In the past six months, following the Russian invasion of Ukraine, there has been a new wave of friendship between Russia and Iran. Since September, the two nations have signed several agreements to facilitate trade and construct transport corridors across the North-South axis of the Asian continent. Moscow envisions a sanctions-free transport corridor that would allow it to recover from the fall in exports caused by the war in a way that would save thousands of shipping kilometers. The transport corridor would start from St. Petersburg and end in the port of Chabahar, which Iran hopes to use as an alternative to Pakistan’s Gwadar Port, which enables China to ship its goods through the Indian Ocean. However, for the ideated corridor to become a reality, two options are emerging; each with their respective trade-offs. The first option passes through Azerbaijan, a state that has had several conflicts with Iran in the past year. The second option passes through Kazakhstan and/or Turkmenistan, in a Central Asia that is transitioning away from the Kremlin’s firm grip. This raises several questions regarding the choice of partner for the transit corridor, the opportunities and challenges each one encompasses, and whether it makes financial and geopolitical sense to move forward with such an ambitious and costly piece of infrastructure.
Starting on a New Foot?
Russia and Iran have had neutral relations for over two decades. However, collaboration on trade and security, two of the most important sectors for these two export-intensive countries, was rather scarce. But following the isolation of Russia after the invasion of Ukraine, and Iran’s nuclear ambitions being contained by the international community, the two state actors are back at the table. The discussion over the corridor heated up in August 2022 when experts from Moscow claimed that Russia and Iran are now pledging to invest more than $25 billion in making this transport route. It starts from St. Petersburg and circumvents European trade routes by using the port town of Chabahar. This was followed by two trilateral agreements that raise questions about how Russian goods will reach the Indian Sea. The first agreement was signed between Russia, Iran and Turkmenistan in Awaza at the end of August as part of a conference for Landlocked Developing Countries, which was attended by 13 states. It also speaks of Turkmenistan’s ambitions to ship its products to the Gulf. The second trilateral agreement was signed with Azerbaijan in a meeting in Baku. The three countries pledged to build up the transport corridor to a level that would facilitate transportation of cargo equivalent to 30 million tons by 2030. The question arises, which transport corridor will to be prioritized?
Will There Be a Winner? Weighing the Options:
Azerbaijan’s stance following the Russian invasion of Ukraine was considered among the most favorable. Baku moved forward with signing an agreement, just several days after the war broke out, on allied cooperation with Moscow. Nevertheless, there has been very little follow-up on this declaration, and the corridor has basically been the only point that has been discussed in a more elaborate manner by the two state actors. The biggest skepticism on choosing Baku as a partner, nonetheless, stems from its relations with Tehran. The two countries have never had the best of neighborly relations. However, after the Karabakh war, the situation has deteriorated considerably. The culmination of this was the deadly attack on the Azeri agency in Tehran, which has been followed by extensive hostile rhetoric, as well as a series of military aircraft flights on the border. This makes a trilateral partnership all the more fragile.
Turkmenistan’s choice seems like the most reasonable one from several perspectives. The Central Asian country, together with the whole region, is endowed with sitting right below Russia’s industrial complex that saw an upward trend in manufacturing and exports ever since the war started. More precisely, Bashkorstan , Tatarstan and Orenburg saw considerable increase in production and, thus, in exports. This makes Ashgabat, as well as its Turkmenbashi port, as the best choice to construct a North-South corridor. In addition, Turkmenistan has, ever since its independence, pledged for neutrality, and this can be seen as insurance of a stable transport corridor with no distortion events expected. On the other hand, the rest of the region has repeatedly, ever since the invasion of Ukraine, depicted its discontent towards Moscow, with the Russian-Kazakh relations being particularly fragile at the moment. This brings the risk of an isolation of separate parts of the corridor, in contrast to the South Caucasus, where the Kremlin’s military outreach is still strong. Moreover, given the initial plan set out at 2002 and the existing infrastructure, it would be more cost-efficient to build up on the transport routes stemming from the West rather than carve a new path in the central part of the country.
Rational Plan or an Unreal Scheme
Another issue surrounding the potential corridor narrative is whether it would make any sense and whether there are any markets and opportunities left for Russia. Moscow and Tehran have continued depicting commitment to the project ever since, as these meetings have been followed up by bilateral agreements for investments to construct cargo vessels in the Caspian Sea, but also on streamlining interbank payments that will help them make the project more easily investable. This brings up the question: Is it even worth it to pursue this colossal piece of transport infrastructure? In addition, in the choice of Turkmenistan as a major intermediate partner, should the structure of the corridor be revisited?
The main targeted market that Moscow is currently eyeing is India and, based on existing figures, it is a sensical move. India has been Russia’s biggest arms’ importer from 2017 to 2021, as the foregoing imports comprised almost half of the total volume of imports in this sector for Delhi. In addition, there has been a spike on oil imports from Russia, as, within the span of a year, they rose from less than $5 to more than $20 billion worth of crude oil imports. Delhi has also not fully condemned Russia, even though President Mohdi may have publicly rebuked President Putin over the war, as India has not voted in favor of demanding the cease of Russian aggression within the UN, but rather decided to abstain. These behavioral patterns almost audibly hint towards a stable exporting market for Russia, which would fully justify a mega-project investment to cater for such a major “buyer”.
Nonetheless, there are reasons for concern in that regard. Looking from a long-term perspective the defense partnership of Russia and India, Delhi’s arms imports from Moscow have fallen from $3.5 billion in 2014 to less than $1.5 billion in 2021. India has moved to the third position of the world’s biggest defense spenders and this has led to the country presenting its first fighter jet, the HAL Tejas fighter and its first home-produced aircraft carrier, the Vikrant. In addition, regarding oil, viewing the general trend, India seems more to be capitalizing on a short-term bargain rather than a long-term alliance. The South Asian country has been massively investing in LNG infrastructure and looking for long-term shipments and at the same time it has an ambitious renewables agenda. Finally, it has been pushing for innovation streamlining in nuclear technologies, to produce energy through the abundant Thorium that exists within the country. The overall strategy highlights that Moscow’s gains might be short-lived with regards to the Indian market and create skepticism over the use of such a corridor.
It should be noted, however, that India is not the sole market. The port of Chabahar opens the opportunity of facilitating trade between Russia and the African continent. Trade volumes between the two have been rather modest, as Moscow’s figures are only a tenth of what China trades with Africa. Again, however, reflecting on the long track record between the two, there are useful insights that can be taken. Russia’s exports to Africa have skyrocketed within the span of a year, from $8 billion to $12 billion, whereas crude oil exports followed a similar tendency, as they almost doubled, up to 200.000 barrels per day. South Africa, the continent’s largest economy, has not publicly condemned the invasion of Ukraine, resumes bilateral ties with Russia and has expressed its discomfort at the current state of affairs in the global world order against Moscow. In addition, contemplating on the state actors who either abstained or were against condemning Russia’s invasion within the UN, the vast majority of them were African states. Another important element that enhances this opportunity is the fact that virtually all of them are food import-reliant states and Moscow has proven it can be a reliable food guarantor and provider. The main challenge that exists on that front is the development status of Sub-Saharan Africa. High growth rates need to be sustained in order to consider the continent to be a stable and low-risk market for Russia and the pandemic, coupled with the energy crisis, has depicted that this is not going to be an easy task.
Overall, Moscow and Tehran have set up substantially ambitious targets regarding their connectivity and trade volumes, with the hope of finding markets that will keep their exports booming at the same figures as before the crises began. The situation shows that there are prospective trade partners, both in the short-term and on the long-term, which both countries can reach out to through the port of Chabahar. The main questions that arise is whether these partners will be trustworthy and able to sustain their demand status for a period long enough so that such an investment can be considered successful. In addition, the choice of transit partner (or mix of partners) will also be crucial, so that continuous flow of goods is ensured in the most cost-efficient manner, both in financial costs and in political ones. Russia and Iran will have to carefully assess the existing intelligence and the projections regarding the aforementioned issues, weigh opportunities and challenges, and make the necessary tradeoffs, if the corridor is to bring a stable and constant supply of goods into long-term demand-hungry markets.