India and Iran have agreed not to seek commercial foreign arbitration for disputes between users and operators at the deep sea Chabahar Port in southeast Iran, paving the way for a long-term deal to develop the strategic hub, Indian media have reported.
At the recent BRICS Summit in Johannesburg, India’s Prime Minister Narendra Modi and Iran’s President Seyyed Ebrahim Raisi discussed ways to strengthen bilateral cooperation in various fields including trade and investment, connectivity, energy, and counter-terrorism.
“Both sides agreed to fast track infrastructure cooperation, including the Chabahar project. The leaders also exchanged views on regional developments, including Afghanistan,” Modi’s office announced.
The countries have been working a long-term agreement allowing India to develop the Shahid Beheshti Terminal at the Chabahar Port for several years, and could seal the deal before the Global Maritime India Summit 2023, to be held in New Delhi in October.
In July, the financial newspaper Mint, citing a ports ministry official, reported that the agreement will likely be signed in September after the “contours of the long-term deal” are finalized in August.
The reports suggest that a long-term contract was stuck due to differences of opinion over the arbitration clause, and now New Delhi and Tehran have agreed to pursue arbitration under rules framed by the UN Commission on International Trade Law (UNCITRAL), which is preferred by India.
According to Mint, India and Iran have until now been signing one-year contract extensions for developing and running the terminal at the Chabahar Port, but New Delhi has been urging Tehran to commit to a longer-term pact to provide more confidence to investors. A team from India’s Ministry of Port and Shipping is expected to visit Iran in September to try and reach an agreement over the rules of engagement and mode of arbitration.
India is developing the Shahid Beheshti Terminal in the Chabahar Port as per a 2016 agreement between India Ports Global Ltd and Arya Banader of Iran. New Delhi had committed $85 million for the development of the port, along with another $150 million line of credit.
Chabahar is Iran’s first deep water port, suitable for handling large shipment vessels, and is central to India’s effort to boost trade with Russia, Central Asia, and Afghanistan. The port is also vital for Moscow, which is looking at scaling up operations along the International North South Trade Corridor (INSTC) shipping route, which passes through Chabahar.
The INSTC sea route originates in Mumbai and passes through Bandar Abbas, Bandar-e-Anzali, and Chabahar in Iran, then crosses the Caspian Sea to reach Astrakhan in southern Russia, before moving to Moscow and St. Petersburg via rail links and road connections. Data shows that the INSTC is projected to reduce transit times by 40%, shortening it from 45-60 days to 25-30 days. It is also likely to decrease freight costs by 30% and emerge as a commercially viable alternative to the Suez Canal trade link between Asia and Europe.