabahar is located 72 kilometres west of Pakistan’s Gwadar port. It holds immense strategic and economic significance for India. India has already spent about USD 100 million to construct a 218-km long (140-mile) road from Delaram in western Afghanistan to Zaranj in the Iran-Afghan border to link up with Chabahar port. India built the Zaranj-Delaram highway in 2009 to connect with the 2,200-km two-lane metalled road network, known as the garland road, passing inside Afghanistan. India has spent about INR 600 crore to build this connecting highway. The project was executed over four years (2005-2009) by the Border Roads Organisation (BRO).

Both the bilateral and trilateral agreements on Chabahar will help in connecting these road networks to the port. Iran has alone developed the land route from Chabahar through Iranshahr to Zahedan and further north to Zabol and then to Milak close to Zaranj in Afghanistan. During PM Modi’s visit, a MoU between IRCON and Construction, Development of Transport and Infrastructure Company (CDTIC) of Iran was signed. IRCON will not only finance the project (around USD 1.6 billion) but will provide for the construction of Chabahar-Zahedan railway line which forms part of the transit and transportation corridor. A MoU between EXIM Bank and Central Bank of Iran was signed which will help in the availability of credit up to INR 3000 crore for the import of steel rails and implementation of Chabahar port. To recollect, the Chabahar port was partially built in the 1990s to provide sea-land access to Afghanistan and Central Asia. India wanted to build the port as it would significantly reduce transport costs and freight time to Central Asia and West Asia. The port will also provide a route to landlocked Afghanistan.

Accompanying the Prime Minister, Nitin Gadkari, Minister of Road Transport and Highways said, “The distance between Kandla (in the western Indian state of Gujarat) and the Chabahar port is less than the distance between Delhi and Mumbai, and so this agreement is to enable us quick movement of goods first to Iran and then onwards to Afghanistan and Russia through a new rail and road link.” Chabahar will be critically important for India as well. First and foremost it will help India bypass Pakistan to transport goods to Afghanistan, Central Asia and West Asia. Till now Pakistan remains the only route through which India can reach Afghanistan and beyond and given the adversarial relationship, Pakistan does not allow for transit of Indian goods. Second, Chabahar will save time and reduce transportation cost. Besides developing the port, India will also invest in building a 500-km railway line between Chabahar and Zahedan. Apart from India and Iran, Afghanistan too has interest in the development of the Chabahar port and the transport corridor. The Afghan leadership considers the Chabahar as a more secure and stable alternative route that would reduce dependence on Pakistan – the lone country providing Afghanistan with access to the sea.

Chabahar Deal and Energy Security

The Chabahar agreement could open the way for India to tap the huge reserve of natural gas in Central Asia and West Asia without any concerns about disruption of its energy supplies through Afghanistan territory. If international sanctions were to be lifted completely, Iran’s economy would grow by 2 per cent in the current physical year and the growth rate might jump to about seven per cent thereafter. Tehran could be also in a position to attract more foreign investors to revive its natural gas fields. Given India energy requirement, it could well position itself as the primary buyer. In the light of this, the Farzad B gas field becomes important. The Iranian government has provided opportunities to India for investment in the oil and gas sector particularly in the development of the Farzad B gas field, which interestingly was discovered by ONGC Videsh in 2008. India will also be able to invest in South Pars oil and gas field and the Assaluyeh. Modi’s honest attempt to reach out and establish a long standing connect seems to have been appreciated by the Iranian leadership. Due to sanctions, Iran’s oil exports had fallen drastically by two-thirds between 2011 and 2013. As a result, its gross domestic product dropped sharply, inflation rate increased, unemployment rose and foreign investment dried up. India can become a sustainable economic partner as Iran moves positively ahead to rebuild the country.

China Factor

China is major economic player in Iran. Chabahar is not far away from the Gwadar port in Pakistan, which is being developed by China. It is encouraging to note that after the trilateral agreement between India, Iran and Afghanistan, the Chinese leaders welcomed the deal. In fact, Chinese businessmen are making a beeline for investing in Iran in general and in the Chabahar port city in particular. Some Chinese businessmen have already purchased land and established a special market complex to sell Chinese goods in the areas. China has shown strong willingness to invest in the heavy oil refinery sector in the Chabahar free zone. The complex is being developed for the annual production of 23 million tons of petrochemicals. It is also important to mention here that Chabahar port project needs heavy and strong investment. It is reported that the petrochemical complex will require USD 11billion for its completion in three phases. Iran thus would like to see the Chabahar develop as an important economic lifeline.

Chabahar is an important and strategically located port. There are various investment opportunities now in Chabahar including the availability of cheap energy and transportation infrastructure. India could consider investing in areas like automobiles, pharmaceuticals, textiles and food processing (tea, rice, spices, etc.). Before the deal, connectivity was the key issue for India. With Chabahar providing India access to Afghanistan and Central Asia, investment in the port project is likely to yield immediate strategic gains, while commercial considerations are most likely to follow provided India delivers quickly on the commitments. Through constant effort, India has to play a critical role in developing and thereby realising the full potential of Chabahar port which will significantly boost its image as a proactive regional power – building such critical infrastructure not only to maximise its financial and strategic gains but also to propel regional growth and prosperity. The cultural connect was also emphasised with the Indian Council for Cultural Relations (ICCR) and the Islamic Culture and Relations Organisation signing an agreement to bring closer ties and understanding of each other glorious past and promote Indology and Persian studies.


Overall India has taken a wise decision to sign the Chabahar and transit corridor agreements. Modi’s visit to Iran, after the nuclear deal and lifting of international sanctions could further strengthen bilateral relations. The two countries are also bound to realize that their commonality of interests in various sectors such as a stable Afghanistan, peace and stability in the region, counter terrorism, radicalism including spread of Islamic State, drug trafficking and cybercrime make them natural allies in regional politics.

(The author is an Associate Fellow at the Institute for Defence Studies and Analyses, New Delhi)