Iran drops India from Chabahar Project as China sweeps with a $400 Billion deal

The partnership would vastly expand Chinese presence in banking, telecommunications, ports, railways and dozens of other projects.

In exchange, China would receive a regular — and, according to an Iranian official and an oil trader, heavily discounted — supply of Iranian oil over the next 25 years. An 18-page document detailing the proposed agreement also describes deepening military cooperation, potentially giving China a foothold in the region.

The agreement could hurt India’s prospects in the region. The railway project, which was being discussed between the Iranian Railways and the state-owned Indian Railways Construction Ltd (IRCON), was meant to be part of India’s commitment to the trilateral agreement between India, Iran and Afghanistan to build an alternate trade route to Afghanistan and Central Asia.

The MoU was to construct the Chabahar-Zahedan railway as “part of transit and transportation corridor in trilateral agreement between India, Iran and Afghanistan”. IRCON had promised to provide all services, superstructure work and financing for the project (around $1.6 billion).

However, despite several site visits by IRCON engineers, and preparations by Iranian railways, India never began the work, ostensibly due to worries that these could attract U.S. sanctions. The U.S. had provided a sanctions waiver for the Chabahar port and the rail line to Zahedan, but it has been difficult to find equipment suppliers and partners due to worries they could be targeted by the U.S., said officials. India has already “zeroed out” its oil imports from Iran due to U.S. sanctions.

The deal also has a military dimension. There will be reportedly joint training and exercises, joint research and weapons development, even intelligence sharing as part of the agreement. 

The deal will fundamentally change Iran’s relationship with China. It will put Tehran in Beijing’s corner and India could see its influence diminish overtime. 

The biggest threat is to the Chabahar port. It was seen as India’s counter to the Gwadar port in Pakistan that is part of China’s Belt and Road initiative(BRI), if China invests heavily in Iran the Chabahar port could lose its relevance. 

Now, Trump’s “maximum pressure” policy against Tehran has failed. China went under the nose of the Americans and managed to negotiate a deal with Tehran that could create more flashpoints in West Asia and even cost India its relationship with Iran.