India, Iran sign 10-year agreement to develop port project

India and Iran on Monday signed a 10-year contract to develop and equip the strategic Chabahar port in Iran as India seeks to grow trade in west and central Asia.

The agreement will give India 10-year access to use the port, located close to Iran's southeastern border with Pakistan, according to Iran's Ministry of Roads and Urban Development.

The contract will in turn see India Ports Global Limited (IPGL) invest $370 million into "providing strategic equipment" and "developing the transport infrastructure of the port".

The United States, which has warm ties with India but a long adversarial relationship with Iran, had begrudgingly accepted the port project while the US military was in Afghanistan, as it saw New Delhi as a valuable partner to back the Kabul government that fell in 2021.

But Washington warned Monday that Indian companies could face sanctions, as US relations sour with Iran over Tehran's support for Hamas in its war with Israel.

Iran's urban development minister Mehrdad Bazrpash and India's ports and shipping minister Sarbananda Sonowal signed the contract in the town of Chabahar, in a ceremony broadcast live on state media.

India in 2016 agreed to finance the development of the Iranian port as a trading hub for central Asia as Prime Minister Narendra Modi sought to revive economic ties with Tehran after the lifting of sanctions.

Modi and former Iranian president Hassan Rouhani oversaw the signing of a memorandum of understanding for the provision of a line of credit from India's EXIM Bank to develop the port.

The development of the port however stalled, despite waivers to sanctions that the United States began reimposing in 2018 after withdrawing from a landmark 2015 nuclear deal with Iran.

"Chabahar... can act as a focal point in the transit developement of the region," Bazrpash said at the signing ceremony.

"We are pleased with this agreement, and we have full trust in India," he added.

The Indian minister said the partnering nations "are seeking to develop Chabahar port as much as possible, taking into account the interests of the two countries for joint access to regional markets".

This "long-term contract symbolises the enduring trust and effective partnership between India and Iran," he added.

In Washington, the State Department said there would be no exemptions to US sanctions for Indian companies in Chabahar.

"As it relates to the United States, US sanctions on Iran remain in place and will continue," State Department spokesman Vedant Patel said.

"Any entity -- anyone -- concerned with business deals with Iran, they need to be aware of the potential risks that they're opening themselves up to and the potential risk of sanctions."

In 2019, prior to the Covid pandemic, both countries agreed to speed up the project after a visit by India's external affairs minister Subrahmanyam Jaishankar to Tehran.

Chabahar port is on the Indian Ocean about 100 kilometres (62 miles) west of the Pakistani border. Pakistan, India's historic rival, is developing its Gwadar port with the support of China.