Russian President Vladimir Putin has made the opening of a north-south trade route between the Russian Federation and the Indian Ocean via Iran a priority for more than a decade. But the project has run into increasing difficulties on both of the two possible land routes via the Caucasus or Central Asia (see EDM, January 4). As a result, Moscow, in agreement with Tehran, is now focusing on developing Russian-Iranian trade via the Caspian Sea (Realtribune.ru, November 30, 2022). This route, too, is not without its problems. Moscow has long had difficulty with intermodal shipping. Its shipping and port capacity on the Caspian is limited, and Iran’s ports lack effective transportation connections with the country’s national rail network. Nonetheless, the route is expanding rapidly, with trade between the two countries by sea having risen by 70 percent over the past 12 months alone—nearly ten times the growth in Iranian foreign trade as a whole. If the Caspian route continues to develop at anything close to that rate—and, to be sure, this figure is from a low base—then the Caspian, rather than the Caucasus or Central Asia, could become the prime route between Russia and the world’s oceans, allowing Moscow to end run many sanctions limitations and further cementing the alliance between Iran and Russia (Casp-geo.ru, March 11).
Many analysts have assumed that Moscow and Tehran are looking to the sea as a route because of real and potential instability in the Caucasus and Central Asia or because of the desire of the other countries in those two regions to keep their distance from the internationally isolated pair (Casp-geo.ru, January 2, Ia-centr.ru, January 4). Such dangers, especially in the Caucasus, are certainly part of the two governments’ calculations. But the more immediate reason for this shift appears to be prosaic. Neither Moscow nor Tehran has the funds needed to complete the rail links in Iran anytime soon to make either the Caucasus or Central Asia overland routes effective. And given sanctions, neither is likely to be able to find alternative foreign funding. (Any Chinese money going into Iran almost certainly would favor east-west routes that would benefit Beijing rather than the north-south links Moscow wants.)
Moreover, developing the two land routes is certain to be quite expensive. The route in northern Iran linking the Caucasus must pass through some of the most difficult terrain in the country. And while Moscow has promised more than $1 billion in assistance to complete the tunnels and bridges needed, many Russian experts say that the money is unlikely to be forthcoming anytime soon (RT, December 26, 2022). The Kremlin has also promised aid to complete the modernization of rail lines in the eastern part of Iran that would link to Central Asian lines. But again, it has not sent the money and may not do so anytime soon. Indeed, the Russian authorities, given the budgetary stringencies arising from the war against Ukraine, have been cutting back or canceling other railway development projects that likely have an even higher priority, including the modernization of the Trans-Siberian and Baikal-Amur rail lines in Siberia and the Russian Far East connecting the country to China (see EDM, March 9; Vedomosti, March 15; The Moscow Times, March 15).
Given those budgetary problems, Tehran has decided to focus on developing the far shorter rail branch that will connect its Caspian port Bandar-e Anzali with the national rail system, and Moscow has decided to focus on using the Caspian’s sea lanes rather than land-based rail lines to try to keep Putin’s north-south trade corridor on track (Vastipress.ir, February 21). That will please Moscow by leading to a further increase in Russian-Iranian trade southward (Iran.ru, February 8, 2022). But it will also allow Iran to increase its influence in both the Caucasus and Central Asia by expanding trade with the other littoral states (Casp-geo.ru, February 24)—even opening the way for security cooperation, moves that could further undermine the dominance of Russia’s Caspian Flotilla and Moscow’s influence both east and west of the Caspian (see EDM, June 24, 2021; Casp-geo.ru, February 26). And it will likely increase Iran’s role as a shipbuilder and repairer for Russia itself and as a partner in the dredging operations on Russia’s key Volga-Don Canal, tipping the balance of influence between the two capitals in Tehran’s favor (see EDM, November 14, 2022, February 24; Casp-geo.ru, January 5).
Moscow analysts are already pointing to Iran’s growing influence as a result of these moves, with some trying to make the best of what they consider a bad deal as far as Russia is concerned. They suggest that Tehran will have to work closely with Moscow, rather than against it, if it is to achieve its goals and that, in any case, a Russian-Iranian entente on the Caspian will keep Turkey and Western powers out of the region. It will also serve as a balance to the increasing role of China in Central Asia (see EDM, September 16, 2021; Eurasia Today, September 23, 2022).
But at least three reasons highlight why such Russian optimism is likely misplaced. First, Russia has only two major ports on the Caspian, Astrakhan and Makhachkala. The first is icebound three to four months a year, and the second is in historically unstable Dagestan. Second, exploiting this sea route will require two steps that Moscow has found difficult to complete. Russian shippers are notorious for not being able to manage intermodal transit, and Russia does not have enough cargo ships on the Caspian, let alone enough roll-on, roll-off vehicles, for the Caspian to make up for the Kremlin’s hopes with the prospective land routes (see EDM, July 13, 2022).
And third, Iran has shown here, as elsewhere, that it is playing its own game and is not willing to go along with what Russia wants. The most prominent example of this is the fact that, five years on, Iran is still refusing to ratify the Caspian delimitation agreement brokered by Moscow, which all other littoral states have approved. As a result, there are likely to be almost as many reasons for conflict between the two countries as bases for cooperation (see EDM, July 26, 2022). At the very least, the other Caspian littoral countries are almost certain to conclude that what Russia is doing in focusing on the Caspian routes reflects not its strength but its weakness and will act accordingly, reordering the geo-economic and geopolitical arrangements of the entire region.
By the Jamestown Foundation
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Russia’s trade with China in 2022 has grown from $11 bn in 2013 to $190 bn. Moreover, trade with India exceeded $30 bn in 2022 and is projected to hit $50 by 2025.
Furthermore, Russia isn’t just a giant gas station masquerading as a country as the ill-informed US Senator John McCain depicted it in 2015 to which President Putin dismissively told him that he still has to pay the energy bills.
Other than being the world’s superpower of energy, it is also a major industrial power. It is also the world’s largest exporter of wheat, fertilizers, nuclear reactors, precious metals, processed uranium and manufactured goods and is also the second largest exporter of weapons and a very major exporter of IT equipment.
Russia ended 2022 with a current account surplus of $228 bn and a trade balance surplus of $290 bn according to data from Russia’s Central Bank.
Dr Mamdouh G Salameh
International Oil Economist
Global Energy Expert