Wednesday, 03 July 2002


Published in Analytical Articles

By Regine A. Spector (7/3/2002 issue of the CACI Analyst)

BACKGROUND: Existing organizations that promote regional infrastructure and transit routes in Central Asia such as the EU’s TRACECA project and the GUUAM organization have excluded Iran or Russia. In response, these two countries have since the late 1990s sought to create alternative transport routes by restoring Soviet era ties and developing port and rail infrastructure. Two years ago, Russia, Iran and India signed an agreement in St.
BACKGROUND: Existing organizations that promote regional infrastructure and transit routes in Central Asia such as the EU’s TRACECA project and the GUUAM organization have excluded Iran or Russia. In response, these two countries have since the late 1990s sought to create alternative transport routes by restoring Soviet era ties and developing port and rail infrastructure. Two years ago, Russia, Iran and India signed an agreement in St. Petersburg laying out a vision for a North-South Transport Corridor. The corridor stretches from ports in India across the Arabian Sea to the southern Iranian port of Bandar Abbas, where goods then transit Iran and the Caspian Sea to ports in Russia’s sector of the Caspian. From there, the route stretches along the Volga River via Moscow to northern Europe. Analysts indicate that Indian cargo transported via this route has increased dramatically over the past year, reversing the dramatic decline of the 1990s. In the Soviet era, millions of tons per year of transit cargo passed from Europe to Iran via the USSR and between the USSR and India along this route. Small shipments of tea and tobacco first made their way to Russia from India through Iran in 2000. Russia exports mainly metals, timber, paper, machinery and chemicals to Iran, while Iran sends mainly foodstuffs, cars and buses to Russia. The revived route is expected to offer both quicker and cheaper transportation than the primary alternative—the shipment of goods from South Asia through the Mediterranean and Suez Canal and then into the Atlantic and North Sea to Baltic ports. Russian analysts predict that delivery time using the North-South Corridor will be reduced anywhere from 10 – 20 days, and the cost per container will decrease by $400-$500. Moreover, they estimate the Russian government will alone receive hundreds of millions of dollars, even billions, from taxes and customs revenues. The project’s momentum has steadily increased in the past year. A delegation of representatives from the transport ministries met in New Delhi in January 2002 to set up a special working agency to deal with issues related to customs, financial and legal regulations; and in May, after all three countries had ratified the agreement, the three transport ministers officially launched the North-South transport corridor project. IMPLICATIONS: Significant obstacles nevertheless remain before the full potential of the project can be realized. While Russia and Iran have both pledged to invest in road, rail and port infrastructure, shortcomings in infrastructure remains a pressing concern. During an April 2002 visit to the Astrakhan region on the Caspian coast, President Putin singled out the economic importance of the North-South transport corridor but called for an improvement in the new Olya port, the “weak link” of the corridor – lest Russia “lag behind” and “lose its strategic advantage.” The Olya port, strategically located at the mouth of the Volga, is now in the process of being upgraded to allow for year-round transport of container traffic. In addition to the technical constraints, significant political differences between Iran and Russia cloud the picture. Russia and Kazakhstan recently veered away from the previous collaborative five-party negotiations on the status of the Caspian Sea, championed by Iran, instead using bilateral processes to resolve the issues. Iran also voiced disapproval of future Russian plans for military exercises in the Caspian, despite the fact that both countries have used their militaries as a show of force in the Caspian before. Thus ongoing disagreements over the Caspian Sea’s legal and military status could delay or thwart the project. While political and economic challenges remain in the development of an overarching North-South Transport Corridor, important bilateral trade and transport agreements have been signed in tandem with the official North-South project. Iran sees itself playing a particularly active role in forging trade and market links with Central Asia. During Iranian President Khatami’s recent Central Asian tour in Spring 2002, several agreements on trade and transport projects were signed. A transport corridor through Turkmenistan already exists between Iran and Uzbekistan, and the development of an additional route via Afghanistan is under discussion. Iran has perhaps most actively promoted relations with Kazakhstan and Azerbaijan, two countries that have voiced strong interest in joining the North-South transport corridor project and in expanding trade and transport relations with Iran. Kazakhstan’s foreign policy over the past decade of independence has carefully balanced relations with its neighbors, with a particular focus on ensuring multiple export routes for the country’s vast energy reserves. Thus, while Kazakhstan has pursued it’s relationship with Russia bilaterally regarding Caspian issues to Iran’s dissatisfaction, Kazakhstan also began to supply oil products to Iran by rail in May 2002. Azerbaijan, which has largely focused on the East-West energy corridor, has also voiced support for the North-South project. The construction of a 350 km rail track between Azerbaijan and Iran and the rehabilitation of the existing Baku-Astara railroad are under discussion. CONCLUSION: The North-South Transport Corridor is making strides towards achieving a new framework. The project has the potential to incorporate other interested states, including countries of the Caucasus, Central Asia, and Eastern Europe, and perhaps also Oman. However, history shows the difficulty of developing regional transport projects. The Trans-Siberian Railway, once hailed as an important strategic and economic project, now moves only about 10,000 containers per year mainly due to a lack of service reliability. The Caspian region is also notorious for its lack of investment in essential port and railway infrastructure. Strategic and political dangers, such as the potential for militarization of the Caspian, could pose a significant threat. Prominent Russian politicians have already noted the danger that the route be abused for illicit drug and weapons trafficking, following existing routes from Afghanistan in the south via Central Asia into Russia and Europe. The Olya and Astrakhan ports, as well as others on the Iranian portion, are also already allegedly involved in the illicit transfer of WMD components from Russia to Iran. At the same time, the official North-South Transport Corridor Project must be seen in light of a broader attempt by regional Central Asian countries to create as many trade and transport opportunities as possible. Today’s developments mirror the continually evolving system of multiple routes and relationships of the historic Silk Road. In addition to following developments in the official North-South Transport Corridor, it will be equally important to track the web of bilateral infrastructure and trade routes developing in the region. AUTHOR BIO: Regine Spector is a researcher at the Foreign Policy Studies Program of the Brookings Institution in Washington, D.C. She will be a Ph.D. Candidate at the University of California at Berkeley from Fall 2002. Copyright 2001 The Central Asia-Caucasus Analyst. All rights reserved
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The Central Asia-Caucasus Analyst is a biweekly publication of the Central Asia-Caucasus Institute & Silk Road Studies Program, a Joint Transatlantic Research and Policy Center affiliated with the American Foreign Policy Council, Washington DC., and the Institute for Security and Development Policy, Stockholm. For 15 years, the Analyst has brought cutting edge analysis of the region geared toward a practitioner audience.


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