May 22, 2024 | Policy Brief

U.S. Should Revoke Chabahar’s Sanctions Waiver

May 22, 2024 | Policy Brief

U.S. Should Revoke Chabahar’s Sanctions Waiver

India Ports Global Limited (IPGL) and the Ports and Maritime Organization of Iran signed a 10-year deal on May 13 that allows New Delhi to develop and operate the Iranian port of Chabahar. Washington issued a waiver in 2018 that exempted Chabahar from U.S. sanctions in order to enable the port to aid Aghan reconstruction efforts, but this exemption is no longer applicable due to the 2020 American withdrawal from Afghanistan.

India is among Iran’s top trade partners. In the Persian year 1402 (April 2023 to March 2024), it was the fifth-largest importer of Iranian non-oil goods after China, Iraq, the United Arab Emirates (UAE), and Turkey. It was also the fifth-largest exporter to Iran after the UAE, China, Turkey, and Germany. India imported $2.2 billion of non-oil goods from Iran that year, 2 percent more than the previous year, and exported $1.9 billion to Iran, 36 percent less than the previous year. India, unlike China, does not import Iranian crude oil. The $4.1 billion trade between India and Iran is far below the $21 billion bilateral trade in 2018.

By seeking access to the strategically located Chabahar port, India can expand trade with Central Asia and Eurasia to circumvent Pakistan’s Gwadar port and China’s Belt and Road Initiative. The May 13 agreement would integrate Chabahar with the International North-South Transport Corridor, a trade route that encompasses various modes of freight transport among Eurasia, India, and Central Asia. Positioned near the Strait of Hormuz and the Indian Ocean, Chabahar offers an alternative route to the traditional Silk Road through China while also facilitating a direct route from India to Russia, the Caucasus, and Central Asia via Iran.

In this context, IPGL was created as a joint venture between India’s Jawaharlal Nehru Port and Deendayal Port Trust specifically designed for the Chabahar project. It is a wholly-owned subsidiary of Sagarmala Development Company Limited, an Indian government enterprise. IPGL itself has a subsidiary incorporated in Iran named India Ports Global Chabahar Free Zone. IPGL’s website lists seven board members who are veterans of maritime trade and have government connections.

To be sure, Iran and India have struggled to follow through with previous agreements. In May 2016, India, Iran, and Afghanistan signed a tripartite deal to turn the Iranian port of Chabahar into a transit hub as well as a transport corridor for goods and passengers. Under a 2018 Iran-India bilateral agreement, India pledged to invest $85 million in Chabahar’s development. More recently, Iran twice urged India to conclude bilateral memoranda of understanding, which India rejected due to U.S. sanctions. Although the extent of previous projects’ implementation remains unclear, U.S. pressure has limited the progression of these deals. 

In 2018, the U.S. State Department announced Chabahar’s exemption from sanctions under section 1244 of the Iran Freedom and Counter-Proliferation Act of 2012, noting that “this exception relates to reconstruction assistance and economic development for Afghanistan. These activities are vital for the ongoing support of Afghanistan’s growth and humanitarian relief.” The Trump administration’s decision reflected its view that India played a pivotal role in the development of Chabahar as part of reconstruction efforts for Afghanistan prior to the 2020 U.S. withdrawal.

With Afghanistan now under Taliban control, the rationale for the Chabahar waiver is no longer applicable. Yet the Biden administration has refrained from revoking the waiver as a concession to Tehran, presumably with the hope of resuming nuclear talks. Congress should press the State Department to justify its continuation and insist on its immediate revocation. India, of course, might object to such a decision. To alleviate such concerns, Washington should initiate dialogue with New Delhi to explain the compelling reasons for a revocation.

The U.S. Treasury Department should also urge the IPGL to formally terminate its involvement in the May 13 deal. In the event of IPGL’s noncompliance, the U.S. Treasury must be prepared to impose sanctions on the company, its executives, and shareholders.

Saeed Ghasseminejad is a senior Iran and financial economics advisor at the Foundation for Defense of Democracies (FDD), where Janatan Sayeh is a research analyst. They contribute to FDD’s Iran Program and Center on Economic and Financial Power (CEFP). Follow the authors on X @SGhasseminejad and @JanatanSayeh. For more analysis from Saeed and Janatan, please subscribe HERE. FDD is a Washington, DC-based, non-partisan research institute focusing on national security and foreign policy.

Issues:

Energy India Iran Iran Politics and Economy Iran Sanctions Sanctions and Illicit Finance