railroad from Russia to Iran Investment
railroad from Russia to Iran
The ambitious North-South Transport Corridor can allow us easy access to a vast region, boosting trade and diplomacy
The commencement of operations on the International North-South Transport Corridor project — connecting Bandar Abbas port in Iran to St Petersburg in European Russia — is of great import to India.
Apart from granting India easy access to a vast geography — stretching from North Europe, Caucasus to the mineral rich Central Asia, bypassing Pakistan — success of the project may put indirect pressure on Islamabad to reconsider its resistance to allow India transit to landlocked Afghanistan.
The 5000-km corridor
Beginning August, Indian containerised cargo for St Petersburg, bordering Scandinavia on the Baltic, may not set out for a 40-day sail around the world through the crowded and expensive Suez.
The traders may instead opt for a shorter sail to Bandar Abbas, from where the cargo will travel nearly 1,800 km by road to the rail head at Astara in Azerbaijan for forward journey up north, touching upon the Azeri capital of Baku on the Caspian and Port Olya in the Volga delta.
The project is designed in such a manner that a little nudge here and there may see goods travelling to a host of former Soviet republics in Europe and Central Asia, including the energy rich Kazakhstan and Uzbekistan with whom India now shares minimum trade relations.
Russia promises to make the deal sweeter next year. According to a series of reports in the State-sponsored Russia Beyond the Headlines, Moscow is expecting to connect the entire 5,000-km stretch by rail in 2017.
Conceived by Russia, Iran and India in 2002; the rail connectivity is already established up to Azerbaijan. The Iranian part of the project was delayed due to decade-long UN sanctions that that was recently lifted. Recent reports suggest work is progressing rapidly to bridge the logistics gaps.
As evidenced by a trial run by Indian freight forwarders early this year, multi-modal operations may reduce the travelling time between St. Petersburg and JNPT Mumbai to 20 days — exactly half the all-sea travel time. The inter-continental rail link should reduce the time to 14 days.
The cost of transportation is estimated at $3,000 for a 40-foot container, lower than the $4,000 sea freight. The actual cost will be known once the operation starts and the participating nations decide on concessions.
But there is little doubt that Indian participation is key to make the route popular and competitively priced. New Delhi alone is expected to contribute half the projected five million tonne cargo in the first phase of the project.
That said, it does not necessarily mean that the project is free from ifs and buts. Ideally train and road travel costs more than sea freight. Moreover, delays in completing the Iranian part of the rail project and failure to ensure customs cooperation between nations might work against the interest of traders.
But what’s working in favour of the project is the strong political will of all stakeholders. Oil-and-gas-rich Azerbaijan, for example, is pinning hopes on Indian ambition to reach out to the ‘Stans’ to convert Baku into a logistics hub. They recently entered an agreement with Russia for through tariff.
Teheran will not miss this opportunity to overcome the infrastructure gap created by years of sanction (beginning with the US sanction in 1995). The project will not only be useful for Iran to import food and consumables from Russia directly to the consumption centres in North Iran but will also help attract investment, particularly from India.
New Delhi stood by Iran in the trying times and Tehran is now happy to return the favour by granting India the right to build Chabahar port and SEZ in the South, closer to the China-controlled Pakistani port of Gwadar.
Moscow, on its part, is keen to grab a share of the Iranian car market that is now dominated by the Chinese. Also, the connectivity will grant it easier access and a strategic foothold in West Asian markets.
But more importantly, Russia wants a remedy to its dwindling trade volumes with India that has dropped from $11 billion in 2013 to $7.83 billion over the past three years. And the way to reach that goal is rejuvenating the Indo-Russia strategic ties.
For India, the North-South corridor is not only an important addition to the wide array of opportunities that Iran presents. And, the Narendra Modi government seems to be ready to seize the opportunity. India recently inked a deal with Iran promising nearly $8 billion investment in port and industries — including an aluminium smelter and a urea making facility — at Chabahar that was conceived as a gateway to Afghanistan.
India has already built a 240-km road corridor connecting Afghanistan with Iran. Next on agenda is to build a rail corridor connecting Iranian ports with the India-promoted $11-billion Hajigak iron and steel project in central Afghanistan.
This will bring cargo to Bandar Abbas or Chabahar and free Kabul from its dependence on Pakistan to reach the outer world.
North-South corridor widens India’s choices. If the Afghanistan plan goes wrong, it can still source raw material from some other Stan through Baku. The existing rail connectivity between Iran and Turkey widens the choice of market access.
Pressure on Pakistan
For Pakistan that separates the two sides, the loss is both strategic as well as economic. On July 1, The Express Tribune of Pakistan carried an article — ‘The missing link’ — which made a strong pitch for Afghanistan-Pakistan-India connectivity to promote Pakistan into a transhipment hub.
The writer reminded that the proposal featured in the election manifesto of the ruling Pakistan Muslim League-Nawaz government in Islamabad.
Global logistics experts feel the proposal may find favour with China as Indian participation may improve viability of Gwadar port.