Chabahar Port Explained: How US Sanctions and the Iran War Upended India's INSTC Plans

Location: Chabahar lies on the Makran coast of Iran's Sistan and Baluchestan province, on the northern shore of the Gulf of Oman, at the mouth of the Strait of Hormuz. It is the southernmost part of Iran and the point of the Iranian coastline closest to India.

Distance from India: The port is roughly 550 nautical miles from Kandla in Gujarat and about 786 nautical miles from Mumbai. This proximity makes maritime movement between western Indian ports and Chabahar short, cheap and quick relative to any other overland or sea option for reaching Central Asia.

The critical advantage — outside Hormuz: Almost all Iranian and Gulf seaborne trade must transit the Strait of Hormuz, a narrow chokepoint that can be closed, mined or contested during conflict. Chabahar sits outside Hormuz, opening directly onto the Gulf of Oman and the Arabian Sea. Ships calling at Chabahar therefore do not have to enter the Persian Gulf at all. This is why Chabahar is described as Iran's only oceanic port and why it retains value even when the Gulf is unsafe.

Deep draft: The Shahid Beheshti terminal has a draft of about 16.5 metres, allowing it to receive large-capacity vessels that Iran's main port, Bandar Abbas, cannot easily handle. Bandar Abbas carries the bulk of Iran's seaborne trade and is heavily congested, with long waiting times; Chabahar offers spare capacity and faster turnaround.

Free zone status: The port operates within the Chabahar Free Trade-Industrial Zone, which simplifies customs and tax procedures and is intended to attract transshipment cargo.

The Pakistan factor: India has no land route to Afghanistan or Central Asia because Pakistan does not permit the transit of Indian goods through its territory to Afghanistan. Chabahar is the single geographic solution to this problem: goods move by sea from an Indian port to Chabahar, then overland by road and rail into Afghanistan and northwards to Central Asia. Without it, India's only remaining options are air corridors, which are expensive and low-volume, or routes that depend on the goodwill of third countries.

The origin — 2003: The idea was first articulated in the New Delhi Declaration of January 2003, signed during Iranian President Mohammad Khatami's visit to India, when Khatami was Chief Guest at the Republic Day celebrations. The Declaration recognised that growing strategic convergence between the two countries required a strong economic and connectivity foundation.

Supporting infrastructure — Zaranj-Delaram: Even before the port itself was operational, India built the Zaranj-Delaram highway in Afghanistan — a 218 km road constructed by the Border Roads Organisation and completed in 2009 — connecting the Iranian border town of Zaranj to Delaram on Afghanistan's Garland (Ring) Highway. This road is what converts Chabahar from a port into a corridor, because it links the Iranian coast to Afghanistan's internal road network.

The 2015 MoU and 2016 trilateral: A memorandum of understanding was signed in May 2015. This was followed in May 2016, during Prime Minister Narendra Modi's visit to Tehran, by a trilateral agreement between India, Iran and Afghanistan on the establishment of an International Transport and Transit Corridor — commonly called the Chabahar Agreement. India announced a commitment of about $500 million towards the port and associated infrastructure. A trilateral coordination council was created, which first met in Tehran in October 2018.

First cargo and operations: India despatched its first wheat shipment to Afghanistan through Chabahar in October 2017, part of a commitment to supply 1.1 million tonnes of wheat as a grant. The expanded Shahid Beheshti terminal was inaugurated in December 2017. In December 2018, IPGL formally took over operations of part of the terminal through a special purpose vehicle, India Ports Global Chabahar Free Zone (IPGCFZ), with the first commercial vessel arriving on 30 December 2018.

The 2024 long-term contract: On 13 May 2024, IPGL and Iran's Ports and Maritime Organisation signed a 10-year contract for equipping and operating the container and cargo terminals at Shahid Beheshti. IPGL committed roughly $120 million for port equipment, and India offered a rupee credit window equivalent to $250 million for mutually identified infrastructure projects. This replaced a decade of one-year rolling contracts, which had made long-horizon investment impossible.

Why the long-term contract mattered: As the External Affairs Minister explained at the time, without a long-term agreement it was very difficult to invest, and the port had therefore not grown. Short contracts meant equipment could not be depreciated, financing could not be raised, and shipping lines would not commit to schedules.

The statutory basis: The relevant instrument is the Iran Freedom and Counter-Proliferation Act, 2012 (IFCA), part of the US National Defense Authorization Act framework. IFCA authorises sanctions against persons who knowingly operate a port in Iran, among a range of other activities in Iran's energy, shipping and shipbuilding sectors.

Secondary sanctions: The critical feature is that these are secondary sanctions. They do not merely bar American companies from doing business in Iran; they expose non-American entities anywhere in the world to penalties, including exclusion from the US financial system, if they engage in the prohibited activity. Because the US dollar dominates trade finance, marine insurance and reinsurance, the practical effect is to make banks, insurers, shipping lines and equipment manufacturers refuse to touch the project, regardless of whether they have any American operations.

The 2018 carve-out: After the US withdrew from the Joint Comprehensive Plan of Action (JCPOA) in May 2018 and reimposed sanctions, it granted a narrow exception for Chabahar port, the associated railway and Iranian petroleum shipments to Afghanistan. The stated rationale was that the port supported Afghanistan's reconstruction and economic growth and served the US-India partnership.

Why the exception mattered more than it appeared: Even with the waiver, "overcompliance" was a persistent problem. Global firms often avoid any Iran-linked transaction rather than risk a compliance error. India was unable to source ship-to-shore gantry cranes and had to settle for mobile harbour cranes, which are more flexible but less suited to high-volume container handling. Even those cranes had to be routed circuitously, offloaded in Mumbai by the foreign manufacturer and forwarded to Chabahar through a small shipping company insulated from sanctions exposure.

Revocation and the final waiver: On 16 September 2025, the State Department announced revocation of the 2018 exception effective 29 September 2025, stating this was consistent with the maximum pressure policy of isolating the Iranian government. Following Indian engagement, a conditional six-month waiver was granted from late October 2025 and expired on 26 April 2026. Any further extension would have required the Secretary of State to certify to Congress that it was vital to US national security.

India's response: India completed transfer of its committed $120 million and moved to restructure its holding in IPGCFZ so that operational control passed to a local entity. The Government's position, as stated by official sources, is that this reflects the completion of a financial obligation rather than an abandonment of the project.

Origin and scale: The International North-South Transport Corridor (INSTC) was launched by Russia, India and Iran through an intergovernmental agreement signed at St. Petersburg on 12 September 2000, ratified in 2002. It is a roughly 7,200 km multimodal network of ship, rail and road links connecting the Indian Ocean and the Persian Gulf to the Caspian Sea through Iran, and onward to Russia and northern Europe.

Membership: The corridor has expanded well beyond its three founders. Its membership has come to include Azerbaijan, Armenia, Belarus, Bulgaria, Kazakhstan, Kyrgyzstan, Oman, Syria, Tajikistan, Turkey and Ukraine, alongside India, Iran and Russia.

The routes: Three broad branches are usually identified. The central corridor runs from Indian ports by sea to Bandar Abbas, overland across Iran to Bandar-e-Anzali on the Caspian, across the Caspian by ship to Astrakhan in Russia, and then by Russian Railways into Europe. The western corridor runs overland through Iran into Azerbaijan and then to Russia, which is why the missing Rasht-Astara railway link is critical to its viability. The eastern corridor runs through Iran into Turkmenistan and Kazakhstan, connecting Central Asia directly.

The commercial case: Studies cited by Indian freight forwarders' associations have estimated substantial savings against the traditional Suez Canal route, both in cost and in transit time. The INSTC is generally described as reducing transit time from roughly 45-60 days by the Suez route to about 25-30 days, with corresponding freight cost reductions.

Where Chabahar fits: Chabahar is not on the original central corridor, which uses Bandar Abbas. India has consistently proposed the inclusion of Chabahar in the INSTC framework, a proposal formally advanced by the External Affairs Minister on Chabahar Day at the Maritime India Summit. Chabahar's advantages — deep draft, spare capacity, free zone status and location outside Hormuz — make it a natural southern gateway for the eastern branch running to Afghanistan and Central Asia.

Related connectivity instruments: India acceded to the Ashgabat Agreement in 2018, a multimodal transport arrangement between Central Asia, Iran and Oman, and to the TIR Convention (Transports Internationaux Routiers) in 2017, which allows sealed containers to move across borders with simplified customs procedures. Both were designed to make the Chabahar corridor commercially workable. The planned Chabahar-Zahedan railway, extending towards the Afghan border at Zaranj, remains the corridor's most important unfinished link.

The geography: Gwadar port lies on the Makran coast of Pakistan's Balochistan province, roughly 170 km east of Chabahar as the crow flies. The two ports face the same sea, serve overlapping hinterlands, and were developed by rival external partners.

Gwadar's role: Gwadar is the maritime terminus of the China-Pakistan Economic Corridor (CPEC), the flagship component of China's Belt and Road Initiative in South Asia. It is intended to give western China an outlet to the Arabian Sea, shortening the route for Chinese energy imports and reducing dependence on the Malacca Strait.

Why India objects to CPEC: India's principal objection is that CPEC passes through Gilgit-Baltistan, part of the territory of the erstwhile princely state of Jammu and Kashmir that India claims. India has consistently stated that connectivity initiatives must respect sovereignty and territorial integrity.

Strategic logic of Chabahar: Chabahar gives India a presence on the same coastline without any dependence on Pakistan, an alternative gateway for Afghan and Central Asian trade, and a hedge against the encirclement concern often described as the "String of Pearls". Iranian and Pakistani officials have at times described the two ports as "sister ports" that could be complementary, but the scale and sponsorship differences make genuine complementarity difficult.

The asymmetry: Gwadar has attracted far larger declared investment and larger planned capacity than Chabahar. Chabahar's comparative advantage has been operational rather than physical — a functioning corridor with real cargo flows to Afghanistan, against Gwadar's slower ramp-up.

Afghanistan policy: Chabahar has been India's principal humanitarian and commercial channel to Afghanistan. It carried wheat, pulses and medical supplies, including consignments during the COVID-19 period, and after 2021 it remained the practical route for humanitarian aid without transiting Pakistan. Losing it narrows India's ability to sustain a presence in Kabul at a time when New Delhi has been cautiously re-engaging with the authorities there.

Central Asia policy: India's "Connect Central Asia" policy and the India-Central Asia Dialogue rest on a physical route existing. India's trade with the five Central Asian republics has remained modest relative to its political engagement, and the principal constraint has always been connectivity, not demand. Without Chabahar, Indian exporters must rely on longer, costlier routings.

Strategic signalling: Chabahar has been India's most visible demonstration that it can build and operate infrastructure abroad, in contrast to purely declaratory diplomacy. The reversal is read regionally as evidence of the limits of Indian capacity when confronted with US secondary sanctions.

Sunk investment: The financial exposure is significant but not catastrophic in absolute terms — the equipment commitment of around $120 million, a credit line of $250 million, and years of budgetary allocations. The larger cost is opportunity cost: a two-decade connectivity project reaching functionality just as the external environment closed around it.

The wider India-Iran relationship: India's engagement with Iran has already been constrained. Indian crude imports from Iran, once a substantial share of total imports, fell to negligible levels after 2019 because of sanctions and payment difficulties. Chabahar was the surviving pillar of a relationship that had otherwise thinned considerably.

IMEC: The India-Middle East-Europe Economic Corridor, announced on the margins of the G20 New Delhi Summit in 2023, envisages a route from Indian ports to the UAE, overland by rail across the Arabian Peninsula to Israel, and onward by sea to Europe. It addresses the India-Europe leg but does not substitute for Chabahar, because it does not reach Afghanistan or Central Asia, and its own progress has been complicated by instability in West Asia.

Alternative ports and routes: India has explored engagement at other regional ports and has expanded overland trade with Central Asia through air freight corridors and third-country routings. None replicates Chabahar's combination of proximity, deep draft and direct overland access to Afghanistan.

Diplomatic options: India can seek renewal of a targeted humanitarian carve-out, argue the case on the basis of Afghan humanitarian need as it did successfully in 2018, or wait out the current phase of the conflict while preserving the contractual framework with Iran. The MEA's formulation that it is "in discussions with relevant stakeholders" is consistent with keeping the option open.

Preserving the corridor without the port: Even without operational control, India retains membership of the INSTC, the Ashgabat Agreement and the TIR Convention, and can continue to use Iranian transit facilities commercially if and when sanctions conditions permit.

Strategic autonomy under pressure: India's declared doctrine of strategic autonomy — pursuing independent relationships with competing powers — has here collided with the extraterritorial reach of one power's domestic law. The Chabahar case demonstrates that autonomy is constrained less by diplomacy than by the architecture of the international financial system.

The instrument of secondary sanctions: Sanctions with extraterritorial effect are increasingly used as instruments of statecraft. Their bite comes not from enforcement action but from private-sector risk aversion. India's difficulty in sourcing cranes despite holding a valid waiver illustrates the point precisely.

Connectivity as contested geopolitics: Ports, corridors and railways are no longer purely commercial. Chabahar, Gwadar, CPEC, INSTC and IMEC are competing visions of how Eurasian trade should flow and who should control the nodes.

The counter-argument: Some analysts argue that India's Chabahar investment was always commercially marginal — throughput remained modest, the Chabahar-Zahedan railway never materialised, and Iranian bureaucratic delays were chronic. On this reading, the project's strategic value was symbolic and India's calibrated retreat protects Indian banks, insurers and firms from far larger sanctions exposure. Others argue the opposite: that a corridor two decades in the making should not be surrendered to a temporary sanctions cycle, and that the reputational cost with Tehran, Kabul and Central Asian capitals exceeds the financial saving.

Preserve the legal framework even if operations lapse. India should keep the 10-year contract with Iran's Ports and Maritime Organisation alive in form, so that operational control can be resumed quickly if the sanctions environment changes, rather than allowing the arrangement to terminate.

Pursue a narrowly framed humanitarian carve-out. The 2018 exception was secured on the argument that Chabahar served Afghan reconstruction and humanitarian need. That argument has not weakened, and India should continue to press it with Washington and with international humanitarian agencies.

Build sanctions-resilient payment and insurance channels. Rupee-rial settlement mechanisms, domestic marine insurance and reinsurance capacity, and Indian-flagged shipping for sensitive routes would reduce dependence on dollar-clearing intermediaries that make secondary sanctions bite.

De-risk the corridor rather than the port alone. The Chabahar-Zahedan railway and onward links to Zaranj remain the decisive missing piece. Multilateral or Central Asian co-financing would spread both financial and political risk more widely than a purely bilateral Indian commitment.

Diversify connectivity to Central Asia. India should deepen air freight corridors, expand use of the Ashgabat Agreement and TIR Convention routings, and explore rail connectivity through third countries so that the entire Central Asia policy does not rest on one port.

Sequence IMEC and INSTC as complements, not substitutes. IMEC serves the India-Europe axis; INSTC and Chabahar serve the Central Asia and Afghanistan axis. Treating them as alternatives risks abandoning one geography for another.

Sustain the Afghanistan channel through alternative means. Humanitarian supplies, scholarships, medical assistance and capacity-building can continue through air corridors and multilateral agencies while the port route is unavailable.

Insulate Indian firms while retaining state-level engagement. Where private and public-sector Indian entities face genuine sanctions exposure, the state can maintain the political relationship and the contractual framework without pushing commercial actors into legal jeopardy.

Invest in analytical capacity on sanctions law. India's exposure to extraterritorial sanctions is now a recurring feature of its economic diplomacy. Dedicated institutional expertise within the MEA, Ministry of Finance and the RBI would improve anticipation and negotiation.

Keep the humanitarian principle consistent. India's position that civilian infrastructure should not be targeted in conflict is a general norm-based stance, and articulating it consistently across theatres strengthens India's credibility as a voice for international humanitarian law.