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US Sanctions May Force India Out of Iran’s Chabahar Port With China More Than Able to Fill This Gap

By Adam Garrie | EurasiaFuture | June 27, 2018

Iran’s Chabahar Port on the Gulf of Oman represents the crowning achievement of Indo-Iranian cooperation in recent decades. The port itself represents the centre of the wider North-South Transport Corridor (NSTC) which will link India to Russia and the wider north-western Eurasian space via Iran and Azerbaijan. While under Premier Narendra Modi, India has sought to sell NSTC as an alternative to China’s One Belt–One Road and in particular as rival to the China-Pakistan Economic Corridor which links China to the wider Indian Ocean space via the Arabian Sea port at Gwadar, Iranian officials who themselves are eager participants in One Belt–One Road, have wisely distanced themselves from India’s zero-sum narrative on Chabahar and NSTC more widely.

Likewise, as Iranian relations with Pakistan continue to improve, it also remains clear that Iranian leaders are carefully avoiding being sucked into south Asia’s manifold rivalries by maintaining healthy ties with China, India and increasingly Pakistan simultaneously.

As it stands, Gwadar is a more substantial port vis-a-vis Chabahar in terms of its capacity and the fact that unlike the Indian built port in Iran, the Chinese built Gwadar is a Panamax deep water port. In this sense, both Gwadar and Chabahar could function together on the win-win model which would see some of the supplies shipped from China to Pakistan via Gwadar being routed on to Chabahar depending on their ultimate destination. Here one could see One Belt–One Road and the North South Transport Corridor functioning as integrated rather than as rival logistics networks – something that Pakistani officials recently spoke about with optimism.

Now though, India’s very presence in Chabahar may be impacted negatively as the US moves to sanction countries that conduct business with Iran. The US CAATSA sanctions aimed at Iran are back in the spotlight after the US withdrawal from the JPCOA (aka Iran nuclear deal) caused Washington to threaten many of its longstanding allies against conducting further business with Iran under the threat of so-called second party sanctions. These threats have most notably been aimed at the European Union, in spite of the fact that the bloc remains rhetorically adamant that it will continue to preserve the JCPOA without US involvement.

India has also come under threat of sanctions due to its healthy relationship with the Islamic Republic. The US has stated that it will sanction Indian companies who do business with Iran and this week, the US issued an even more specific threat to its Indian partner, stating that New Delhi will face sanctions if it continues to purchase Iranian oil.

Last month it was reported that international investors in Chabahar were beginning to show signs of nervousness in light of the new sanctions threats from Washington. As India is already facing tariffs on its exports to the United States while simultaneously cutting itself off from a would-be win-win Chinese partnership, India is scarcely in a position to economically leverage the United States which under Donald Trump has taken a merciless approach to conducting trade wars with allies as well as threatening partners with sanctions if they do business with countries including Russia, Iran and the DPRK (although this might soon change in the case of the DPRK).

This could mean that as the primary investor and operator of the Chabahar Port, India could find itself cut off from its own investment under the cloud of sanctions. If it comes to this and India is forced to either partially or even entirely withdraw from the Chabahar project, it would mean that Iran would seek a new international partner for the port.

The only realistic partner to take over Chabahar would be China, a nation with experience in port building and management, a country that has shown itself to be able to transact deals with Iran in spite of the attitude of Washington and a country that because of America’s own dependence on Chinese goods – is largely sanction proof for all practical purposes.

Not only could China help to revive the economic fortunes of Chabahar if India becomes frightened off due to threats from the United States, but China could actually help Chabahar to grow both infrastructurally and commercially by linking it into a uniformed trade route centred on the larger Gwadar port and existing One Belt–One Road lines of connectivity in the region. This would ultimately be a win-win for China, Iran and Pakistan.

If India were to abandon the underlying prejudices behind its zero-sum approach to antagonising both China and Pakistan, India could actually remain active in Chabahar as key player in a wider Sino-Iranian partnership which would necessarily also include Pakistan via CPEC. This could help to not only reduce tensions with India’s largest neighbours, but it could demonstrate that the only way for India to effectively leverage US threats of further tariffs and sanctions is by keeping at least one foot in China’s already open door.

However, given the attitude of the current Indian government, such a win-win model looks increasingly distant however theoretically attractive it might sound when analysed objectively. Because of this, the more likely scenario for Chabahar will be a short-term waiting game where India will see just how far the US is willing to punish its newfound south Asian partner due to its dealings with Iran.

If India’s involvement in Chabahar does come under a US financial attack, it is all but certain that India will minimise its involvement in the flagship project – thus paving the way for China to take over where India left off.

The choice for India therefore is three fold: New Delhi can simply hope for the best while possibly sweetening the deal by making concessions to the US over existing tariffs, India can bow out of Chabahar in order to possibly attain better trading relations with the US in the future or India can work with China to leverage the US over its anti-Iranian position.

At a time when the US is embracing unilateralism in its economic relations with the rest of the world – India must look realistically at its options, even if this means dropping its Sinophobic prejudices.

June 27, 2018 Posted by | Economics | , , , , , | Leave a comment

Why Belt and Road rules need makeover

By M K Bhadrakumar | Indian Punchline | December 6, 2017

Over the past 24 hours, the narrative by India’s self-styled “China watchers” regarding the Belt and Road Initiative (BRI) has been shown to be quixotic. The Pakistani media has carried speculative reports that China is holding up the funding for certain road projects coming within the orbit of the China-Pakistan Economic Corridor (CPEC) due to a revision of financial rules.

So, the BRI, after all, is not a devious geopolitical strategy but is also about money. And money doesn’t grow on trees – even yuan. Clearly, BRI is expected to be cost-effective and self-financing. And it is not about investing in unsustainable projects in basket economies with an ulterior agenda to surreptitiously acquire ‘equity’ or to entice those moth-eaten countries into a “debt trap” that eventually forces them to pawn their national sovereignty to the pawn broker in Beijing – which is what our China watchers have been propagating.

Indeed, trust the Chinese to put money only where the mouth is. The BRI is, after all, far more profound than a theatrical imperialist adventure in foreign lands. It’s about money, creation of wealth, primarily. Read up China’s current history to understand that China’s priority has never been any different.

For sure, China has excess industrial capacity and needs to export. But as with any complex architecture, it is impossible to distinguish one thread in the BRI matrix as pre-eminent. If at al, the core element of BRI is about galvanizing the “backward” regions of China. It doesn’t need explanation that China’s economic miracle has created regional imbalances in development.

In a bold statement at the party congress, Xi Jinping pledged to remove poverty from the face of China by 2020, which means lifting 70 million people above poverty line. The CPEC focuses on the development of Xinjiang (spanning a mind-boggling landmass of 1.6 million square kilometers endowed with vast mineral resources but sparsely populated.) China has been encouraging foreign investment in that region. With greater connectivity and market access, Xinjiang can be yet another locomotive of growth for the Chinese economy. Equally, the CPEC is also about creating an access route to the world market that is far more economical than the sea route.

Meanwhile, the CPEC’s second phase is about to begin, which concerns the setting up of special economic zones along the newly-laid infrastructural grid. Again, trust the Chinese to make investments that guarantee returns. That is one thing. China is open to inviting partners from third countries. Pakistan is also an increasingly attractive investment destination for western countries. General Electric is showing interest in power projects in the CPEC.

Make no mistake that Pakistan too is eager to attract US investments. During an animated discussion yesterday at the Carnegie in Washington, Pakistan’s ambassador Aitzaz Ahmad Chaudhry highlighted this aspect. He said:

  • Pakistan’s relationship with China is not at the expense of its relations with the US.
  • The US still remains Pakistan’s single most important country. It stood by Pakistan for 6 decades and is perceived as a highly benevolent country.
  • The US involvement in CPEC not only brings in technology but will also “balance out” Pakistan’s relations with China.

On the other hand, China too hopes to make the BRI a template of its relations with western countries. The Chinese Prime Minister Li Keqiang held a brain storming session with 250 top Japanese business executives two weeks ago in Beijing to flesh out ideas. Japan anticipates the Chinese motivations, which explains the plan it has drawn up to support participation by Japanese companies and funding for BRI projects.

Prime Minister Shinzo Abe has made a dramatic announcement on this in Tokyo on Monday at a 2-day gathering of Japanese and Chinese business executives. “Meeting robust infrastructure demand in Asia through cooperation between Japan and China will contribute greatly to the prosperity of Asian people, in addition to the economic development of the two countries,” Abe said. He added that he hoped that Xi will visit Japan “as early as possible.” (Straits Times, South China Morning Post )

Clearly, time is not far off when China becomes the “co-investor” – rather than sole investor – in BRI projects. Therefore, China will continuously upgrade the BRI concept and its rules and regulations with a view to ensure conformity with high western standards. If the Pakistani reports are accurate, a major revision of the financial rules of CPEC projects is already going on.

China takes immense pride in the BRI. It is enshrined in China’s constitution now. The bottom line is that BRI enhances China’ stature as the flag-carrier of globalization. China hopes to create a new supply chain where its standards get global acceptability. Which means that the BRI needs to be transparent and accountable and is on par with (or even excel) western financial and banking norms and business practices.

Time is running out for our pundits who spite the BRI out of Sinophobia and keep making apocalyptic predictions. But the tragedy is that they have done immense damage to India’s interests already by propagating falsehoods and prejudices. The BRI could have been — and should have been — a template of PM Modi’s development agenda. The residual hope now will be: “When Abe goes, can Modi be far behind?”

December 6, 2017 Posted by | Economics, Timeless or most popular | , , , , | Leave a comment

Trump signals détente with Russia

By M K Bhadrakumar | Indian Punchline | November 19, 2016

The first definitive signals are appearing that the American foreign policies are destined to undergo a historic shift under the Donald Trump presidency. RT confirmed on Friday citing a ‘close source’ (without mentioning the nationality) the media reports speculating that Trump has named retired Lt. Gen. Michael Flynn as the National Security Advisor in the incoming Administration. Interestingly, the first authoritative report originated from Moscow.

The RT report gave a rather friendly account of Flynn, noting his strong advocacy of détente with Russia. (Interestingly, those who called on Trump yesterday at his transition hqs included Henry Kissinger.)

Why is Flynn’s nomination so important? First of all, Trump trusts him and Flynn in his new position will be overseeing the entire US intelligence establishment and Pentagon and coordinating national security and foreign policies. It is an immensely influential position, beyond Congressional scrutiny.

Importantly, therefore, Flynn’s past contacts with Kremlin officials – there is a photograph of him at the dinner table seated next to President Vladimir Putin – and his connections with Gazprom, Russia’s gas leviathan, and his belief that US and Russia should collaborate instead of rival each other, etc. assume great significance.

Trump unnerves the US foreign and security policy establishment. Conceivably, Trump will use the tough Pentagon general to whip the establishment folks into submission to the new foreign policy trajectory. If anyone can do that, it is Flynn.

The growing disquiet is apparent even at the level of President Barack Obama. On Thursday, in an audacious act, Obama rendered some public advice to Trump from a foreign podium, Germany, with Angela Merkel approvingly listening, on the advisability of the president-elect following his footfalls. Some excerpts are in order, if only to highlight the epic battle shaping up over US foreign policies. Obama said:

  • With respect to Russia, my principal approach to Russia has been constant since I first came into office. Russia is an important country. It is a military superpower. It has influence in the region and it has influence around the world. And in order for us to solve many big problems around the world, it is in our interest to work with Russia and obtain their cooperation… So I’ve sought a constructive relationship with Russia, but what I have also been is realistic in recognising that there are some significant differences in how Russia views the world and how we (West) view the world.
  • And so on issues like Ukraine, on issues like Syria, we’ve had very significant differences. And my hope is that the President-elect coming in takes a similarly constructive approach, finding areas where we can cooperate with Russia where our values and interests align, but that the President-elect also is willing to stand up to Russia where they are deviating from our values and international norms.
  • I don’t expect that the President-elect will follow exactly our blueprint or our approach, but my hope is that he does not simply take a realpolitik approach and suggest that if we just cut some deals with Russia, even if it hurts people, or even if it violates international norms, or even if it leaves smaller countries vulnerable or creates long-term problems in regions like Syria — that we just do whatever is convenient at the time. And that will be something that I think we’ll learn more about as the President-elect puts his team together.

Obama then proceeded to have a tirade against Putin, saying “there have been very clear proof that they have engaged in cyberttacks” on the US and that he personally “delivered a very clear and forceful message” to the Russian leader to the effect that “we’re monitoring it carefully and we will respond appropriately if and when we see this happening.”

Back in Washington, ironically, Obama’s strongest ally in opposing détente with Russia is none other than Republican Senator John McCain. The visceral dislike toward Russia – and Putin, in particular – within the Washington establishment is apparent from McCain’s own statement earlier in the week.

Why such morbid fear? McCain, of course, is the chief spokesman of the military-industrial complex in America. Many top arms manufacturing companies are based in Arizona, the state which Mccain represents in the senate. ‘Saker’, the US-based military analyst, gives a satisfactory explanation as to why there’s such panic in Washington:

  • He (Flynn) has connections to Gazprom, is well-liked in Moscow, and will be a link for American energy companies and perhaps some joint ventures in the gas field development and pipeline industry. Several friends of Trump are from the gas and oil industry…  The Arctic, the eastern Mediterranean, the South China Sea and other large development zones have enormous new fields to be tapped and exploited.
  • The primary interest of the Trump foreign policy will be to make America wealthy again. The Eurasian development has already attracted Trump to the OBOR of China and the AIIB infrastructure bank. Probably the entire New Silk Road of China and EAEU of Russia is not going to be without major US participation.

Read ‘Saker’ on Flynn’s appointment. (here)

November 19, 2016 Posted by | Economics, Militarism, Progressive Hypocrite, Timeless or most popular | , , , , , , | 1 Comment

Prejudices mar Indian view of CPEC

By M K Bhadrakumar | Indian Punchline | October 1, 2016

The reported decision by Asian Development Bank to lend $2.5 billion to Pakistan and be a collateral financier for upgrade of Lahore-Peshawar segment of the Karachi-Peshawar railway line is a significant development. India should analyse it carefully. (Business Standard )

Firstly, Karachi-Peshawar railway line upgrade falls within the ambit of the China-Pakistan Economic Corridor (CPEC). That is to say, ADB is joining hands with China (which is the co-financier for the railway line upgrade) in a CPEC project.

Now, this is a big concessional loan ($2.5 billion at low interest rate less than 2 percent) and it wouldn’t have been possible without approval by Japan and the United States, which dominate ADB’s decision-making. We need to take note that Japan and the US are showing pragmatism here, given the reality that CPEC is a flag carrier of China’s One Belt One Road.

In sum, this is a political affirmation of their interest in Pakistan’s stability and development.

The other salience that emerges here is that it is an extremely untimely and counterproductive move on our part to raise dust on Baluchistan. It complicates India’s relations with not only Pakistan but also with China, considering that a significant segment of the CPEC activity is located in Baluchistan, and, equally, our campaign on Baluchistan will not get a sympathetic ear in the world capitals. It will only make us look small-minded and petulant.

Similar pragmatism toward One Belt One Road as ADB is showing also characterises the attitudes of Asian, Middle Eastern and European countries. No doubt, projects enhancing regional connectivity attract all countries. India probably stands out as solitary exception, in its perspective on One Belt One Road derived exclusively through the geopolitical prism.

Secondly, we need to take note that the CPEC is indeed going ahead despite the ‘hawks’ amongst us hoping against hope that it may not take off. The ADB loan itself wouldn’t have been forthcoming without expert opinion saluting the CPEC. The ADB decision has prompted China to fill in with an additional loan of $5.5 billion for the railway project, which now makes CPEC a $51.5 billion eighth wonder in the world.

Two things become clear. One, China is determined to build Pakistan’s infrastructure development and make its economy resilient. Clearly, it is a ‘win-win’ for China too for a variety of factors at work in regional politics and China’s own national strategies. Two, China usually puts its money (big or small) only where the mouth is, which means it is becoming a stakeholder in Pakistan’s future and prosperity with a long-term perspective.

And where China goes, the US and Japan are bound to follow. Simply put, Indian diplomacy runs into almost-impossible headwinds to ‘isolate’ Pakistan in the prevailing circumstances.

It is about time we wake up and put to ourselves some searching questions. Do we have the ghost of a chance to annex Gilgit-Baltistan and Pakistan-Occupied Kashmir, as the present government is leading the domestic opinion  to believe? To my mind, our government is whistling in the dark and leading the public opinion in a wrong direction.

Again, from a regional security point of view, if the POK and Northern Areas of Pakistan, which are hopelessly impoverished regions, are set on a path of infrastructure development and economic activity, there is less chance of them becoming the sanctuaries of terrorist groups. In fact, this is also one consideration China would have. Don’t we have a congruence of interests with China on regional security and stability in this regard? This is one thing.

Besides, if Pakistan integrates these regions politically, doesn’t it open up an interesting avenue to resolve the Kashmir problem? A realistic perspective would be that without any redrawing of boundaries as such, if the Line of Control gets legitimacy as an internationally recognised border – with Pakistan keeping the areas under its control and India keeping J&K as an integral part of it – won’t that be a basis of durable settlement?

Put differently, if Pakistan integrates Northern Areas and POK, it is tantamount to a unilateral move to ‘solve’ the Kashmir problem. We should actually applaud Pakistan if it goes on to integrate those regions just as it plans at present to integrate the tribal areas. Which in turn would also enable India to work out its own terms of integration of J&K in terms of our democratic principles.

Frankly, India’s paranoia over the CPEC has no rationality. It is based on contrived and often trivial arguments lacking basis and/or unsupported by empirical evidence or are outright falsehoods, which are assembled uncouthly with the ulterior motive to arrive at a certain pre-determined conclusion.

The name of the game is Sinophobia – to somehow complicate the Sino-Indian normalization itself. See a paper by the Vivekananda Foundation on the topic titled Implications of the China-Pakistan Economic Corridor.

October 1, 2016 Posted by | Economics | , , , , , | Leave a comment