Transit Trade Increasingly Important For Empty Coffers

BMI believes that transit trade and port development will become increasingly important to Iran in the coming years as a source of foreign income, given the increasingly stringent sanctions being placed upon the country as a result of its alleged nuclear weapons development programme. Investment by India in a port at Chabahar is the latest instance of this.

It has been announced that India is to invest in developing the port of Chabahar, in the south east of Iran, at a cost of around US$100mn. BMI notes that the arrangement has significant benefits for both India and Iran. The Indian government has also invested US$136mn in order to connect the port with Afghanistan's ring-road highway, while the Iranian government has itself invested US$340mn to date.

Effect Of Sanctions Clear
Iran Real GDP Growth, 2008-2017

On the part of India the port will enable the BRIC nation to carry out trade with Afghanistan, trade that is currently limited due to restrictions by Pakistan, which lies between India and the war-ravaged country. While Afghani goods are permitted to be transported through Pakistan to its ports and its border crossings, the trade is allowed in the one direction only; Indian exports to Afghanistan are not permitted as Pakistan seeks to limit its influence in the country. Through developing the port at Chabahar India secures a trade route otherwise denied to it by geostrategic considerations; not only to Afghanistan but onwards to other markets in Central Asia.

For Iran on the other hand we believe the transit trade that the new port will engender, will be key in boosting the country's diminishing capital reserves. Western sanctions imposed upon Iran, in a bid to halt the country's alleged development of nuclear weapons, have crippled the country's economy. The enforced reduction of oil and gas exports (some markets such as India and China are permitted to import limited quantities of Iranian crude still, though finding tankers to transport it can be an issue) have impacted on foreign currency inflows, while sanctions on the country's financial sector have made it even harder for Iran to trade. The money spent on the construction and development of the port, and then the tariffs that can be levied on the subsequent transit traffic, could become an important source of income to the pariah state.

BMI notes that this is not the only transit trade that Iran has been encouraging; the country has been trying to make the most of its central location between East and West, Central Asia and the Gulf and Indian Oceans. Afghan officials announced on September 4 2012 that a new railway line being constructed between Khalf in eastern Iran and the western Afghan city of Herat, the third-largest city in the country, would be completed within months, and a rail line connecting Iran with Turkmenistan and Kazakhstan was due to be completed at the close of last year.

This article is tagged to:
Sector: Freight Transport, Shipping
Geography: Iran, India

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