The Chabahar-Zahedan railway line, a transformative infrastructure project in Iran, is nearing completion, signaling a seismic shift in regional trade dynamics. Spanning approximately 628-750 kilometers, this railway connects Iran’s strategic Chabahar Port on the Gulf of Oman to Zahedan, near the borders of Afghanistan and Pakistan. As part of the International North-South Transport Corridor (INSTC), the project promises to enhance connectivity and trade, particularly for Iran and India, while bypassing traditional US dollar-dominated trade routes. This development not only challenges the dollar’s global dominance but also delivers a strategic blow to Pakistan’s regional influence. This is part of the trading blocs that are forming to compete with the West, and make the EU and the UK irrelevant should they stay on their current green energy and Net Zero policies.
The Chabahar-Zahedan Railway: A Game-Changer
The railway, which began construction in 2010, is a critical link in the INSTC, a multimodal trade corridor designed to connect India, Iran, Russia, and Central Asia. Originating at Chabahar Port, the line passes through key cities such as Nikshahr, Iranshahr, and Khash before reaching Zahedan. A significant 155-kilometer section between Zahedan and Khash has already been inaugurated, with the entire project slated for completion by late 2025 or March 2026. The railway is expected to transport 2 million passengers and 7.7 million tons of cargo annually, including substantial volumes of oil and petroleum products.
Chabahar Port, Iran’s only oceanic port, is uniquely positioned outside the Strait of Hormuz, making it a secure and efficient hub for maritime trade. For India, the port and railway provide a direct trade route to Afghanistan and Central Asia, bypassing Pakistan. This strategic advantage is amplified by India’s significant investments, including a $150 million credit line for port upgrades and $400 million for the railway’s construction, as outlined in 2016 agreements.
Oil Transport Capacity and Currency Shift
The Chabahar-Zahedan railway is poised to facilitate significant oil transport, reducing reliance on US dollar-based transactions. Iran, a major oil producer, could leverage the railway to export crude oil and petroleum products to Central Asia and beyond via Chabahar Port. Estimates suggest the railway’s cargo capacity of 7.7 million tons per year could include up to 50,000 barrels per day (bpd) of oil, assuming a portion of the cargo is dedicated to petroleum products. This translates to roughly 2.5 million tons of oil annually, a conservative figure given the railway’s potential to scale up operations.
To bypass the US dollar, Iran and India are increasingly using their local currencies for trade. In Iranian rial (IRR), the value of transporting 2.5 million tons of oil annually, at an average global oil price of $80 per barrel (approximately $600 per ton), equates to roughly 6.3 trillion IRR per year (using an exchange rate of 420,000 IRR per USD). In Indian rupees (INR), the same volume is valued at approximately 125 billion INR (using an exchange rate of 83 INR per USD). These figures exclude transport and handling costs, which could be negotiated in local currencies, further diminishing the dollar’s role.
This shift aligns with broader efforts by Iran and India to reduce exposure to US sanctions, which have historically constrained Iran’s oil exports. By denominating trade in IRR and INR, both nations can streamline transactions, lower currency conversion costs, and insulate their economies from dollar volatility. The INSTC’s efficiency—reducing freight travel time by up to 40% compared to the Suez Canal route—further incentivizes this currency pivot, as lower logistics costs enhance the economic viability of local currency trade.
Implications for Pakistan
The Chabahar-Zahedan railway poses a strategic challenge for Pakistan, particularly in the context of its rivalry with India and its alignment with China’s Belt and Road Initiative (BRI). Pakistan’s Gwadar Port, just 170 kilometers from Chabahar, is a cornerstone of the China-Pakistan Economic Corridor (CPEC), a $62 billion BRI project. However, Chabahar’s deep-water capabilities and direct access to the Indian Ocean give it a competitive edge over Gwadar, which faces logistical constraints and security challenges in Pakistan’s Balochistan region.
For Pakistan, the railway’s completion threatens to divert trade flows away from its ports, particularly Karachi and Gwadar. India’s ability to access Afghanistan and Central Asia via Chabahar undermines Pakistan’s historical leverage as a transit hub for Afghan trade. This is particularly significant given Afghanistan’s reliance on Pakistan for access to global markets, a dynamic that has often been fraught with political tensions. The railway’s branch to Zaranj, near the Afghan border, further facilitates India’s humanitarian and commercial engagement with Afghanistan, as demonstrated by India’s 2017 wheat shipments through Chabahar.
Economically, Pakistan risks losing trade volume and transit fees as the INSTC gains traction. The corridor’s projected capacity to handle 20-30 million tons of goods annually could redirect significant cargo from Pakistan’s ports to Chabahar, impacting Pakistan’s logistics sector and foreign exchange earnings. Geopolitically, the project strengthens the India-Iran-Afghanistan axis, countering Pakistan’s influence in the region and highlighting the limitations of CPEC’s regional connectivity ambitions.
Moreover, the currency shift away from the US dollar could pressure Pakistan’s economy, which relies heavily on dollar-based trade and remittances. As Iran and India deepen their local currency trade, Pakistan may face increased competition in Central Asian markets, where it has sought to expand its influence through CPEC. The strategic alignment of Chabahar with the INSTC also raises the specter of reduced Chinese investment in Gwadar, as Beijing reassesses its regional priorities in light of Chabahar’s growing prominence.
Challenges and Geopolitical Complexities
Despite its promise, the Chabahar-Zahedan railway faces challenges. International sanctions on Iran have historically delayed funding and equipment procurement, while geopolitical tensions—particularly between India, Iran, China, and the US—complicate progress. The project’s $1.5 billion cost has strained Iran’s resources, prompting it to proceed independently in 2020 after perceived delays in Indian funding. However, recent efforts to revive India’s involvement signal a renewed commitment to the project’s strategic goals.
Competition from China’s BRI and CPEC adds another layer of complexity. While Iran has invited China to participate in Chabahar’s development, Beijing’s focus on Gwadar and its $400 billion strategic partnership with Iran could create tensions. India’s diplomatic balancing act—maintaining ties with Iran while navigating relations with the US and Israel—will be critical to sustaining its investment in Chabahar.
Conclusion
The Chabahar-Zahedan railway line, nearing completion, marks a pivotal moment in regional trade and energy dynamics. By enabling significant oil transport and fostering local currency trade in Iranian rial and Indian rupees, the project challenges the US dollar’s dominance in global energy markets. For Pakistan, the railway represents a strategic setback, as it strengthens India’s regional influence and diverts trade from Pakistani ports. As the INSTC takes shape, the Chabahar-Zahedan railway underscores the shifting geopolitical landscape, where infrastructure and currency choices are reshaping power dynamics in South and Central Asia.’
Sources: Zee News (https://zeenews.india.com/photos/mobility/chabahar-zahedan-railway-line-nears-completion-another-strategic-shocker-for-pakistan-check-route-cost-country-status-2903829/length-and-route-2903836), additional web sources on Chabahar Port and INSTC.
