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Earlier this month, the U.S. International Development Finance Corporation (DFC) announced a commitment to provide $553 million in financing for constructing a new container terminal in Colombo, Sri Lanka.

The facility, known as the West Container Terminal, will be operated by a consortium led by the Adani Ports & Special Economic Zones Ltd. — a subsidiary of the Adani Group, owned by Gautam Adani, India’s second-richest man.

The move by the DFC — a federal government agency — is part of a broader effort by the United States to join hands with India to compete with China’s Belt and Road Initiative and deny Beijing unfettered access to strategic infrastructure in Eurasia and the Indian Ocean region.

Adani, a long-time ally of Indian Prime Minister Narendra Modi, is emerging as a key figure in this partnership.

At first glance, such an entente makes sense. As a major player in India’s infrastructure sector, the Adani Group can help the West compete with China’s armada of state-owned port operators.

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But the Adani Group has been hit with serious accusations of fraud and stock manipulation this year. Washington’s partnership with Adani is fraught with financial, reputational, and geopolitical risk.

Sri Lanka and the Game of Ports

Sri Lanka occupies a strategic location in the Indian Ocean region. It’s just 18 nautical miles off India’s southern tip and sits right along the critical oil shipping routes between the Middle East and East Asia.

Sri Lanka is a key node along the Indian Ocean shipping lanes connecting the Persian Gulf with South and East Asia. (Image Credit: Marine Traffic)

That central location is one reason why Sri Lanka’s main port, Colombo, ranks among the world’s top 30 container ports and serves as a major transshipment hub for South Asia. It’s also why foreign companies and international powers seek a foothold in this island country.

Chinese companies have had a head start in this race. Shunned by India and the West for the brutal means with which he brought an end to Sri Lanka’s 26-year civil war, President Mahinda Rajapaksa turned to Beijing for economic support. Chinese companies moved quickly.

In 2010, the state-owned China Merchants Port Holding Company won a concession for an international container terminal at the Colombo port. That same year, China Merchants opened a greenfield port in Hambantota. A subsidiary of China Communications Construction Company Limited (CCCC) also launched the Port City Colombo project, an ambitious urban development project to be built on reclaimed land.

China’s involvement in Sri Lanka has been controversial. The Hambantota port — a vanity project conceived by President Mahinda Rajapaksa — has struggled. Many have called it a white elephant. In 2014, Sri Lanka sold a majority stake in the port project to China Merchants for $1.12 billion, granting it an unusually long 99-year lease.

Hambantota serves as a poster child for what some observers allege is Beijing’s “debt-trap diplomacy” — a purported strategy of drowning countries in loans to extract strategic concessions in exchange for debt relief. Visits by Chinese military vessels to the Colombo and Hambantota ports add to those perceptions.

So too do Sri Lanka’s economic woes. In 2022, Sri Lanka defaulted on its foreign debt. Protestors stormed the office of the prime minister. The president fled the country. Sri Lanka’s debt restructuring talks with its foreign creditors — of which China is the largest — have taken more than a year to conclude, partly because of disagreement between China and other creditors.

A container ship being loaded at the port of Colombo in Sri Lanka. (Image Credit: jgmorard)

Despite Sri Lanka’s tumult, China remains a major player in this country that India has long seen as its backyard. Indian cultural and political influence in Sri Lanka is deep. For example, in 1987, Indian troops intervened in Sri Lanka’s civil war, deploying troops to the island country.

But for well over a decade, India has struggled to stave off Chinese advances into its sphere of influence. One major reason: developing countries in India’s near-periphery and far beyond need to build to grow, and India alone simply can’t match China’s ability to build, finance, and operate infrastructure.

China is an infrastructure superpower. Home to seven of the world’s largest container ports, it owns or operates 92 overseas ports, according to the Council on Foreign Relations. It’s all part of China’s “going out” policy, which dates back to the early 2000s and has since been rebranded as the Belt and Road Initiative.

Beijing has also marketed a “port-park-city” model — the idea that undeveloped areas can be transformed, like Shenzhen, first into export-oriented powerhouses and then into megacities. For most countries, this dream has or will prove to be a mirage.

What is probable, however, is for some of Beijing’s overseas commercial outposts to serve military purposes in the future. Some Chinese analysts refer to ports operated overseas by Chinese state-owned companies as potential “strategic strongpoints” or dual-use facilities.

A commercial port, for example, could serve to refuel Chinese military vessels during peacetime, expanding its blue-water capabilities. A People’s Liberation Army Navy listening post or full-fledged naval base could be constructed near a Chinese-operated port. These discussions are not merely theoretical. China has been in talks with the United Arab Emirates to construct a military facility at the Khalifa Port in Abu Dhabi, operated by a Chinese state-owned company.

So for India and the West, China’s foothold in Sri Lanka isn’t just about economic competition. This game of ports is ultimately about control of the seas. And to thwart China’s ambitions, the U.S. is now turning to a state-aligned Indian oligarch: Gautam Adani.

The Adani-Modi Nexus

Gautam Adani and the Reliance Group’s Mukesh Ambani are the two faces of crony capitalism under Modi.

The Modi-Adani relationship goes back to the early 2000s. Both men hail from the state of Gujarat. In 2002, as the state’s chief minister, Modi presided over deadly anti-Muslim pogroms. Within India and outside the country, Modi was a pariah, denied entry into countries like the U.S. But Adani, along with Ambani, stood by the Hindu nationalist demagogue. They helped rebrand Modi as a business-friendly leader, taking center stage at his “Vibrant Gujarat” annual events.

Prime Minister Narendra Modi addresses the Vibrant Gujarat Global Summit 2017. Billionaire Gautam Adani is seated on the stage. (Image Credit: Office of Paul Kagame)

Adani’s bet on Modi has been profitable. In 2014, an Adani private jet jettisoned Modi on the campaign trail and to his inauguration as prime minister. Since then, Adani’s net worth has taken off.

The Gujarati businessman saw his net worth rise from $7.1 billion in 2014 when Modi took over as prime minister to $150 billion in 2022 — a staggering 20-fold rise over eight years.

Today, the Adani Group includes India’s largest private port operator, electric power producer, and coal and green energy companies. An Adani firm is also one of India’s top cement companies. The rise of the Adani Group is tied to large-scale infrastructure development, extractives, and, more broadly, state policy.

Indeed, numerous reports by India’s central auditor have assessed that the Adani Group received “undue benefits” from Gujarat and other Indian state governments. The Modi government in New Delhi has also given extraordinary concessions to Adani’s coal business, which has caused great ecological damage.

The controversy surrounding Adani, however, goes beyond favoritism. There are serious allegations of corruption from credible governmental and non-governmental investigative entities.

In January, Hindenburg Research — a short-selling investment research company — issued a damning report accusing the Adani Group of “brazen stock manipulation and accounting fraud scheme over the course of decades.”

Hindenburg says the Adani Group was engaged in “the largest con in corporate history,” creating an elaborate network of shell companies linked to Adani or his family members to artificially boost his companies’ stock prices and ability to raise capital.

These accusations were affirmed in a separate investigation by the Organized Crime and Corruption Reporting Project published in August.

Then, in October, a Financial Times investigation revealed that the Adani Group used offshore companies owned by Adani stockholders to import coal “at prices that were at times more than double the market price.”

This scheme, in particular, displays how the Adani empire owes its fortunes to rent-seeking activities. The coal identified by the FT as over-invoiced was imported by an Adani company to an Adani port and then used by an Adani electric power company to generate power sold to the Indian state distributor on a cost-plus basis. Indian consumers foot the bill for the inflated electricity costs.

America and Adani’s String of Pearls

Now, U.S. taxpayers are financing Adani’s latest venture, the West Container Terminal project in Colombo.

Washington’s choice to move forward with financing the project is curious, given the credible allegations made against the Adani Group. In August, Deloitte quit as auditor of Adani Ports, expressing concern about some of the company’s transactions. But the Biden administration, in contrast, is sticking with Adani as he looks to assemble a string of pearls across the Indian Ocean region and the Mediterranean.

Adani Ports owns and operates India’s largest container port, the Mundra Port, located in Gujarat. It has also constructed a new deepwater port in Vizhinjam, backed by subsidies from the center and the cash-strapped Kerala state government. Adani hopes this port can eventually supplant Colombo as a regional transshipment hub.

In 2022, Adani Ports purchased Israel’s Haifa Port — its first overseas acquisition. A year earlier, the state-owned Shanghai Ports International opened a new, high-tech container terminal — the Haifa Bayport.

The Adani Group may also play a role in the India-Middle-East-Europe Economic Corridor (IMEC), a connectivity project announced by the Biden administration in September that aims to link Indian ports with Europe via the Arab Gulf and Israel. Adani's Mundra and Haifa ports are likely to be key nodes along this network, should it eventually emerge.

There's speculation that the Adani Group could expand to southern Europe and grab a port in Greece, whose Chinese-operated Pireaus port has catapulted over the past decade into one of the world's most active. That move would fit into a pattern of the Adani Group, swooping in after China, balancing its presence in strategic ports, as it has done in Israel and Sri Lanka.

The strategic benefits for the U.S. are clear. But is the Adani Group a suitable partner for the United States?

Washington has said China's Belt and Road Initiative is tainted by corruption and opaque contracts. It touts itself as a clean and transparent economic partner for developing countries. But the Adani Group embodies what Washington claims to oppose. At its helm is a corruption-accused, rent-seeking oligarch who has thrived in an increasingly authoritarian and chauvinist country due to political connections.

The reputational risks to the DFC — and, more broadly, Washington — are severe, particularly if a new scandal emerges or the Adani Group faces criminal investigation by a Western government. (The odds of that happening in India are close to nil.)

A former employee of a London investment fund told Hindenburg that the Adani Group is "a house of cards" that is "all fueled on debt." And Fitch Ratings, citing governance issues, says "all Adani group-related companies" face "higher contagion risks than previously considered."

Washington's bet on Adani may end up being one it will regret.

Arif Rafiq is the editor of Globely News. Rafiq has contributed commentary and analysis on global issues for publications such as Foreign Affairs, Foreign Policy, the New Republic, the New York Times, and POLITICO Magazine.

He has appeared on numerous broadcast outlets, including Al Jazeera English, the BBC World Service, CNN International, and National Public Radio.

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