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The International North-South Transport Corridor (INSTC) is a network of sea, rail and road routes between India, Iran, Central Asia and Russia which started functioning in 2016, after 16 years since its formation. This 7,200 km extensive network through Iran’s Chabahar port is India’s golden gate to Central Asia and Europe for trade.

However, factors like logistics, geopolitical conflicts and security constraints need to be taken into consideration for a free flow of trade. (Source: www.financialtribune.com)

International North-South Transport Corridor (INSTC), is a multi-modal transportation established on 12 September 2000 in St. Petersburg, by Iran, Russia and India for the purpose of promoting transport cooperation among the Member States. This corridor connects the Indian Ocean and the Persian Gulf to the Caspian Sea via Islamic Republic of Iran, which further extends to St. Petersburg and North European via the Russian Federation.

The INSTC was expanded to include eleven new members, namely: Republic of Azerbaijan, Republic of Armenia, Republic of Kazakhstan, Kyrgyz Republic, Republic of Tajikistan, Republic of Turkey, Republic of Ukraine, Republic of Belarus, Oman, Syria, Bulgaria (Observer). (http://www.instc-org.ir/Pages/Home_Page.aspx)

Chabahar Port- India’s gateway to Central Asia and Eurasian markets

Historically, Chabahar port holds great importance as it is believed that Alexander the Great used the port in 326 BC when his troops marched towards India and Al Biruni. The Persian scholar used the port to travel to India in 1017. However, modern day Chabahar came into existence in 1970's when Iran realised the value to develop Chabahar into an economic port. The Chabahar port comprises of two separate ports: Shahid Kalantari and Shahid Beheshti.

India’s involvement in the development of Chabahar Port began when Hassan Rouhani, Iran’s National Security Advisor under President Syed Mohammad Khatami, held discussions with his Indian counterpart, Brajesh Mishra, in the year 2002.)

A few months later, in January 2003, when Iran’s President Khatami (in picture) visited India as the chief guest for the Republic Day celebrations, he and the then-Prime Minister Atal Bihari Vajpayee signed on an ambitious roadmap for strategic cooperation. Chabahar was among the key projects agreed upon, which held the potential to link the South Asian subcontinent to the Persian Gulf, Afghanistan, Central Asia and Europe.

However, the project did not see daylight because the United States government imposed economic sanctions on Iran. In January 2016, the sanctions were lifted and the deal was on floors again. In May 2016, India and Iran signed the “historic” agreement to develop two terminals of the Chabahar Port. Twelve Memorandum of Understanding (MoU) were signed between India and Iran. Bilateral contract on Chabahar Port for port development and operations between IPGPL [India Ports Global Private Limited] and Arya Banader of Iran formed a part of the agreement. The contract envisages development and operation for 10 years of two terminals and 5 berths with cargo handling [multipurpose and general] capacities.

The first phase of the Chabahar port on the Gulf of Oman was inaugurated in December 2017 by Iranian President Hassan Rouhani, opening a new strategic route connecting Iran, India and Afghanistan bypassing Pakistan, and reflecting growing convergence of interests among the three countries. Chabahar, which is located 72 kilometres west of Pakistan’s Gwadar port, holds immense strategic and economic significance for India, which has already spent about US$ 100 million to construct a 218 km-long (140 mile-long) road from Delaram in western Afghanistan to Zaranj on the Iran-Afghan border to link up with Chabahar Port. But, to make it a commercially and strategically viable option, Indian policymakers will have to use the Chabahar project as a lynchpin to integrate it with its larger connectivity project — the International North South Transport Corridor (INSTC).


The primary aim of International North-South Transport Corridor (INSTC) is to ease and increase trade connectivity between Mumbai, Moscow, Tehran, Baku and European countries. The route involves transport of bulk cargo from India to Russia via Iran, Azerbaijan, Kazakhastan and Turkmenistan with Mumbai as the Southern hub and Moscow, the Northern hub of the route.

The route extends from Mumbai, India to Bandar Abbas in Iran via sea. Bandar Abbas is a sprawling port city on the southern coast of Iran. It extends from Bandar Abbas to Bandar-e-Anzali by road on the Iranian mainland. Bandar-e-Anzali is an Iranian port on the Caspian Sea side. From Bandar-e-Anzali the route extends to Astrakhan by ship across the Caspian Sea.

Astrakhan is a Caspian port in the Russian federation. The city lies on the two banks of the Volga River. From Astrakhan the route extends to other regions of the Russian federation, and further into Europe by the Russian Railways. The NSTC route through Azerbaijan allows India-Iran-Azerbaijan-Russia-Kazakhstan transport connectivity.4

Prominence of the Bandar Abbas port is proved by the fact that it handles 85% of Iran’s seaborne trade making the INSTC route an important one as the Chabahar port will be used for shipping.

Currently, Chabahar port has a capacity of 2.5 million tons per annum and can handle cargo ships bigger than 100,000 tons.

Alternative routes like Kazakhstan-Turkmenistan-Iran railway and Armenia-Iran Railway are also under consideration to be a part of INSTC. While the Kazakhtastan rail route is already in function, the Armenia rail road project is still on paper.

Economic benefits of INSTC route and Chabahar port

As per the agreement of 2002, the main objective of this route are:

  • increasing effectiveness of transport ties in order to organise goods and passenger transport along the International ‘North–South’ transport corridor;
  • the promotion of access to the international market through rail, road, sea, river and air transport of the state Parties to this agreement; and
  • providing security of travel and safety of goods
  • Harmonization of transport policies as well as law and legislative basis in the field of transport for the purpose of implementing this Agreement.5

Boost Connectivity:

INSTC will improve the transport connectivity between Russia, Central Asia, Iran and India, and their respective bilateral trade volumes will also increase. The route will deliver the goods from India to Russia within 16-21 days. At present, India uses Rotterdam port or land route via China to Russia for exporting goods. The Suez Canal route which takes 45-60 days is also used. INSTC will boost India's connectivity to Central Asia which has economically viable countries for trade like Afghanistan, Iran, Turkmenistan, Armenia and Azerbaijan.

Importance of Central Asian countries for trade:

Afghanistan has been essential for India to fulfil its strategic commitment. But for the route to be economically viable, reaching out to Central Asia becomes imperative, for it is this region which houses the most strategic and high-value minerals including uranium, copper, titanium, ferroalloys, yellow phosphorus, iron ore, rolled metal, propane, butane, zinc, coking coal, etc. For example, Kazakhstan alone wants to increase its non-oil exports by 50 per cent by 2025. And, without a direct transport access, India cannot procure the Central Asian riches needed for its manufacturing economy.

India’s current trade with Central Asia is minimal, at a little over $1 billion and is not growing much. The volume of trade with the region accounts for merely 0.11 per cent of India’s total trade. Similarly, India’s share in Central Asian total trade is only about one per cent. Only by improving transport connectivity can the prospect of commercial ties with the region be enhanced.

For the landlocked countries of Central Asia, Chabahar now becomes the shortest land route option to conduct their maritime trade. So far, they have been relying on seaport facilities in Turkey, Russia, Baltic States, Iran (Bandar Abbas) and China. But, with the opening of Chabahar port, Uzbekistan sought access to the Indian Ocean through a deal with Afghan railways just two days after the Shahid Behesti terminal was inaugurated on December 3.6

Benefits to Petrochemical sector:

India has an interest in gaining a foothold in the free trade zone being developed around the port: in addition to a urea plant, other energy-intensive industries can also be set up in the zone. Proposals for Indian investments in upstream oil and gas exploration have been discussed by Petroleum Minister Dharmendra Pradhan during his visits to Tehran.

India is already the world’s fourth largest energy consumer, and its demand for energy is expected to increase significantly. Central Asia has abundant natural resources, including petroleum, natural gasand uranium, which could meet India’s energy needs. Iran was the largest supplier of crude oil in 2016 and the third largest in 2017.

India can benefit from Iran’s crude oil reserves of 157.8 billion barrels and gas reserves of 1,187.3 trillion cubic feet. Additionally, there is potential to utilize $ 3 trillion worth resources of Afghanistan. India could import energy resources of central Asia from countries like Kazakhstan and Turkmenistan having 3.6 billion barrels of oil and gas reserves of 663.8 trillion cubic feet. Kazahkstan holds 679,300 tonnes of Uranium and 33.6 billion tonnes of coal reserves. India could import iron ore from Hajigak mines in Central Afghanistan.

The INSTC will provide India more direct access to Central Asia and Russia. At the same time, it will allow Iran and Azerbaijan to become regional transit hubs. A second factor is the creation of regional supply chains—or a “consumer-producer network” across Eurasia that seeks to reverse, in time, the traditional model of the East as producer and the West as consumer.

Importance of European market to India

India’s long-standing historical and cultural links with Europe are reflected in the legal and constitutional foundations of the country and in the widespread use of English as the core commercial and elite language.

Trade is the main driver for the EU-India relationship. India’s total goods trade with the EU in 2015 stood at a value of € 78 billion, making India EU’s ninth biggest trading partner, after South Korea. Adding trade in services does not change the picture much: in 2014, the last year for which these data are available, India remains ninth, sandwiched between South Korea above and Brazil below. In that year it was a larger trading partner for the EU28 than was Canada.

Collectively the EU28 are India’s largest trading partner (merchandise trade only). Indian sources cite Germany, Belgium and the UK as the principal country partners. India’s protracted negotiations with the EU on a broad-based trade and investment treaty (BTIA) made little progress at the recent Brussels summit. While India runs a sizeable trade deficit globally, its merchandise trade with the EU remains evenly balanced but has been stagnating in line with Europe’s recent sluggish growth. India’s relative dynamism as a services exporter is also not reflected in its trade with the EU.

Prime Minister Narendra Modi’s government has been in constant pursuit to improve the trade relations under Broad-based Trade & Investment Agreement (BTIA). At the 14th India-EU Summit, agreements were made on solar, rail and research projects. However, the topic of Free Trade Agreement (FTA) was stalled. It is expected that 2018 will be the year of change as Indian Minister of Commerce and Industry, Mr. Suresh Prabhu (in picture) visited London in January 2018 and exchanged ideas. Chabahar port will be an important part of exchange of goods between the two countries if the FTA is approved.

Iran- India’s important crude oil trading partner

Bilateral trade between the two countries is deep-rooted and dates back to thousands of years. Iran's economic relations with the South Asian country have long been tied with crude oil. India bought a monthly average of 450,000 bpd of Iranian oil during January-August 2017. India’s scheduled crude oil loadings from Iran, excluding condensate, an ultra-light oil, were about 550,000 bpd in December 2017, up 78% from November.

India's investment in Iran's strategic port of Chabahar is expected to give a boost to bilateral trade, besides expanding India's trade with Afghanistan and energy-rich Central Asia by circumventing Pakistan. Chabahar Port, located in Sistan-Baluchestan Province on the energy-rich Persian Gulf nation’s southern

coast, lies outside the Persian Gulf and can be easily accessed from India’s western coast, bypassing Pakistan. The port is likely to ramp up trade involving India, Afghanistan and Iran in the wake of Pakistan denying transit access to New Delhi for trade with the two countries.

Other investments include an Indo-Iran joint venture to set up a gas based urea manufacturing plant. State-run Gujarat State Fertilizers and Chemicals (GSFC) announced that it was exploring the possibility of setting up an ammonia-urea plant in Iran.

In the long term, India and Iran are discussing building a gas pipeline between the two countries along the bed of the Arabian Sea to bypass Pakistan, using the Chabahar port. A 1,300-km undersea pipeline from Iran, avoiding Pakistani waters, can bring natural gas from the Persian Gulf to India at rates less than the price of Liquefied Natural Gas available in the spot market.

Natural gas imported through the over $4 billion line would cost $5-5.50 per million British thermal unit at the Indian coast, cheaper than the rate at which some of the domestic fields supply gas. LNG imported through ships costs about $7.50 per mmBtu. South Asia Gas Enterprise Pvt Ltd (SAGE)—the firm wanting to lay the undersea line—said the pipeline can first travel to Oman, and then onwards to Porbandar in Gujarat. The cost of landed gas through an undersea pipeline will be at least $2 cheaper than importing LNG, saving about $1 billion annually.

Essar Oil has doubled the oil import from Iran in December 2017. The Chabahar port is the key mode for trade.


Touted as Chinese President Xi Jinping’s ambitious project, the One Belt One Road (OBOR) initiative focuses on improving connectivity and cooperation among Asian countries, Africa, China and Europe.

The emphasis is on enhancing land as well as maritime routes. The policy is significant for China since it aims to boost domestic growth in the country. OBOR is also a part of China’s strategy for economic diplomacy.

Inspired by the Silk Road, the medieval trade routes between Europe and Asia, the OBOR project will be a vast network of sea and land routes across dozens of countries. It will impact 4.4 billion people.

China is said to be spending $1 trillion on it. It is not one project but six major routes which will include several railways line, roads, ports and other infrastructure. China claims these economic corridors will not only build infrastructure in countries that cannot afford to do it themselves but also boost global trade.

About 80 percent of the world trade is carried out by sea-borne routes. The South Asian region has great significance since it is located in an area where most of the world’s sea trade occurs. Rapid changes are underway in this region namely, development of the Gwadar Port and the Chabahar port. The key stakeholders of the two sister ports are China, Pakistan, India, and Iran. Gwadar is the world’s only warm water deep sea port and will provide ingress in Indian Ocean where about 70% of world’s oil trade passes annually. Gwadar port offers access to the Central Asian Republics (CARs), Middle East and the oil rich Gulf States. Chabahar port is 72Km away from Gwadar and it is central to Indian desire to have access to Afghanistan and CARs.

On the other hand, INSTC route is India's master plan. If India intends to use Chabahar, China has the nearby Gwadar port, which it has leased from Pakistan for 40 years. Gwadar port through the CPEC (China- Pakistan Economic Corridor) will connect China to Kashgar on its western border. The main reason behind India’s opposition towards the policy is the China-Pakistan Economic Corridor (CPEC), which is a part of OBOR. Under INSTC, IRCON International, the wholly owned subsidiary of Indian Railways, is constructing a railway line from Chabahar to Zahedan, which will be linked to Iran's domestic rail network. Iran has already completed the road from Chabahar to Zahedan, which in turn will connect with the road from Zaranj to Delaram, two important urban centres in Afghanistan, which India built in 2009. However, there are various areas where China is a reason of distress to India.

In 2017, India's trade with the five key Central Asian countries - Kazakhstan, Turkmenistan, Tajikistan, Uzbekistan and Kyrgyzstan - has been a mere S1.6 billion. These markets are dominated by Chinese, Russian and European products, but India believes its trade can increase manifold if it can build convenient trade routes.


The potential of the INSTC corridor will be manifold for India if linked further with South-east Asian countries. This can boost trade between Europe and South-east Asia as well.

The first dry run was conducted in August 2014 by the Federation of Freight Forwarders Association in India (FFFAI). The dry run report stated, “The proposed INSTC route via Bandar Abbas in Iran to Russia and CIS (commonwealth of independent states) destination in transit through Iran, could be the best route with optimal transit/cost for Indian exporters/importers.”

India, which offers a huge market for the supplying countries, has been diversifying its sourcing countries in recent years to reduce payment of high 'Asian premium' to the OPEC countries. Oil imports from non-OPEC nations like US, Canada, Russia and Kazakhstan increased in 2017.

India and Kazakhstan have discussed deepening cooperation in oil and gas sector. ONGC Videsh Ltd owns a 25 per cent stake in the Satpayev oilfield in the Caspian Sea. The expansion of INSTC by linking it to the Kazakhstan-Turkmenistan-Iran rail link will boost trade between the countries.

Iran is trying to recover from the time it lost when international sanctions were imposed. They have ambitious plans to invest in the petrochemical industry and boost the production of crude oil, methanol, ethylene, propylene and other chemicals using new technologies. Being one of the largest exporters of crude oil to India, more production in Iran would mean cheaper prices of goods from Iran. Competitiveness in the market is also a concern as China is coming up with new technologies and import of cheap US shale is increasing. The INSTC is the perfect route for trade to flourish.

Chabahar coupled with INSTC can indeed be a game changer for India's strategic and economic goals in the Eurasian region. It will be a win-win proposition for all countries. All countries need to act in unison -- Iran, Afghanistan, India, Russia, and Central Asian States for the success of the project.


The aim of this report is to provide detailed information about INSTC route and Chabahar port and its impact on India. All information presented in the report is for informational use only.

The information provided has been gathered from various sources believed to be providing correct information and we have taken due care and caution in compilation of data for this report. This material is based upon information that we consider reliable, but we do not represent that it is accurate or complete, and that it should be relied upon, as such Polymerupdate does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information.

Researched and Created by : Krina Shah
Edited by : Kopal Cheema
Guided by : Hetal Yagnik
Email hetal.yagnik@polymerupdate.com
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