India-Iran 10-year pact on Chabahar faces ‘potential risk’ of sanctions: U.S.

U.S. State Department says no specific exemptions exist for the new deal, despite 2018 “carve-out” for Chabahar port development earlier; External Affairs Ministry declines to comment

Updated - May 15, 2024 12:48 am IST

Published - May 14, 2024 08:56 am IST - NEW DELHI

Officials during the signing of a contract between India Ports Global Ltd & Ports and Maritime organisation of Iran for the operation of the Shahid Beheshti Port in Chabahar, Iran. Photo: X/@India_in_Iran via PTI

Officials during the signing of a contract between India Ports Global Ltd & Ports and Maritime organisation of Iran for the operation of the Shahid Beheshti Port in Chabahar, Iran. Photo: X/@India_in_Iran via PTI

The new 10-year agreement between India and Iran to develop the Chabahar port carries the “potential risk” of sanctions, the U.S. State Department said, casting a cloud over whether the special exemption India had received from the U.S. in 2018 will still be applicable for the next phase of development and investments in the Iranian project. 

In particular, India’s plans under the new agreement to invest approximately $120 million in equipment for the port and a credit window of $250 million are likely to be under the scanner if the U.S. decides against extending its sanctions carve-out for India.

 In response to specific questions about the long-term contract signed between India Ports Global Ltd. and Port and Maritime Organisation (PMO) of Iran on Monday, in the presence of Shipping Minister Sarbananda Sonowal and his Iranian counterpart Mehrdad Bazrpash in Tehran, the State Department spokesperson said the U.S. had noted the agreement and said that there was “no” specific exemption for it.

“We’re aware of these reports that Iran and India have signed a deal concerning the Chabahar port,” U.S. State Department Spokesperson Vedant Patel said.  “As it relates to the United States, U.S. sanctions on Iran remain in place and we’ll continue to enforce them,” he said, adding that all entities considering business deals with Iran “need to be aware of the potential risk that they are opening themselves up to and the potential risk of sanctions”. 

The statement by the U.S. that came hours after the signing of the contract in Iran is significant as India has thus far managed operations at Chabahar’s Shahid Beheshti Terminal despite stringent sanctions on companies otherwise dealing with Iran.

Since 2016, when India, Iran, and Afghanistan signed a trilateral arrangement to build a corridor for trade and humanitarian aid from India to Afghanistan, and 2018, when an IGPL subsidiary took over operations at Chabahar, the terminal has handled more than 90,000 TEUs of container traffic and 2.5 million tonnes of wheat and other aid for Afghanistan, and supplied 40,000 litres of pesticide for Iran.

India had also provided equipment worth $25 million dollars, including six mobile harbour cranes, and developed the terminal, albeit at a slower pace owing to worries amongst Indian insurance and infrastructure companies about the U.S. sanctions affecting them. 

In 2018, a carve-out made by the previous Trump administration had been seen as a considerable success for India-U.S. diplomacy, and for India’s plans to support the then-democratic government in Afghanistan.

According to the U.S.’s carve-out clause, detailed in amendments to the Iran Freedom and Counter-Proliferation Act (IFCA) made in November 2018, the U.S. President could authorise exemptions to sanctions imposed against Iran in two cases: humanitarian aid for Iranian people, and assistance for Afghanistan.

Section 1244 of the IFCA (f) states that “The [US] President may provide for an exception from the imposition of sanctions under this section for reconstruction assistance or economic development for Afghanistan” provided it is in the “national interest of the United States”. A third exception, a six-month waiver on oil imports from Iran ran out in 2019, and India complied with the U.S. demand to “zero out” its purchases of Iranian oil. 

The External Affairs Ministry declined to comment on the U.S.’s response. However, it is understood that officials are studying the comments with a view to whether they indicate any impact on the U.S. position on India’s future dealings on Chabahar.

To begin with, the U.S.’s IFCA exemption is a narrow one, meant specifically to facilitate economic development and reconstruction efforts in Afghanistan, and India’s new plans to invest in Iranian projects, including connectivity projects through the International North-South Transport Corridor (INSTC) to Central Asia and Russia as outlined by External Affairs Minister S. Jaishankar on Monday, may need a new reference and clearance from the U.S. Congress. Secondly, the exemptions were made in 2018, years before the Taliban seized control of Kabul in 2021, and the U.S.’s desire to assist the regime in Kabul may also change its calculations on extending any sanctions exemptions. 

With elections under way in India, and due in the U.S. later this year, a clearer picture may not, however, appear for several months.

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