Context: Recently, Iran has decided to proceed with the Chabahar rail line construction on its own, citing delays from the Indian side in beginning and funding the project.
Background

• In May 2016, India, Iran and Afghanistan signed the trilateral agreement which envisaged the establishment of Transit and Transport Corridor connecting the three countries and Chabahar port in Iran to be used as cardinal hub transportation.
• The agreement had the provision for the construction of a rail line from Chabahar port to Zahedan, along the border with Afghanistan which would serve as an alternate trade route to Afghanistan and Central Asia bypassing Pakistan. 
• The state-owned Indian Railways Construction Ltd. (IRCON) had signed a Memorandum of Understanding (MoU) with the Iranian Rail Ministry for the development of the proposed railway line.

Key Points

• With this move China would expand its presence in Iran’s banking and telecommunications sectors as well as railways, ports and other projects.
• In exchange of this investment, Iran would supply Beijing with a heavily discounted supply of oil over the next 25 years.
• China is a key market for Iranian crude oil exports, which have been dampened by US economic sanctions.
• The deal would allow China to gain a foothold in a region where the US has had strategic residence for the last few decades.
• China has been stepping up its military cooperation with Iran over the past decade.

Why was there a delay?

• Despite several site visits by IRCON engineers, and preparations by Iranian railways, India never began the work, ostensibly due to worries that these could attract U.S. sanctions.
• The U.S. had provided a sanctions waiver for the Chabahar port and the rail line to Zahedan, but it has been difficult to find equipment suppliers and partners due to worries they could be targeted by the U.S.

Concerns

• Iran’s decision to cancel India’s participation in the project, coming in the backdrop of a fast-moving strategic deal with China, is a matter of concern for India.
• The development comes as China finalises a massive 25-year, $400 billion strategic partnership deal with Iran.
• Also, Iran had proposed a tie-up between the Chinese-run Pakistani port at Gwadar and Chabahar in 2019.
• Iran has offered interests to China in the Bandar-e-Jask port 350km away from Chabahar, as well as in the Chabahar duty-free zone.
• Each of those possibilities should be watched closely by India as the Iran-China deal could impinge on India’s strategic ties with Iran and the use of Chabahar port.

About India- Iran Chabahar Partnership

• In 2016, India and Iran signed a deal worth $8 billion investment in Chabahar port and industries in Chabahar Special Economic Zone. 
• Chabahar port is located on the Gulf of Oman and is only 72 km away from the Gwadar port in Pakistan which has been developed by China.
• The port serves as the only oceanic port of Iran and consists of two separate ports named Shahid Beheshti and Shahid Kalantari.
• The port is being developed as a transit route to Afghanistan and Central Asia and India has already built a 240-km road connecting Afghanistan with Iran.
• Completion of this project would give India access to Afghanistan and beyond to Turkmenistan, Uzbekistan, Tajikistan, Kyrgyzstan, Kazakhstan, Russia and Europe via 7,200-km-long multi-modal North-South Transport Corridor (INSTC).
• It also helps India counter Chinese presence in the Arabian Sea which China is trying to ensure by helping Pakistan develop the Gwadar port. Gwadar port is less than 400 km from Chabahar by road and 100 km by sea.
• From a diplomatic perspective, Chabahar port could be used as a point from where humanitarian operations could be coordinated.

Road Ahead

• The Iran-China deal impinges on India’s strategic ties with Iran and the use of Chabahar port. Bandar-e-Jask lies to the west of Chabahar and right before the Strait of Hormuz which would allow China to extend its control along the Pakistan-Iran coast.
• Each of these possibilities should be watched closely by India and it should strengthen its relations with the concerned countries.
• As an emerging power, India cannot remain confined to South Asia and a peaceful extended neighbourhood (Iran-Afghanistan) is not only good for trade and energy security but also plays a vital role in India's aspirations of becoming a superpower.