North-South and Persian Gulf-Black Sea Transport Corridors: Iranian Perspectives for Development
Dr. Ashot Yeghiazaryan
Doctor in Economics (AIISA associate fellow)
International transport corridors play a decisive role in cooperation and development of the included states. Such corridors are development axes for certain geo-economic spaces.
This article uncovers main features and development perspectives of international North-South and Persian Gulf-Black Sea transport corridors, as well as Iran’s interests towards them and the countries engaged.
INTERNATIONAL NORTH-SOUTH TRANSPORT CORRIDOR (INSTC)
On September 12, 2000 during the second Euro-Asian Transport Conference an agreement was signed between Russia, Iran and India on establishment of International North-South Transport Corridor (INSTC). And the record on official opening of the Corridor was signed in May 2002. Later, Azerbaijan, Armenia, Belarus, Kazakhstan, Oman, Syria joined the project. Turkey and Ukraine also submitted applications on joining INSTC.
INSTC was designed to provide transportation between Baltic countries and India through Iran and Russia, to increase trade turnover between the countries of that immense region, as well as contribute to strengthening of their economic and cultural ties.
The corridor plans three main routes: Trans-Caspian (through Astrakhan, Olya, Makhachkala ports), Eastern (direct railway communication through Kazakhstan, Uzbekistan and Turkmenistan via Tejen-Seraskh border crossing to Iranian railway network) and Western (Astrakhan-Makhachkala-Samur, then through the territory of Azerbaijan to planned bordering Astara station).
At the initial stage, numerous containers have been transported from India trough that corridor. Then due to technical and political complicacies North-South corridor was restricted by Russia-Iran and the opposite route.
Russia was to modernize the transport juncture in Astrakhan, develop port capabilities, which was possible through expansion of Olya port. In 2004 a railway to Olya port was constructed. However, its capability didn’t reach planned 8 million tons.
Currently port’s capacity comprises 2.65 million tons. It doesn’t operate even by that volume. Cargoes with insignificant number are being processed in the port. It failed to become “gates to India.” Transportation from India through Astrakhan has also been frozen.
Presently approximately the following snapshot for North-South Corridor has been shaped. If at the initial stage of the project implementation it was supposed that main cargo flows will comprise transit cargoes through the territory of Russia to northern and western Europe from India and in the reverse route, then currently the corridor’s operation mainly relies on Russia-Iran freight turnover.
Only certain volume of Indian cargoes move from the south, and the reverse flow almost lacks. The transport corridor mainly provides cargo flows to Iran and Persian Gulf, 70% of which comprise black metals. Volumes of transportation of external trade through Russian routes within INSTC comprised 7.3 million tons in 2015.
Within the project, Iran, yet in the period of president Ahmadinejad, was planning to construct the Trans-Iranian channel joining the Caspian Sea to the Persian Gulf. It was anticipated to be exploited in the 2020s.
Moscow, in its turn, was anticipating that it’ll be joined to Volga-Don channel, connecting the Caspian and the Black Seas (Russian-Iranian joint project is known as Eurasia Channel).
The Channel could be of strategic importance for Russia-Iran relations. Trans-Iranian Channel, or as Iranians frequently call it “big Iranian river,” is a rather costly project.
According to former Iranian Energy Minister, based on calculations of 2012, the project will cost USD 7 billion. Besides, this project comes across with other numerous challenges. It’s planned to transport water to Iran’s central parts through the Channel from the Caspian Sea to solve the issue of water deficiency for agricultural purposes.
However, it’s full of negative implications—violation of environmental system and climate change. After the Channel is built, it’ll be necessary to somehow connect eastern and western banks of the Channel, which requires additional investments and raises even costly price of the project.
To make the Channel navigable, it requires big depth and width, which creates big difficulties in construction on account of the difference in height between the Caspian Sea and the Persian Gulf. All these are serious obstacles to prove the feasibility of the project.
To the East-Caspian direction by the end of 2015 Iran-Turkmenistan-Kazakhstan railway, which is 677 km long, has been exploited, which is shorter by 600 km than the railway stretching through Seraskh. Currently that direction of the Corridor is being actively used to export wheat from Kazakhstan to Iran.
West-Caspian route required construction of Qazvin-Rasht-Enzeli railway, then its branching up to Azerbaijani border. Upon the “Border railway line” agreement signed between Tehran and Baku, Iran planned to construct a 101km railway up to Iranian Astara.
Opening of 205km Qazvin-Rasht railway is planned this year (by Iranian calendar). Upon initial data, its carrying capacity will comprise 5-7 million tons of cargo per year. Rasht-Iranian Astara part is yet in the planning stage.
INTERNATIONAL PERSIAN GULF –BLACK SEA TRANSPORT CORRIDOR
It’s remarkable that recently Iran’s Minister of Roads and Urban Development stated that Tehran attempts to connect Iranian Rasht city to Turkish and Armenian cities and Nakhichevan through a railway. It may be supposed that exits of the country’s railway network to the direction of Turkey and Armenia are being highlighted for Iran (Nakhichevan-Armenia crossing is closed out of political reasons), which edifies the predominance of European vector over the Russian one in Tehran’s foreign trade policy after being unsanctioned.
In Tehran’s policy, such radical change, in its turn, supposes not only economic, but also considerable reduction of geopolitical importance of at least West-Caspian direction of INSTC.
Before sanctions were lifted, Tehran’s position was leading to the point that Iran could more productively use its transit potential in the region, by playing a crucial role in cargo transportation from India and Persian Gulf countries to Europe through Central Asia, Caucasus and Russia.
To provide cargo transportation flow to Europe, Iran implemented much work to develop the ports of Persian Gulf and the Caspian Sea, expanded the railway network. It has constructed 1500km long Chabahar-Seraskh railway, confirmed 2010-2019 strategic security plan for road traffic.
After negotiating for a few years, Iran and India signed an agreement in 2015 to develop Chabahar port. That port will connect India to Afghanistan and Central Asia.
India rented two terminals and five docks in Chabahar, and should invest USD 200 million to turn the latter into multipurpose container and cargo terminals.
After sanctions have been lifted from Iran, its ambitions have increased, priorities are being radically reviewed. The Western press reports that Iran may be a new way in the Middle East due to its position, high security level, economy diversification and educated workforce.
Many share the opinion that Iran isn’t simply a 78 million market, but appears as a trade juncture for the 300 million market, by providing an access to Arabic countries in the south and in the west, to Central Asia—in the south, and to Afghanistan and Pakistan—in the east.
Iran strives to turn itself into a trade juncture not only for the Middle East and Asian countries, but also to connect them to Europe. Tehran has set forward the project on establishment of Persian Gulf—Black Sea transport corridor or the one connecting Iran, Armenia, Georgia and Bulgaria. Bulgaria agreed to join the project by using its Varna and Burgas ports.
If necessary, specialized terminals will be constructed in Varna and Burgas. Throughout the ongoing year experts of these countries have already met twice (in Tehran and Sofia) to discuss project details. In particular, issues on creating favorable conditions for cargo transportation between the West and Balkan Peninsula are being touched upon.
Besides, within that transport corridor Iraq and Syria are also considered as new markets. Iran is familiar with Iraqi culture and market; thus, it may serve as a trade zone connecting it to Europe. Iran may also be a connecting link for Syria after the war. India’s and Osman’s possible membership to the Corridor isn’t excluded either.
The new Corridor is planned for Iranian trucks, which should stretch through Armenia and Georgia to reach the Black Sea, from where they can move to Bulgaria, Greece and even Italy via roll-on/roll-off (RORO) ships.
Tension in the Middle East increases importance and role of the Corridor. Iran may exit to Greece through the highway stretching through the territory of Turkey. However, it strives to have parallel roads for its trucks to diversify and increase the possibilities.
Alternative route to Turkey is important not only for lines generating on the border of the two countries, but out of political instability and geo-economic reasons as well. For instance, recently lorries and buses have been set to fire in bordering Kurdish populated Bazargani. Iran officially demanded compensation from Turkey, however, the process remained with no results.
As for railway communication, carrying capacity of the railway from Iran to Europe is very small with a ferry crossing across Lake Van, which practically makes its use for large-volume cargoes impossible.
Iran and Turkey are contestants in the region. In the 1990s Iran proposed to establish Caspian Sea Organization (CSO). The initiative was conditioned by Turkey-Iran competition in the basin. By that, Iran attempted to isolate Turkey and avoid its infiltration to the region. However, international isolation of Iran was an obstacle.
Currently connection between the Middle East countries and Europe is provided through Turkey. Ankara strives to become the main actor of the Black Sea region and regards the Black Sea Economic Cooperation (BSEC) as a tool of implementation of its regional ambitions. Turkey attempts to use BSEC as a tool to increase its influence and, finally, dominate in the South Caucasus and the Black Sea basin.
Through this organization, Turkey started to exert efforts to become Europe’s advantageous partner. However, from the perspective of real cooperation practical steps are very few, as the organization disposes quite small financial resources. More popular economic projects are linked to transport infrastructures and energetics.
The project on establishment of Persian Gulf-Armenia-Georgia-Black Sea-Bulgaria-Greece international transport corridor initiated by Tehran, basically, is alternative to both transport and energy supply routes of BSEC. In fact, it’s also alternative to North-South Corridor.
IRAN AND PARTICIPANTS OF PERSIAN GULF-BLACK SEA INTERNATIONAL TRANSPORT CORRIDOR
Iran-Armenia. Tehran proposed official Yerevan to exert all efforts to implement the project connecting the Persian Gulf to the Black Sea through the territory of Armenia. Contrary to Turkey and Azerbaijan, Iran doesn’t have political contrasts and issues with Armenia. Implementation of this project will turn Armenia from deadlock transport region into a transit one. At the same time, Tehran expressed readiness to provide the technical and engineering services to establish the corridor.
Currently Armenia doesn’t possess serious infrastructures to transport Iranian freight. Main 550 km highways, connecting Georgia and Iran need modernization. It’s planned that the European Bank for Reconstruction and Development (EBRD) will allocate a loan amounting USD 150 million, European Investment Bank (EIB)—USD 60 million and Asian Development Bank (ADB)—USD 500 million to that end.
The project on construction of a railway, connecting Iran to Armenia, exists as well, in case of which a railway will connect the Persian Gulf and the Black Sea. Upon initial calculations, it’ll cost up to USD 3.5 billion.
Iran is ready to construct the 90km part from Iranian Julfa to Meghri on its on expenses. However, the Armenian part of the project meets the opposition of Russian concessioner of Armenian railways.
That railway isn’t of economic interest to Moscow. Moreover, it’ll intensify the influence of Iran and the EU in Armenia and in the region. To some extent, China is also interested in the railway construction besides Iran.
Armenia had submitted China the technical-economic report of the railway construction formerly, so that the latter analyzed its participation in the project.
ADB shows interest in studying the project, as well as financing of the projecting phase, and later—participating in the construction works. Discussions with the World Bank (WB) and EBRD on the project have been launched as well.
In general, international financial organizations in Armenia positively assess the idea of construction and are ready to assist financially. The project of construction of Persian Gulf-Black Sea-Bulgaria and Greece shows, that positive attitude is existent within the EU as well. Yet in November 2008 Antonio Tajani, Vice-president of the European Commission, Commissioner for Transport, welcomed construction of Armenia-Iran railway, as well as the agreement on construction of a new highway between the presidents of Armenia and Georgia.
Although Iran is considered one of Armenia’s crucial partners in the field of economic cooperation and about 100 documents on cooperation have been signed, hundreds of joint Armenian-Iranian enterprises have been registered and recent visa cancellation agreement was reached, current condition of trade and investments is far from being satisfactory.
Yet in 2010 Iran proposed Armenia to sign a free trade agreement between the two countries. Supposedly, conclusion of a likewise agreement will allow reach trade turnover between the two countries to USD 500 million per year and considerably increase border exchanges and traffic of trucks. However, the agreement wasn’t signed, to all likelihood, due to Moscow’s pressure on Yerevan. Currently all this is becoming complicated by the fact that Armenia, as a Eurasian Economic Union (EEU) member country, in fact, is deprived of the freedom to build sovereign trade-economic relations with Iran.
Upon the data of 2015 Armenia-Iran trade turnover comprised USD 276 million, which comprises only 5.8 percent of Armenia’s external trade turnover. It’s noteworthy that a considerable part of that volume is shared by gas import and electricity export envisaged by barter agreement for electricity and gas.
Iranian gross investment flow to real sector of Armenia’s economy as of late December 2015, comprised just USD 6.2 million (or 0.06 percent of total investments), from which direct investments amount USD 4.6 million (or 0.07 percent of total investments).
Iran-Georgia. 2010 is the turning point in Iran-Georgia relations. This November an agreement was reached to apply free visa regime, direct air communication was established between the capitals of the two countries, and Consulate General of the Islamic Republic of Iran has been inaugurated in Batumi.
As a result, tourist flows and economic relations considerably increased. In January 2011, Iranian visits to Georgia have increased, reaching 21.300, and in 2012 reached to more than 89,600 people.
Number of enterprises, registered in Georgia, has grown to 1500 from 100 throughout the last two years. However, in 2013 the coalition government of “Georgian Dream” canceled free visa regime by a unilateral order. As a result, the number of Iranian visitors in 2015 decreased by 72%, as compared to 2012.
Free visa regime contributed to trade turnover increase between Iran and Georgia. If in 2010 mutual trade turnover comprised USD 42 million, then upon the results of 2013 it exceeded USD 100 million. Trade turnover continued to increase in 2014 as well, reaching USD 151 million, in 2015 it comprised USD 128.1 million, and in January-July 2016—USD 65.3 million.
In spring 2013 agreement on bilateral cooperation in the field of free economic zones was signed between the two countries. Tehran strives to reach conclusion of an agreement on use of preferential customs duties between the two countries.
Iran is interested to expand and deepen trade-economic relations with a country with EU free trade status. Parallel to the development of those relations, Iran will be interested to build storehouses, ports and invest in Georgia’s industrial zones.
In late 2013 it was stated on plans of establishing Iran-Georgia trade-industrial chamber. In Georgia, it can represent industrial zone of Kutaisi and trade-industrial chamber of Adjara. Free visa regime has been restored between Iran and Georgia in February 2016.
New possibilities have been opened in the field of energy cooperation between the two. In February 2016 Tehran and Tbilisi reached preliminary agreement to supply 500 million m3 Iranian gas to Georgia through the territory of Armenia. Yet in July an agreement on pilot supply of gas for four months was concluded.
The point is that in winter months Georgia has daily gas deficit comprising 2.5 million m3. Currently Azerbaijan provides 90% of gas import to Georgia. The other 10% (around 2.5 million m3) is provided by Russia as a payment for gas supply to Armenia. Georgia intends to diversify and reduce dependency on Azerbaijan.
On the other hand, Russian “Gazprom” company proposes Georgia to pay for the transit by money, and not by gas. Moscow threatened even to completely suspend gas supply to Armenia through the territory of Georgia and buy it for Armenia from Iran.
On the one hand, Russia attempts to control supply of Iranian natural gas to Armenia, and intensify Georgia’s dependency on Russian gas on the other. That’s why “Gazprom” offers a low price, as compared to Azerbaijani SOCAR. However, buying gas from “Gazprom” is undesirable for Georgia.
And here Iran proposes an alternative. Tehran expressed willingness to supply 14 million m3 gas to Georgia daily, i.e. Iran is ready to fully satisfy Georgia’s need in gas. In the perspective, Georgia may provide cheap and politically steady route to transport Iranian hydrocarbons to Europe.
Iran-Bulgaria. Decision of Bulgaria and Greece to join Persian Gulf—Black Sea transport corridor makes the project more promising.
Recently Iran and Bulgaria signed three fundamental agreements to facilitate relations between SMEs of the two countries, in the fields of telecommunications and mutual investments. Bulgaria may become a platform for Iranian investments in the EU.
Iran observes Bulgaria as a partner, which may become an export gate of Iranian energy resources to Europe.
Possible route of Iranian gas supply to Bulgaria may be import of compressed natural gas to Greek Alexandroupolis terminal (there is a project to connect Greece and Bulgaria through a gas pipeline) and construction of Iran-Georgia-Black Sea-Bulgaria gas pipeline. They may become energy communication corridors between Europe and Middle East countries, rich in energy resources. Besides Iran is ready to finance construction of oil processing plants in Bulgaria, which may become a new base in Europe for the Iranian oil.
Currently issues related to nuclear energy between Bulgaria and Iran are being discussed. The Arbitration of the International Chamber of Commerce in Geneva passed a decision on June 14, 2016 that Bulgaria’s National Electric Company is obliged to pay EUR 620 million as compensation to “Rosatom” for cancelling the decision on constructing a new nuclear power plant in Belen in 2011.
That’s why finding a new customer for Russian reactor designed for “Belene” Nuclear Power Plant (NPP) is an essential issue for Sofia. Iran may buy it for the second regime of Busher NPP. However, according to the experts, even if Iran agrees to buy it, the consent of “Rosatom” will be required (“Rosatom” has an agreement in force with Iran), i.e. there are also political issues besides technical and financial ones.
Iran-Greece. In March 2016, National Iranian Oil Company (NIOC) and Greek Hellenic Petroleum signed an agreement on resumption of Iranian oil supply. The Greek company had been the traditional buyer of Iranian oil prior to imposing international sanctions against Iran.
Until 2012 Greece was buying 100 thousand barrels of oil from Iran daily, which comprised one third of import. After cancellation of applied international sanctions against the Iranian oil sector financial issues, emerged because of it, have been settled as well. From the moment of imposing banking embargo against Iran Greek oil debt comprises EUR 650 million. Pursuant the concluded agreement Hellenic Petroleum will receive 60 thousand barrels of Iranian oil per day. That volume may be increased up to 150 thousand barrels.
In early 2000s, Moscow had rather ambitious plans regarding INSTC’s future and intended to engage large transit freight flows. However, at large, the corridor project is rather far from being implemented in terms of its initial purposes and ambitions.
Moscow failed to establish complete transport corridor. Due to reorientation of geopolitical interests of many countries of the world, in fact, it didn’t enter the implementation stage from the planning one.
Lifting of sanctions from Iran made Tehran initiator and ensured certainty in its geopolitical and geo-economic priorities. Iran is interested in construction of alternative roads to Europe. Developing Persian Gulf-Armenia-Georgia-Black Sea-Bulgaria-Greece corridor bypasses both Turkey and Russia.
If succeeded that project will make Armenia and Georgia crucial transit areas and will contribute to the growth of their economy. For Armenia, it also means the end of Turkey-Azerbaijan blockade. As the project bypasses Russia, it weakens the latter’s influence in the Black Sea and in the region, which opens good opportunities for Armenia’s European integration.
For Bulgaria and Greece implementation of the project will provide additional privileges both in the field of trade and investments, and diversification of sources and routes of energy resource supply. Thus, that project has both economic and political prerequisites for implementation.
Improving Security and Policy Debates in Armenia (NED)
The Armenian Institute of International and Security Affairs (AIISA)
 Geographical position of North-South Corridor, http://cargo.rzd.ru/static/public/ru?STRUCTURE_ID=5130
 Astara-Rasht-Qazvin, https://ru.wikipedia.org/wiki/Железная_дорога_Астара_—_Решт_—_Казвин
 Iran plans to construct a railway from Rasht to Turkey, http://www.iran.ru/news/economics/102225/Iran_planiruet_postroit_zheleznuyu_dorogu_iz_Reshta_v_Turciyu
 Iran to Launch Black Sea-Persian Gulf Corridor with ‘Trade Hub’ Ambitions, 13 July, 2016
 Iran-Armenia-Georgia-Europe: A new transport corridor to be discussed in Sofia,
 Working Visit of President Sargsyan to the Kingdom of Belgium and European Structures,
 Georgia imposes visas for the citizens of Iran, http://www.golos-ameriki.ru/a/nc-georgia-visas-for-iran/1694387.html
 National Statistics Office of Georgia, http://geostat.ge/index.php?action=page&p_id=134&lang=eng
 Does Iran enter into a struggle for Caucasus energy pie? http://www.pda.inosmi.ru/economic/20160225/235528847.html?all
 Bulgaria and Iran hope to expand energy cooperation, http://www.naturalgaseurope.com/bulgaria-and-iran-hopes-to-expand-energy-cooperation-30573
 New possibilities for Greece after lifting sanctions from Iran, http://russia-greece2016.ru/economics/20160202/140705.html