Lobyrev, Vitaly, et al. Belt And Road Transport Corridors: Barriers And Investments. 50, Eurasian Development Bank’s Centre for Integration Studies, 2018.
The temporary blockage of the Suez Canal by cargo ship EVER GIVEN on the 24th of March has highlighted the volatility of the global supply chain but has also re-heightened the rush for the control of future trans-continental infrastructure development. Iran is sitting right at the center of a crossroads of existing and planned trade routes and has tried to exploit the crisis to promote the often-forgotten International North-South Transport Corridor (INSTC). However, what’s at stake is not just the transport of cargo from Asia to Europe, but also the control of vital trade routes and the exertion of political and military influence in the Indian Ocean. Iran is holding a double-edged sword: it could either elevate its status to that of an impartial broker in between the appetites of China, Russia, and India or succumb to centrifugal forces pulling it into two diametrically opposite directions. At the moment, there are two clashing visions on the nature of the INSTC: one that sees it as a complementary infrastructure to China’s more developed Belt and Road Initiative (BRI), and one that sees it as a geopolitical counterweight to China’s continental preponderance. In this case, it is not yet obvious whether the logic of geopolitics and of geoeconomics can and will be reconciled; there is the risk that countries involved, acting according to risk-averse logic, jeopardize their own potential future profits to prevent their rival’s gains. Will the next era in Eurasian trade be ushered by a logic of relative gains or by one of the absolute gains?
The catalyst
The EVER GIVEN lost its way on the morning of the 24th of March and lodged itself sideways in the Suez Canal; the cargo mega-ship, measuring almost 400m in length, obstructed one of the world’s maritime arteries for almost a week. The New Suez Canal had just been launched in 2015 by President el-Sisi, with the promise of bringing economic prosperity to Egypt; nationalized by Nasser in 1956, the Suez Canal remains the most significant source of income for the Egyptian government. The blockage of the Suez Canal has led to a significant delay in worldwide shipping times, forcing some ships to re-route to the Cape of Good Hope in spite of fears of pirate attacks. Some analysts have estimated that the Suez Canal blockage has cost the world economy almost 10$ billion in one week.[1] The incident has temporarily sent oil prices sky high, creating a real supply shock in the world economy. Al Jazeera reported that as many as ten tankers carrying 13 million barrels of crude were affected by the grounding.[2] Although oil prices fell again after the opening of the Canal,[3] the stranding of the EVER GIVEN raised the specter of past supply-induced global economic crises like the 1973 oil crisis. The Islamic Republic ambassador to Russia, Kazem Jalali, proposed activating a shipping line that passes through Iran as an alternative to Egypt’s Suez Canal, calling for the acceleration of “the infrastructure and activating the north-south corridor”.[4] Although the timing of the incident provided a perfect global platform for Iranian officials to promote the initiative, work on the INSTC has been in the making again for a few months. On the 21st of February, Iranian officials in a visit to Yerevan were reportedly discussing the possibility of re-routing the INSTC through Armenia, away from the established western route of the corridor that has so far passed through Azerbaijan.[5] While experts doubt that Armenia and Iran are in a position to revamp the old Soviet-era railroad designated to circumvent Baku, the fact that the INSTC has returned to the forefront of the strategic discussion in the Caucasus and Central Asia is in itself of great significance. In fact, on the 5th of March India officially proposed for the port of Chabahar, Iran’s only Oceanic port, to be formally included in the INSTC.[6] In the light of all this media buzz around this 20-year-old project, it is crucial to understand to what extent are economic needs driving the INSTC programme, and how much are geopolitical rivalries seeping into the project.
Known vulnerabilities
On one hand, it should be acknowledged that the geoeconomics vulnerability of the current global maritime supply chain was well known even before the Suez Canal blockade, and so was the theoretical role that the INSTC corridor could play in diversifying cargo transit routes. In last year’s UN report,[7] experts had already noted that problems underscored by the COVID-19 pandemic could not be ignored: shifts in supply-chain design, globalization patterns, and a growing focus on risk assessment and resilience-building were few among the challenges identified. Mega ships like the EVER GIVEN were cited as one of the inefficient and potentially risky market trends in maritime shipping:
The size of the largest container vessel in terms of capacity went up by 10.9 percent […] Gains from the economies of scale resulting from the deployment of larger vessels do not necessarily benefit ports and inland transport service providers, as they often increase total transport costs across the logistics chain […] The concentration of cargo in bigger ships and fewer ports often implies business for a smaller number of companies.
The EVER GIVEN is an example of this movement towards monopolistic market practices in maritime shipping: managed by Taiwanese colossus EVERGREEN, one of the ten biggest shipping companies in the world who, together, control almost 80% of total commercial traffic. The reported concluded underlining the growing strategic importance of diversifying sourcing, routing, and distribution channels. Some have argued that the US and the EU are falling behind on transport diversification compared to China, which has invested in expensive infrastructure to bypass overreliance on the Strait of Malacca;[8] Russia, too seems to have been proactively testing the Artic trade route, taking the blockage of the Suez Canal as an opportunity to promote it as an alternative to the Indian Ocean seaway to Europe.[9] The necessity for an alternative route to the one passing through the Suez Canal is evident also looking at the historical track record of instability in the Sinai region. After Nasser’s nationalization, the Canal was closed for a year; subsequent closures caused by the 1967 and 1973 war against Israel exacted a heftier toll on global commerce, leaving the Suez Canal closed for eight years. The prolonged closure of the Suez Canal and the return to the circumnavigation of Africa kicked off a mechanism of the economy of scale that led to the construction of larger and larger container ships, to the point that these became too large for the Suez Canal. The 8$ billion enlargements of the Canal in 2015 was supposed to have settled the logistical issue; however, the sheer size of a mega-ship like the EVER GIVEN constitutes an intrinsic risk factor in the smooth functioning of the global trade routes. The route that passes through the Suez Canal is also a hostage of geopolitical rivalries that extend to two other bottlenecks that many oil tankers en route to Europe have to pass: the Strait of Hormuz (between Iran and Oman) and the Strait of Bab el-Mandeb (between Yemen and Djibouti).
Ambitious solutions
The International North-South Transport Corridor was initially proposed by India, Russia, and Iran in 2000 as a means of boosting mutual trade. The scope of the project has changed many times throughout the years, ranging from a Russia-India commercial corridor to an ambitious trading route from South-East Asia to Europe, to a complementary section of the infrastructure grid of China’s Belt and Road Initiative. Since September 2000, thirteen countries have joined the project (India, Iran, Russia, Turkey, Azerbaijan, Kazakhstan, Armenia, Belarus, Tajikistan, Kyrgyzstan, Oman, Ukraine, and Syria). The INSTC consists of three routes, of which two are fully operational and one partially operational.[10] Since the port of Chabahar is not yet fully operational, all three routes rely on the shipping of Indian goods through the Iranian port of Bandar Abbas. From here, goods are transported to the Iranian northern border. The older, and the most expensive route connects India and Russia via the Caspian Sea; the second route, the Easter corridor, connects the Iranian railways to the Central Asian railway system through the Kazakhstan-Turkmenistan-Iran (KTI) railway; the third route, yet to be completed, relies on Azerbaijan as a land corridor between Iran and Russia. The third route is the most strategically important due to its lower transport costs and its potential connectivity with European railways through Belarus and Poland to the north, and through the Baku-Tbilisi-Kars railroad to the east. There are however still several gaps in the Iranian infrastructure network that prevent the Western route to operate at full capacity. Technical problems, such as the break of gauges, add further layers of difficulties to the already existent bureaucratic heterogeneity and scarcity of transport hubs along the way.[11] Furthermore, the low density of sea trade between Iran and India, as well as infrastructural limitations in Poland, severely reduce the current capacity of the corridor.
The temporary blockage of the Suez Canal by cargo ship EVER GIVEN on the 24th of March has highlighted the volatility of the global supply chain but has also re-heightened the rush for the control of future trans-continental infrastructure development. Iran is sitting right at the center of a crossroads of existing and planned trade routes and has tried to exploit the crisis to promote the often-forgotten International North-South Transport Corridor (INSTC). However, what’s at stake is not just the transport of cargo from Asia to Europe, but also the control of vital trade routes and the exertion of political and military influence in the Indian Ocean. Iran is holding a double-edged sword: it could either elevate its status to that of an impartial broker in between the appetites of China, Russia, and India or succumb to centrifugal forces pulling it into two diametrically opposite directions. At the moment, there are two clashing visions on the nature of the INSTC: one that sees it as a complementary infrastructure to China’s more developed Belt and Road Initiative (BRI), and one that sees it as a geopolitical counterweight to China’s continental preponderance. In this case, it is not yet obvious whether the logic of geopolitics and of geoeconomics can and will be reconciled; there is the risk that countries involved, acting according to risk-averse logic, jeopardize their own potential future profits to prevent their rival’s gains. Will the next era in Eurasian trade be ushered by a logic of relative gains or by one of the absolute gains?
Figure 1: [12]
Axes of confrontation
While economic interests point in favor of the quick development of the INSTC, the fragile geopolitical balance of the region betrays a much more complex picture. One of the original aims of the INSTC was to revamp the Russo-Indian alignment which had come to pass with the fall of the Soviet Union in 1991 and the Sino-Russian rapprochement of the 1990s. The fall of the Soviet Union had signified for New Delhi the loss of a major weapon supplier and of a key partner in its fight to contain Beijing’s influence;[13] for Moscow, on the other hand, the INSTC constituted an attempt to reassert its influence on its ‘Near Abroad’ after the EU-sponsored Transport Corridor Europe-Caucasus-Asia (TRACECA) had established in the 1990s a commercial corridor that bypassed Russian territory entirely. Russian officials may also be wary of Chinese economic preponderance in Central Asia, however containing Beijing is not their primary aim, as Moscow doesn’t have deep enough pockets to subsidize the colossal infrastructure project that Central Asia needs; maintaining as much leverage as possible over energy and trade routes to Europe, as well as boosting Russia’s sanction-hit economy through greater Eurasian economic engagement are at the top of Moscow’s priorities when it comes to the INSTC.
The situation in 2021 bears the potential of creating a fault line between India and Russia on the future of the INSTC. Beijing is continuing cooperation with Islamabad over the operationalization of the China Pakistan Economic Corridor (CPEC) that sets up Pakistan’s port of Gwadar as China’s warm water access on the Indian Ocean. Gwadar is the direct competitor of the India-sponsored port of Chabahar in southern Iran, as the two ocean hubs are located less than 200km apart. Moreover, tensions along the Line of Actual Control (LAC) between India and China have flared up since border clashes between the two state’s armies last summer; part of the reason for today’s weakening of the sixty-year-old conflict dating back to 1962 can be attributed to Indian fears of Chinese infrastructure construction across the disputed territory.[14] Analyst thus fears that in the light of the Biden’s administration incensed toned towards Beijing,[15] the two fronts of India-US and Pakistan-China may be tightening their ranks in South Asia. The problem for the INSTC is that Moscow has neither economic nor political incentives to alienate China in the short term; rather, for Russia, the best prospect for the INSTC development would be its full integration into the BRI east-west infrastructure, which already boasts three different land corridors connecting China with Europe. Biden’s harsh remarks towards Putin suggest that a Russo-American rapprochement is unlikely in the short term, and so is the creation of a Washington-Moscow axis to counterbalance Beijing’s rising power.[16]
However, in the medium and long-term, the biggest obstacles for the development of the INSTC are not China-India or India-Pakistan rivalries, but rather the pockets of dormant and ongoing conflicts in the region. As the 2020 Nagorno-Karabakh war has demonstrated, the scale and destructive potential in ethnic conflicts in the Caucasus have grown exponentially in the last decade. Beyond the unresolved conflict between Armenia, Azerbaijan, and the Republic of Artsakh, some of the projected railways would need to cross the border between Georgia and Russia, dangerously close to the still ongoing dispute in South Ossetia and Abkhazia. The need to diversify the supply chain may clash against the reality of the greater political stability that the Gulf countries may offer compared to the INSCT countries. In the light of the ongoing political and military conflicts, it is more likely that investors will look to diversify procurement rather than transport routes, to increase storage capacity rather than to create newer and more efficient transport corridors.
CONCLUSION: Iran’s position at the crossroads of two fronts
Tehran needs to thread the line between these two emerging fronts very carefully. As we have seen, Iran was one of the founding members of the INSTC initiative and it is its logistical crux; India’s investment in the development of the Chabahar port as a counterweight to Pakistan’s Gwadar also puts Iran in a delicate position. Iran and Pakistan have ambiguous relations as neighbors, where they often cooperate on transnational security issues, but then pursue conflicting regional and geopolitical ambitions. For instance, during the 2020 Nagorno-Karabakh war, Islamabad openly sided with Azerbaijan and Turkey, the regional rival of Iran in the Caucasus. At the same time, Tehran has recently signed a 25-year cooperation agreement with Beijing that has been hailed by Iran’s ambassador to Brazil Hossein Gharibi as ‘the foundation for new world order.[17] While no detail of the agreement has been yet made public, many analysts expect there to be substantial Chinese investment in Iran’s key energy and infrastructure projects,[18] which have stalled under the unilateral reimposition of sanctions by the US in 2018. Rouhani is under significant pressure to deliver some results ahead of the upcoming presidential elections of June 2021, and Chinese cooperation seems like the surest way to find the necessary funds to appease public opinion, as projected Chinese investment is as high as 400$ billion, funds that Iran desperately needs after the double plague of US sanctions and the COVID-19 pandemic.
[1] Lipsky, Josh. ‘Opinion | Why the Chaos in the Suez Canal Is Likely Just the Beginning’. NBC News, 30 Mar. 2021, https://www.nbcnews.com/think/opinion/stuck-ship-suez-canal-has-been-freed-there-s-more-ncna1262492.
[2] ‘Five Things to Know about the Suez Canal Gridlock’. Al Jazeera, 24 Mar. 2021, https://www.aljazeera.com/news/2021/3/24/what-is-the-significance-of-the-suez-canal.
[3] Kumar, Devika Krishna. ‘Oil Falls as Suez Canal Reopens, Dollar Rallies; Eyes on OPEC+ Meeting’. Reuters, 30 Mar. 2021. www.reuters.com, https://www.reuters.com/article/global-oil-int-idUSKBN2BM1PG.
[4] Mukhtar, Ibrahim. ‘Iran Proposes Alternative Shipping Line to Suez Canal’. Anadolu Agency, 28 Mar. 2021, https://www.aa.com.tr/en/middle-east/iran-proposes-alternative-shipping-line-to-suez-canal/2190717.
[5] Rahimov, Rahim. ‘Iran Seeks to Reroute North-South Transport Corridor to Armenia, Away From Azerbaijan’. Jamestown, 22 Feb. 2021, https://jamestown.org/program/iran-seeks-to-reroute-north-south-transport-corridor-to-armenia-away-from-azerbaijan/.
[6] Chaudhury, Dipanjan Roy. ‘India Proposes Inclusion of Iran’s Chabahar Port in International North South Transport Corridor – The Economic Times’. The Economic Times, 5 Mar. 2021, https://economictimes.indiatimes.com/news/politics-and-nation/india-proposes-inclusion-of-irans-chabahar-port-in-international-north-south-transport-corridor/articleshow/81336893.cms?from=mdr.
[7] Review Of Maritime Transport 2020. United Nations Conference On Trade And Development, United Nations, 2021.
[8] Lipsky, Josh. ‘Opinion | Why the Chaos in the Suez Canal Is Likely Just the Beginning’. NBC News, 30 Mar. 2021, https://www.nbcnews.com/think/opinion/stuck-ship-suez-canal-has-been-freed-there-s-more-ncna1262492.
[9] ‘Russia Pushes Arctic Ambitions after Suez Jam’. France 24, 26 Mar. 2021, https://www.france24.com/en/live-news/20210326-russia-pushes-arctic-ambitions-after-suez-jam.
[10] Contessi, Nicola P. ‘In the Shadow of the Belt and Road’. Reconnecting Asia, 3 Mar. 2020, https://reconnectingasia.csis.org/analysis/entries/shadow-belt-and-road/.
[11] Shinde, Shankar. International North South Transport Corridor (INSTC). Federation of Freight Forwarders’ Association in India, 26 Sep. 2018, https://fiata.com/fileadmin/user_upload/documents/recent_views/REU/International_North_South_Transport_Corridor_.pdf
[12] Lobyrev, Vitaly, et al. Belt And Road Transport Corridors: Barriers And Investments. 50, Eurasian Development Bank’s Centre for Integration Studies, 2018.
[13] ‘Rebuilding Interconnections: Russia, India and the International North-South Transport Corridor’. Asia Global Online, 17 Sep. 2020. https://www.asiaglobalonline.hku.hk/rebuilding-interconnections-russia-india-and-international-north-south-transport-corridor.
[14] Suyash, Desai. ‘How a New Rail Line in China Will Pose a Security Challenge to India’. Hindustan Times, 1 Apr. 2021, https://www.hindustantimes.com/opinion/how-a-new-rail-line-in-china-will-pose-a-security-challenge-to-india-101617278997764.html.
[15] ‘Next China: Is Trump Still in the White House?’ Bloomberg.Com, 2 Apr. 2021. www.bloomberg.com, https://www.bloomberg.com/news/newsletters/2021-04-02/as-biden-keeps-trump-s-china-policies-no-reset-yet-in-relations.
[16] Chernova, Anna, et al. ‘Russia Reacts Angrily after Biden Calls Putin a “Killer”’. CNN, 18 Mar. 2021, https://www.cnn.com/2021/03/18/europe/biden-putin-killer-comment-russia-reaction-intl/index.html.
[17] ‘Iran-China Partnership Foundation of New “World Order”: Envoy’. IRNA English, IRNA English, 27 Mar. 2021, https://en.irna.ir/news/84276005/Iran-China-partnership-foundation-of-new-world-order-Envoy.
[18] Motamedi, Maziar, ‘Iran and China Sign 25-Year Cooperation Agreement.’ Al Jazeera, 27 Mar. 2021, https://www.aljazeera.com/news/2021/3/27/iran-and-china-sign-25-year-cooperation-agreement-in-tehran.
About the author:
Valentina PEGOLO, the researcher at MEPEI, is a DPhil Candidate in International Relations (Department of Politics and International Relations, University of Oxford) and an ESRC (Economic and Social Science Research Council) studentship holder. Her thesis focuses on the foreign policy of Iran in Central Asia. She has previously completed a MPhil in International Relations (University of Oxford) and a BA in Philosophy, Politics, and Economics (University of Oxford). She has conducted research as a political analyst for UK NGOs. Her areas of expertise include Iranian foreign policy, the international relations of Central Asia and the Middle East, and the study of ideology.
