The unprecedented sanctions war unleashed by the collective West against Russia, setting an artificial price ceiling for Russian hydrocarbon resources and reducing export-import traffic with the Russian Federation are forcing the Russian government to reformat traditional trade relations by diverting them from Europe to the east. In this regard, Moscow has begun to pay considerable attention to expanding the capacity of the TransSib and BAM trunk railways, building state-of-the-art highways towards China, building new railway and road bridges across the Amur River and upgrading seaports in the Russian Far East in recent years.
Another important area that has become a top priority in recent years is the development of the Northern Sea Route (NSR). Putting a host of powerful nuclear and diesel-electric icebreakers in operation along with the upgrading of navigation and port services in the Arctic will make it possible to escort not only ice-class merchant ships along the shortest route between Europe and Asia all year round in the near term. Depending on destinations and points of departure, the route along the NSR will be 40 to 60 per cent shorter, plus the same time savings, compared to southern route deliveries through the Suez Canal.
There is another very important and promising route, the “North-South”, that has been undeservedly given insufficient attention until recently. As early as 500 years ago, Tver merchant Afanasy Nikitin discovered this shortest trade route from Antient Rus to India. During the Second World War, it was Iran through which allied convoys delivered military aid to the USSR under lend-lease arrangements.
Recently, the geopolitical situation in the Persian Gulf has favorably changed towards the stabilization of the situation. There is a steady and consistent trend showing a gradual U-turn of Saudi Arabia, Qatar, Bahrain and the United Arab Emirates and other countries of the Gulf from West towards East. For instance, Riyadh has become a dialogue partner with the SCO and made a conceptual decision to join the BRICS in the future. Earlier, Iran was admitted to the BRICS and restored diplomatic relations with Riyadh.
All this creates prerequisites for implementing the International North-South Transport Corridor since, in addition to India, all the countries of the Persian Gulf that have recently shown a noticeable interest in closer relations with Russia, China and Iran, can use this corridor. For other states of Southeast and South Asia, the opportunity to have an alternative route enabling access to the markets of Russia and the CIS countries seems to be commercially attractive, especially considering the possibility of closing the Suez Canal in case of force majeure, as happened in March 2021 with Ever Given container carrier. The ship that ran aground blocked the canal for a week which resulted in about 500 different ships being blocked and world trade losing about $9.6 bn a day.
The main pro of the North-South corridor over other routes, including the Suez Canal, is a two-fold reduction in the time it takes to cross it and reduced transport costs. For example, the delivery of goods from Mumbai to Saint Petersburg using the conventional route through the Suez Canal takes from 30 to 45 days, while it can vary from 15 to 24 days when using the land route. The advantages of this route include the significant potential for combining it with latitudinal transport routes, such as China’s “One Belt, One Road” and the Trans-Arabian Railway that connects Saudi Arabia with the states of the Persian Gulf. This will enable creating a Eurasian transport framework, a network of interconnected East-West and North-South transport routes. This will help reduce export-import costs, create potential for the development of new industrial centers and expand the region’s transit traffic opportunities.
The treaty on the International North-South Transport Corridor was entered into in 2000 between Russia, India and Iran. Azerbaijan, Kazakhstan, Turkmenistan, Kyrgyzstan, Belarus, Oman and Turkey joined the project in the years that followed.
The ITC covers three main directions:
– western, along the western coast of the Caspian Sea with a railway link via Azerbaijan;
– eastern, along the eastern shore of the Caspian Sea with a railway link via Kazakhstan and Turkmenistan;
– trans-Caspian, using the Caspian Sea ferry and container lines.
Cargoes are further delivered follow through the territory of Iran by rail or road to the port of Bandar Abbas and then by sea to the Indian port of Mumbai.
At the same time, twenty years of the ITC’s pilot operation, including test cargo deliveries in both directions, revealed a large number of ‘bottlenecks’ and outstanding issues faced by the project, which prevents it from being used to establish a profitable and efficient cargo flow for the benefit of all parties.
Experts refer to the poor development of the transport system of Iran due to the specific mountainous terrain of the country as to the main reason for the insufficient capacity of the North-South ITC. Old rolling stock, obsolete diesel locomotives, railway car weight and train length restrictions significantly slow down the movement of trains on the Trans-Iranian single-track railway that runs through numerous mountain ranges in the north-eastern part of Iran from the Sarakhs station on the Iranian-Turkmen border (ITC’s eastern direction) to the port of Bandar Abbas. In its turn, the ITC’s western direction has a railway that runs only to Astara, the Azerbaijani-Iranian border station, since the construction of the Iranian 165 km segment of the railway to Rasht is yet to be completed. All outbound cargoes from Russia are transshipped by the Iranian party onto vehicles and delivered to Bandar Abbas. Iranian President Ibrahim Raisi has recently voiced the importance of this segment of the ITC for the national economy, calling for its fastest completion and commissioning.
All these years, the main cargo traffic through the ITC was routed along the Caspian Sea from the Russian ports of Astrakhan, Makhachkala and Olya in the direction of the Iranian port of Anzali. Moreover, Russian ships transport mainly bulk or loose cargoes (coal, ore, building materials, timber, lumber, grain) to Iran. Iranian ships are used for delivering goods that are suitable for container deliveries (such as food, metals, wood and paper, machinery, equipment and mineral fertilizers). For this purpose, only TEU containers (twenty-foot equivalent units) are used, including for further transit. However, the Iranian bulk carriers used on this route are quite old and have low container capacity not exceeding 200 twenty-foot containers, which is clearly not enough for boosting traffic between the countries.
So far, the lack of a single transport and customs document applicable to the entire ITC route, lack of single cargo insurance and single operator responsible for the entire route and, as a result, lack of single through fare impede the competitiveness of the ITC routes in terms of pricing that would boost container transit between India and Russia.
According to the Eurasian Development Bank’s estimates, cargo traffic can be additionally boosted by making the transport links ‘seamless’ through the digitalization and improvement of soft infrastructure. The introduction of smart transport systems and digitalization of international multimodal transport and logistics based on electronic waybills, e-TIRs and satellite navigation systems will favorably contribute to enhancing foreign trade traffic in the countries being parties to the North-South ITC treaty. This will create new opportunities to simplify border crossing procedures, reduce delivery time and transport costs and improve traffic safety along the corridor.