Iran, India and Afghanistan have signed a three-way transit agreement to expand Iran’s Chabahar port into a regional trade hub and provide an alternative route from the Indian Ocean to Afghanistan.

During a visit to Tehran on 23 May, Indian Prime Minister Narendra Modi agreed to finance the development of with port with a $500m line of credit.

India plans to build build and operate two terminals and five berths with cargo handling in the Chabahar port in the southeast of Iran, close to the Pakistan border.

Under a separate tri-lateral agreement, the three countries will develop a transport and transit corridor to allow trade flows from Chabahar into land-locked Afghanistan.

“Afghanistan will get an assured, effective and a more friendly route to trade with the rest of the world,” Modi said.

The agreement in effect seeks to bypass Pakistan, where China is investing in developing the port of Gwadar, close to the Iranian border and Chabahar.