Why India's spending $500M to develop a port in Iran

India to invest $500M to develop port in Iran
India to invest $500M to develop port in Iran

Indian Prime Minister Narendra Modi announced on Monday the availability of about $500 million to invest in the development of the strategic southern Iranian port of Chabahar. The objective: Develop a sea-land access route to central Asia while bypassing neighbor Pakistan, with which India's historically had thorny relations.

The announcement was part of a number of agreements to boost economic ties with Iran that Modi signed with President Hassan Rouhani, during an official state visit.

Based on the agreements, India would build and operate two terminals and five berths with cargo handling in the Chabahar port.

Later Monday, India also signed a trilateral agreement with Iran and Afghanistan to develop a transport and transit corridor between the three countries through Chabahar, which Modi said would allow for the unhindered flow of commerce, capital and technology through the region.

President of Afghanistan Ashraf Ghani, Prime Minister of India Narendra Modi and President of Iran Hassan Rouhani shake hands after they signed Chabahar transit agreement in Tehran, Iran on May 23, 2016.
Anadolu Agency | Getty Images

"Today, the watch-words of international ties are trust not suspicion; cooperation not dominance; inclusivity not exclusion," he said, describing the Chabahar agreement as a "corridor of peace and prosperity for our peoples."

The development of the corridor through Chabahar will open two-way access between allies India and land-locked Afghanistan.

From Chabahar, India could access Afghanistan, and vice versa, through existing Iranian road networks and the Zaranj-Delaram highway that India previously helped Afghanistan to build. It would also bypass relatively unstable corridors in neighboring Pakistan.

"Afghanistan will get an assured, effective and a more friendly route to trade with the rest of the world," said Modi.

Tanvi Madan, a fellow at Brookings Institution told CNBC's "The Rundown" that while India's primary motivations to sign the Chabahar agreement were economic and strategic, there was "an eye on China as well, what China is doing not just in Pakistan ... but also with countries in the Middle East."

China invested heavily in the development of the Pakistani port of Gwadar in the Balochistan province, which is only some distance away from Chabahar.

In April, Pakistani newspaper Dawn cited a Chinese official who said the port would be operational by end of 2016 and would see approximately 1 million ton of cargo going through it by 2017.

Earlier this year, Chinese president Xi Jinping also visited Iran, Saudi Arabia and Egypt to boost the country's presence in the region as part of its efforts to revive a new Silk Road trade route.

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Modi's visit to Iran is also part of a wider initiative to engage the Middle East, which has a large Indian diaspora and is an important trading partner and energy source for India.

In 2015, the Indian Prime Minister went on an official state visit to the United Arab Emirates and in April this year, he was in Saudi Arabia, and local media reports suggested a visit to Qatar in the next several months was also on the cards.

Some experts previously told CNBC that the timing of Modi's visit to Saudi Arabia could be seen as a strategic move, given the cooling of relations between Riyadh and Islamabad after Pakistan did not provide military support to the Saudi coalition against the Iran-backed Houthi rebels in Yemen.

But, the experts added, India still faces challenges to snap support from the region against Pakistan, given the latter's long historic ties with major players in the area.

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