India will invest about $500 million in the development of the strategic southern Iranian port of Chabahar.

Bypassing neighbor Pakistan, with which India’s historically had thorny relations and the development of a sea-land access route to central Asia is the objective of the strategic investment.

A number of agreements to boost economic ties with Iran were signed between Narendra Modi, the Indian Prime Minister and President Hassan Rouhani of Iran during an official state visit and the announcement was part of those agreements.

India would build and operate two terminals and five berths with cargo handling in the Chabahar port, according to the agreement reached between the two countries.

To enable an unhindered flow of commerce, capital and technology through the region, India also signed a trilateral agreement with Iran and Afghanistan to develop a transport and transit corridor between the three countries through Chabahar.

“Today, the watch-words of international ties are trust not suspicion; cooperation not dominance; inclusivity not exclusion,” Modi said. The Chabahar agreement was described by Modi as a “corridor of peace and prosperity for our peoples.”

A two-way access between allies India and land-locked Afghanistan would be opened up by the development of the corridor through Chabahar.

Through existing Iranian road networks and the Zaranj-Delaram highway that India previously helped Afghanistan to build, India could access Afghanistan, and vice versa from Chabahar. This corridor would help India and Afghanistan to 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.

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,” Tanvi Madan, a fellow at Brookings Institution told CNBC’s “The Rundown”.

The Pakistani port of Gwadar in the Balochistan province has seen heavy investments from China. The port of Gwadar is only some distance away from Chabahar.

The port would be operational by end of 2016 and would see approximately 1 million ton of cargo going through it by 2017, reported Pakistani newspaper Dawn citing a Chinese official in April.

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

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

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, some experts previously told CNBC that the timing of Modi’s visit to Saudi Arabia could be seen as a strategic move.

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

(Adapted from Bloomberg)

Categories: Geopolitics, Strategy