India’s Iran Sanctions Exceptions Must Include Safeguards

Iran and India announced last week that New Delhi hopes to start operations soon to expand and modernize transport terminals at the port of Chabahar in southeastern Iran. The Indian-backed project, which received a sanctions exception from the Trump administration in November, requires stringent U.S. oversight mechanisms to ensure that Tehran and its praetorians, the Islamic Revolutionary Guard Corps (IRGC), do not use the port and the resulting revenue for illicit purposes.

Chabahar is Iran’s only deep-sea port. With expanded operations, the port will link India, via Iranian territory, to Afghanistan and other Central Asian markets. Establishing such ties has been an enduring objective for India, since Pakistan forbids Indian goods from traversing its territory to reach land-locked Afghanistan.

A State Department spokesperson stated that the U.S. granted the Chabahar project an exception to sanctions owing to the port’s importance to Afghanistan. “This exception relates to reconstruction assistance and economic development for Afghanistan,” the spokesperson said in November. “These activities are vital for the ongoing support of Afghanistan’s growth and humanitarian relief.” In 2017, President Trump said the United States wants India “to help us more with Afghanistan, especially in the area of economic assistance and development.”

An Indian-run port at Chabahar also provides a counterbalance to Chinese encroachment in the Indian Ocean and to Pakistan’s Gwadar port, a Chinese-funded deep-sea port 80 kilometers from Chabahar. Gwadar is part of the China-Pakistan Economic Corridor, a multi-billion dollar infrastructure development project under the umbrella of China’s Belt and Road Initiative. As Beijing pushes forward with plans to build a series of port complexes in Africa and Asia, India fears that China’s naval outposts will surround it.

But there is significant risk that Iran will attempt to exploit the port for illegal purposes. Iranian banks with a record of engaging in illicit activities will work with Indian financial institutions as part of the operation of the port. Facing banking difficulties as a result of renewed U.S. sanctions on Iran, Tehran and New Delhi set up an alternate payment channel for Chabahar’s operations and other Iranian-Indian financial transactions through India’s UCO Bank and Iran’s Pasargad Bank. A 2013 Turkish prosecutor’s report implicated Pasargad in a multi-billion dollar Turkish-Iranian sanctions evasion and corruption scheme. Last year, the businessman at the center of the scheme, Reza Zarrab, testified in a U.S. court that the bank was complicit in that massive conspiracy.

Because India needs an exception from U.S. sanctions to operate the port, Washington retains leverage to influence New Delhi’s conduct and should impose conditions on renewals and future exceptions. In light of the IRGC’s pervasive role in the Iranian economy and Tehran’s history of sanctions evasion, Washington should make clear to Indian companies that they will need to implement enhanced due diligence or risk losing India’s exemption from sanctions.

For example, the Trump administration could require Indian companies to place funds in escrow to ensure the payment of fines if they violate U.S. sanctions. It could also require them to certify that no IRGC entities are playing a role in the operation of Chabahar. To facilitate this objective, Washington could provide export control and cargo inspection expertise to New Delhi in order to ensure that Iran does not use the port for unscheduled deliveries of sanctioned or black-market goods.

The Chabahar exceptions are a significant reward to New Delhi. Washington should make sure its ally does not allow Iran to exploit these cutouts and undercut its maximum pressure campaign against the regime.

Annie Fixler is a policy analyst at the Foundation for Defense of Democracies, where Varsha Koduvayur is a senior research analyst. Both contribute to FDD’s Center on Economic and Financial Power. Follow them on Twitter @afixler and @varshakoduvayur. Follow FDD on Twitter @FDD and @FDD_CEFP. FDD is a Washington-based, nonpartisan research institute focusing on national security and foreign policy.