India, Iran narrow differences on long-term pact on strategic Chabahar port

NEW DELHI: India and Iran have further narrowed differences on a proposed 10-year pact for operations at the strategic Chabahar port, which is expected to be signed following political clearance from both sides, people familiar with the matter said on Wednesday.

The two sides are also exploring ways to “recharge” the rupee vostro account held by the Iranian side, following the depletion of its reserves in recent months, to facilitate Indian exports of commodities such as rice, tea and pharmaceuticals, the people said on condition of anonymity.

Besides divergences on a clause related to jurisdiction for arbitration, the long-term agreement on Chabahar port has been held up by a few other issues. “We have narrowed the gap on the major issue of arbitration and made progress on the other matters,” one of the people cited above said.

“Political clearance from both sides is needed for signing the long-term agreement. We are covered for now as the initial agreement for India’s operations at Shahid Beheshti terminal in Chabahar port has been renewed for this year,” he said.

On the issue of arbitration, the two sides are looking at the option of taking up these matters at arbitration courts in a location such as Dubai, the people said.

A long-term agreement on Chabahar port is expected as differences over the arbitration clause have been narrowed, a second person added.

Iran can use the port located on the Makran coast for the trans-shipment of goods such as tea, eatables, electronics, building materials and heavy equipment to places like Afghanistan and Central Asia. The port is also strategic for India as it provides access to West Asia and the Central Asian republics, the second person said.

HT first reported in September 2022 that India and Iran are negotiating a long-term agreement on Chabahar.

According to Iranian media reports, the proposed pact was discussed by Iranian foreign minister Amir Abdollahian and Iran’s envoy to New Delhi, Iraj Elahi, at a meeting in Tehran in August. Abdollahian stressed India’s importance in Iran’s “Look to the East” policy and expressed optimism that a “definitive deal” with India for expanding Chabahar port will be concluded soon, Tehran Times reported.

Meanwhile, the depletion of rupee reserves held by the Iranian side in the vostro account has already hit Tehran’s ability to import commodities such as basmati rice and tea. Iran has been either the largest or second-largest importer of Indian basmati since 2014-15, according to government data, and it bought 998,879 metric tonnes of aromatic rice in 2022-23.

“We are looking at ways to recharge the vostro account,” the first person said, declining to go into details. Small importers and exporters from both sides have also found ways to continue trade, the person added.

The second person said: “Iran is keen on trade in local currency as the Reserve Bank of India (RBI) allowed invoicing and payments for international trade in Indian rupees in July 2022.”

Rupee-rial trade can be a way to revive India-Iran commerce, impacted by US and Western sanctions on Tehran. International banking channels gradually become non-existent due to the sanctions, the second person said. India-Iran trade during 2014-15 was worth $13.13 billion, including Indian imports of $8.95 billion, mainly crude oil, and exports of $4.17 billion.

Other major Indian exports to Iran are sugar, manmade staple fibres, electrical machinery and artificial jewellery. Currently, key Indian imports from Iran include dry fruits, chemicals and glassware.

According to official data, India’s trade with Iran fell sharply in 2019-20 compared to the previous fiscal. Imports (mainly crude) fell about 90% to $1.4 billion as compared to $13.53 billion in 2018-19. The year-on-year fall was not that sharp (less than 5%) for India’s exports to Iran, which were $3.37 billion in 2019-20 as compared to $3.51 billion in FY19.

India earlier imported about 23.5 million tonnes of Iranian crude, almost one-tenth of its total requirement in 2018-19, on lucrative terms such as 60-day credit and other discounts. Trade balance, which was in favour of Iran before May 2019, gradually shifted to India after it completely halted crude imports.

In the first month of the current financial year (April 2023), India exported goods worth $123 million (mainly basmati rice), which was 1.06% y-o-y growth, but imports contracted by 7.24% to a mere $69 million.