The International North-South Transport Corridor

The International North-South Transport Corridor - IPP-REVIEW

Posted: 15 Apr 2019 12:00 AM PDT

One of Eurasia's largest connectivity projects is taking off. The International North-South Transport Corridor (INSTC) is a major transit route designed to facilitate the carriage of goods from Mumbai in India to Helsinki in Finland, using Iranian ports and railroads, which Tehran plans to connect to those of Azerbaijan and Russia and its Baltic ports. Those links could give Russia rail connectivity to both the Persian Gulf and the Indian rail network.

Russia, Iran and India founded and laid the groundwork for the project between 2000 and 2002. Subsequently, other countries joined the project. They included Armenia, Azerbaijan, Kazakhstan, Belarus, Tajikistan, Turkmenistan, Ukraine and Bulgaria. With countries in the Caucuses, South Europe, West Asia and Central Asia joining the INSTC, it is envisaged as one of Eurasia's most important connectivity ventures.

The INSTC is not and cannot be a counterpoise to China's Belt and Road Imitative (BRI). Apart from India, all the countries involved in the INSTC are on the BRI. They also have far stronger trading ties with China than with India. Indeed, the INSTC was conceived long before Xi Jinping had arrived on the world scene as China's president in 2012, inaugurated the BRI in 2013, expanded it to include more than 65 countries in five years and set China on the path to "great power".

Operationalized in January 2018 — with a new Iranian rail link filling a connectivity gap, the INSTC could connect South and West Asia to the Caucuses, South Europe and Central Asia, and to the Persian Gulf and the Indian rail network. It could also cut down transport time and costs. Running from north to south across Eurasia, it could complement and cut across the BRI, which runs from east to west.

On March 6, 2019, Iran and 12 other countries, including India, Russia, Turkey, Tajikistan, Armenia, Azerbaijan, Belarus, Bulgaria, Oman, Kyrgyzstan, Kazakhstan and Syria, held two days of meetings in Tehran to coordinate work on INSTC. All these countries are located along the Corridor. A 164-kilometer rail project linking the two Iranian cities of Qazvin and Rasht was inaugurated by President Hassan Rouhani. The Qazvin-Rasht line fills a missing link in the INSTC.

The INSTC is envisaged as a 7,200-km-long multi-mode network of ship, rail, and road route for moving freight between India, Iran, Afghanistan, Armenia, Azerbaijan, Russia, Central Asia and Europe. The countries involved hope that the Corridor will increase trade connectivity between major cities such as Mumbai, Moscow, Tehran, Baku, Bandar Abbas and Astrakhan. This transit network could allow all these countries to bypass the Suez Canal on the way to Europe and could become the basis for expanded Russian influence in Central and South Asia. The Corridor is the shortest multimodal transport route linking the Indian Ocean and the Persian Gulf via Iran to Russia and Europe. The Corridor will help reduce the costs of transferring goods from India to Russia and Europe via Iran. Simultaneously it will provide an alternative connectivity route to countries in Central Asia and the Caucasus.

The central link for INSTC would be the railway line from Russia through Azerbaijan to Iran. The inauguration of the INSTC in January 2018 was marked by the first shipment of cargo from India to Russia via the Iranian port of Bandar Abbas, which is not a deep water port. In contrast, Chabahar, the Iranian port which is being developed by India, can handle very large and heavily loaded ships.

Russia has a special interest in the progress of the Corridor. Buffeted by western economic sanctions since it invaded Ukraine in 2014, it could benefit by developing commercial ties with the Caspian littoral states. On August 12, 2018, the leaders of Azerbaijan, Iran, Kazakhstan, Russia, and Turkmenistan signed the Convention on the Legal Status of the Caspian Sea. All these states are members of the INSTC. And the Caspian agreement links their interests in the Caspian with the Corridor.

On February 5, 2019, India and Russia signed a Memorandum of Understanding on the INSTC. Both share an interest in fast-tracking the project to increase their links to other areas via Iran. India also hopes to gain some advantages over its main rival China, across Central Asia and in the Indian Ocean region.

Finance for the INSTC poses problems. Given the high risks involved, many private sector players are reluctant to invest in the project.

Meanwhile, India and Iran are looking at connectivity across Central Asia to Europe. India's development of Iran's Chabahar port marks one of the most important connectivity projects in Eurasia. Chabahar is not merely of interest to India, which has used it to cross Pakistan's transit hurdle and to ship food to war-torn Afghanistan. The Caspian and Central Asian powers also have great interest in Chabahar because it could open more than one trading doors for them across Eurasia. In fact, Chabahar could be the starting point of the INSTC.

For Iran, which wants to build several connectivity corridors, the INSTC serves as the shortest route to Europe and Turkey. At the moment, the Corridor is not in the vicinity of regional conflicts such as the Armenian-Azeri conflicts over Nagorhno Karabakh and Nakhichevan. Running through Russia, the INSTC would offer Iran the easiest transit through Central Asia to West European markets. With Russia and Azerbaijan, Iran is already building a railway corridor. Together with that railway, the INSTC could facilitate efforts made by Iran and Azerbaijan to become regional transit and trading hubs.

Partly because of its geopolitical location, partly because of Chabahar port, Iran could emerge as a major player along the INSTC. One reason is that India and Afghanistan will also benefit from the Corridor because of their good ties with Iran. Chabahar is India's most viable gateway to Afghanistan and Central Asia. Chabahar and the INSTC could help India increase trade with Central Asia, which currently stands at USD 11.9 billion. The INSTC would also facilitate the import by India of minerals, metals, oil and gas from Central Asian countries to boost its manufacturing economy.

An Indian rail project linking Chabahar to Zahedan on the Iranian border will be extended to Zaranj in Afghanistan. The INSTC will open up India's access to mineral-rich, landlocked Afghanistan and Central Asian states, while paving their way to the Arabian Sea.

Afghanistan shares borders with Uzbekistan, Turkmenistan and Tajikistan, but inadequate supply networks have resulted in low volumes of trade between these countries. The proposed new railway lines will enable Afghanistan to act as the bridge between Central Asia and the world's markets and give its trade ties with all these countries a much-needed boost. Afghanistan's rail connection with Chabahar would highlight a huge breakthrough in Eurasian connectivity. That in itself could give impetus to its economic progress and political stability.

The INSTC has been hobbled by two outstanding factors. First, all the countries involved do not share common borders. Even its founders — Russia, India and Iran — are not neighbors. That fact in itself makes it hard to build the Corridor. There have also been disagreements between them on how to develop it. That more countries have signed on only exacerbates those two problems — even if it is clear that several countries could benefit from the completed corridor. Second, the project failed to take off because of the international sanctions against Iran's nuclear program between 2006 and 2016. Plans to go ahead with the Corridor were made after the lifting of sanctions on Iran.

Kazakhstan, Uzbekistan, Turkmenistan, Iran, India and Oman then signed the Ashgabat Agreement (Ashgabat is the capital of Turkmenistan). This is a multimodal transport accord for creating an international transport and transit corridor which could facilitate the carriage of goods between Central Asia and the Persian Gulf. Ashgabat gave impetus to the INSTC.

What is the outlook for INSTC then? Finance for the INSTC poses problems. Given the high risks involved, many private sector players are reluctant to invest in the project. But some multilateral organizations are backing the INSTC. The Asian Development Bank has given credit to Azerbaijan for the development of its rail link to Iran. Japan, once a possible stakeholder, withdrew when Trump announced sanctions against Iran in 2017. At present, different track gauges in the countries concerned pose another problem. The design of the INSTC currently suggests limited opportunities for scaling up businesses. To sustain trade, it would be necessary to build towns, ports and even hotels along the route.

Chabahar and the INSTC have opened many windows of economic opportunity in Eurasia. How best to give substance to these opportunities will remain the main challenge before the countries involved in this major connectivity project. If they meet their own expectations, the INSTC could become a game-changer in South, West, Central Asia and Europe.