Russia can breathe a new life into the North � South Project

For many years the North � South International Transport Corridor (ITC) project, despite the declared speed and benefits, has been practically remaining on paper, as its practical implementation and bringing on stream has been delayed for various reasons. Today, the demand for the fastest opening of this ITC is becoming more and more obvious. It may seem paradoxical, but the Western sanctions against one of the project initiators (Russia) has literally breathed a new life into it.

The idea of the project

The North � South International Transport Corridor project from the very beginning was initiated by forwarding companies from Russia, India and Iran back in 1999. Then, in September 2000, the three countries signed an intergovernmental agreement, which is believed to be an official start of this initiative.

The transport corridor is planned to unite the routes for railway, motorway and sea transportation of cargos between India, Russia, Iran and Europe. The idea is to minimize the time for cargos delivery due to the 7,200 km corridor (currently such cargos are transported via the Suez Channel).

Several routes are proposed within the North � South ITC including the trans-Caspian one, when cargos are transported by vessels across the Caspian sea. However, the key element of this corridor is the so-called Western branch � the railway route around the Western Caspian shore via the territory of Azerbaijan and the border-crossing point in Astara (Azerbaijanian and Iranian railway station) to the territory of the Islamic Republic of Iran (IRI).

The key project objectives are improving the transportation system efficiency, assuring access to the global markets using all modes of transport of the participating countries, assuring safety of passenger and cargo transportation, and the overall harmonization of the transport policies. One of the key tasks is to reduce both the delivery time and transportation costs. [1]

In 2014, the test runs from Mumbai to Baku and Astrakhan via the Bandar Abbas port and Teheran showed that the delivery time is reduced two times and the costs may be decreased significantly. [2]

For Iran, in particular, this project may bring some very good benefits. Taking into account its geographical location, the North � South corridor will allow for Teheran to become a transportation hub, just like Baku. This will provide competitive advantages for Iran to become an effective player in Eurasia. Moreover, IRI�s participation in this project will allow for significant decreasing of its global isolation. And finally, Teheran facing economic challenges due to the Western sanctions needs access to primary resources and foreign markets to maintain the acceptable level of wellbeing in the country. [3]

At the same time, it should be noted that despite such obvious benefits of the project, its practical implementation was extremely slow starting from the moment of signing the respective agreement. This is connected, first of all, with the sanctions imposed on Iran by Western countries. [4]

Challenges for ITC

The economic benefits of the North � South transport corridor are coming today into clinch with political difficulties. The USA-imposed sanctions against Iran are creating and will continue to create difficulties for investors and infrastructure companies, in particular, with respect to importing equipment required for specific projects and with respect to organization of their financing.

In order for the businesses to really believe in the benefits of using the North � South ITC, they need to see, first of all, its stability and safety, and this may take years. If there are well-established routes for delivering cargos via the reliable and tested companies and corporations, why should businesses get involved with the transport corridor running through Iran, which is under sanctions?

In the context of the US anti-Iranian sanctions, it is highly probable that the pressure on India will increase to make it stop buying hydrocarbons from Iran, and that will not allow New-Deli to implement joint projects with Teheran associated with Chabahar port, Chabahar � Zaranj � Delaram railway and International Transport Corridor North � South in general. [5]

As of today, Chabahar port is not connected with the railway, and cargos are transported across the Iranian territory by motor vehicles. India is financing both the retrofit of the port itself and the construction of the railway from Chabahar to Mashhad having allocated USD 500 mln. [6]

Another important barrier for the project completion and commissioning is poor transport infrastructure of the Islamic Republic of Iran. For example, the timing of commissioning the new railway line Rasht � Astara (Iran) � Astara (Azerbaijan) is very important for development of the North � South ITC.

The problem of railway infrastructure in Iran is very deep and it needs comprehensive solution. For example, in 2019, the launch of railway route from Qazvin to Rasht connecting the Western part of the Iranian Caspian territories with the capital was widely covered by the IRI media. However, the logistics potential of this railway is rather low until the railway line to Astara station on the border with Azerbaijan (175 km) and with the Enzeli port (40 km) is completed. Without such connection, it will be cheaper and more convenient for the shippers to use large trucks.

Meanwhile, the Iranian party is not able to complete the Rasht � Astara section for quite a long period. Iran explains this delay by lack of financing sources. Baku even issued a half-billion USD loan to Iran for these purposes, but this did not get things moving. [7]

According to Teheran, in January 2022, Ebrahim Raisi, the President of IRI, during his visit to Moscow discussed the completion of the Rasht � Astara railway project with Russian leader Vladimir Putin. Later, during his working visit to Gilan Province, Raisi claimed that the government was engaging all the possible resources to complete the project as fast as possible. [8]

The Western sanctions (especially those imposed by the USA), indeed, have a strong adverse effect on development of the IRI transportation structure. But this is not only reason for the two thirds of railways in the country to remain single-gauge roads. According to some Russian diplomats, poor organization and the negligent attitude to labor will continue to restrict economic development of Iran even without the American sanctions, which were first lifted, and then in two years they were reinstated. [9]

Poor progress in building and upgrading railways in Iran may be explained by the combination of two factors � unbiased difficulties in attracting investors despite the sanctions, and the incapability to organize the environment minimizing the risks and concerns of foreign investors with respect to developing business in the country. [10]

The issue of delivering cargos to Central Asian countries via Iran is associated with the railway track gauge. The traditional route from the Islamic Republic of Iran to Central Asia is the 1,046-km railway from Teheran to Sarahs in Turkmenistan. However, the axle transfer is required for the cars to bring them to Turkmenistan, because the track width in the post-Soviet areas is 1,520 mm, while in Iran it is 1,435 mm. This limits the throughput capacity of railway crossings. For example, the Sarahs � Mashhad border crossing can handle only 200 cars per day. [11]

And finally, the relations between Iran and Azerbaijan (which is the territory for bringing cargos into Russia) are not that easy. In October 2021, a huge queue of trucks got accumulated at the Iranian-Azerbaijanian border. At that time, the Iranian party blamed Azerbaijan in the intentional delaying the crossing. Baku, in its turn, denied it and referred to the technical deficiencies. [12]

In January 2022, this occurred again. Sometimes, the vehicles were standing still on the border for up to three weeks. The Russian business representatives are connecting the problems of bringing cargos across the Iranian-Azerbaijanian border with dramatic increase of the sales turnover between Iran and the Russian Federation and call for finding the solution as quickly as possible. [13]

In this regard, there is the demand for an alternative route � via the Caspian Sea. However, certain difficulties exist here as well. According to the Russian party, the main problem affecting the development of the Caspian route is lack of modern vessels in the Caspian Sea. [14]

Political factor should not be out of the overall picture, because it often affects the economic issues. Iran on a regular basis unjustifiable accuses Azerbaijan in alleged presence of Israel military forces in the Azerbaijanian territory [15], and is openly concerned with the integrity of its frontier line with Armenia against the background of escalation of the conflict between Baku and Yerevan. [16] Despite Russia, Iran and Azerbaijan signing the trilateral memorandum on transit facilitation, [17] today the Iranian-Azerbaijanian border crossing seems to be a problematic transit hub.

New context

This year, the discussions around the North � South ITC are noticeably galvanized. All the above-described problems are still there, however, the context has changed drastically: the sanctions imposed against Russia leading to deterioration of its relations with the West are forcing Moscow to turn to alternative routes, which are not subject to the Western anti-Russian course.

In this regard, Russia is interest in the fastest implementation of the North � South ITC and is ready to invest into this project. Hence, the development of the strategic railway route was one of the topics of Putin�s working visit to Teheran in July 2022. Based on the outcomes of negotiations with his Iranian counterpart, the RF President stated that Moscow was ready to finish the construction of the missing railway section from Rasht to Astara. [18]

The signing of the joint Declaration on the North � South ITC development by Russia, Iran and Azerbaijan this September in Baku was the continuation of this course. [19] The document reflects the agreement between the parties to facilitate the project implementation, the draft agreement on launching the Astara � Rasht railway section is to be prepared within one month, and the negotiations on this launch are to start before the end of 2022.

According to Alexander Novak, the Vice-Premier of the Russian Federation, the North � South ITC implementation is the priority of the trilateral cooperation between Russia, Iran and Azerbaijan. [20]

Recently, the plans of creating direct logistics channel between the Russian port in Ulyanovsk Region and the Iranian port of Enzeli via the Volga River and the Caspian Sea became public. The channel is assumed to be integrated into the North � South ITC project. [21]

Taking into account the current problems of railway transit, in particular � on the Iranian-Azerbaijan border, the RF and Iran intend to activate the Caspian route within the International Transport Corridor. The Russian party already announced allocation of significant resources to upgrade the Astrakhan ports, there are also plans to build new ships. [22]

Hence, today, when the traditional cargos delivery routes (e.g., via the Baltic Sea and the Black Sea) are blocked by Western companies, the North � South corridor becomes not just one of the alternatives, but a priority necessity for Russia.

At the same time, despite the increased activity of the key countries of the North � South MTC project implementation, a lot of other problems persist, and not all of them can be easily and quickly resolved. Poor development of transport in Iran is one of them, as well as Western sanction on the RF and Iran, which may be scary for businesses and raise their concerns with respect to this route. At the same time, the need to facilitate the North � South ITC implementation is obvious, so the progress in this sphere to that or another degree is inevitable.