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For centuries, trade with Europe was the main pillar of the Russian economy.
The Ukraine war brought that to an end, and Western sanctions and other restrictions have increasingly cut Russia off from European markets. In response, Moscow expanded its relations with more trading-minded countries: China in the east, and via routes to the south, India and the Persian Gulf states.
This southern route is now the focus of Russian policymakers seeking to build the infrastructure for a plan to permanently break away from the West. The effort faces challenges including questions over funding, the credibility of Russia’s new partners and the threat of Western sanctions targeting countries that trade with Russia.
A key part of the southern plan is a $1.7 billion, 100-mile railway that begins construction this year and will be the last link on the route between Russian and Iranian ports in the Persian Gulf and India’s trading hub of Mumbai. It will provide easy access to destinations such as capital. Russia agreed to loan Iran $1.4 billion to finance the project.
“Russia’s traditional trade routes were largely cut off, so we had to consider other options,” Rauf Agamirzayev, a transportation and logistics expert based in Baku, Azerbaijan, said of the southern route. said.
Russia has found numerous ways to circumvent Western trade restrictions, importing things such as machinery from India and weapons from Iran, as well as many consumer goods (often via Gulf states and Turkey) that are sold to Russians. The government places great importance on this. They can maintain their standard of living even during wartime.
Although some consumer goods are still legally imported from Europe, all kinds of restricted and hard-to-find goods are also widely available in Russia. French oysters, flown in by a detour somewhere, are available in a restaurant in Moscow, and Italian truffles and French champagne, whose exports are banned by the European Union, are available in high-end grocery chains. Available.
The Russian government says a rail project through Iran, and another line it wants restored to provide access to Turkey, is essential to anchoring and speeding up the flow of all imports into the country. I think there is. It is also seen as important to strengthen exports of Russia’s natural resources, which are important to the economy.
Russian President Vladimir V. Putin said the new route would reduce the transit time for cargo from St. Petersburg to Mumbai to just 10 days, from the current 30 to 45 days. Russian authorities call it a “groundbreaking revolutionary project” comparable to the Suez Canal.
It will also complement the overcapacity of Russia’s trade routes to China, its largest trading partner. According to Chinese statistics, since 2021, just before the country’s full-scale invasion of Ukraine in February 2022, Russia’s trade with China has surged 61% to more than $240 billion in 2023.
Trade with India is also rapidly increasing, reaching $65 billion, more than four times as much as in 2021. Russia’s trade with the two countries in 2023 exceeded its pre-war trade with the EU, which was $282 billion in 2021.
The new railway will link the two Iranian cities of Astara and Rasht, linking the line between Iran and Azerbaijan in the north, and then connecting to the Russian rail network. Once completed, the new link is expected to be completed in 2028 and will result in a “North-South Transport Corridor” that will stretch for more than 4,300 uninterrupted miles and be beyond the reach of Western sanctions.
Iran’s facilities in the Persian Gulf will give Russian traders easy access to destinations such as Saudi Arabia, the United Arab Emirates and Pakistan, as well as India.
The trade route through the Caucasus and Central Asia, across the Caspian Sea to Iran, has already become an important route for Russia in recent months, according to maritime news and information specialist Lloyd’s List. Russia also transports products such as oil, coking coal and fertilizer in the opposite direction.
Gagik Agajanyan, president of Apaven, Armenia’s largest freight forwarding company, said his fleet of trucks could be loaded with large quantities of consumer goods delivered by rail from ports in Georgia on the Black Sea and transported north by land. He said there are many. border with Russia. More sensitive goods, such as those banned by Western countries, can be transported through Iran, which borders Armenia, he said. Goods are transported from Iranian ports across the Caspian Sea to Russia.
“Georgians say, ‘These are authorized products.’ We won’t let you go through Russia,” Aghajanyan said in an interview. “And the Iranians say, ‘We don’t care.'”
According to Russian Deputy Prime Minister for Economy Andrei R. Belosov, the overall trade volume on this route in 2023 will increase by 38% compared to 2021 and could triple by 2030.
In addition to the route through Iran, Russia also wants to restore a former Soviet railway that connected Moscow to Iran and Turkey via the Armenian and Azerbaijani enclave of Nakhchivan. This railway was abandoned in the early 1990s when war broke out between Armenia and Azerbaijan.
Russia hopes to open the railway within the next few years, but the project is caught up in the region’s complex geopolitics.
Azerbaijan is keen to compete for the link, while Armenia is reluctant to get involved in the project due to concerns about who will control the tracks within its territory. During the Soviet era, it belonged to the Azerbaijan Railways. In 2020, Armenia signed an agreement transferring control of it to Russian security services.
However, Russia, once a close ally of Armenia, has strengthened its friendship with Azerbaijan, and Azerbaijan has taken full control of the breakaway region of Nagorno-Karabakh, which had been under the control of Armenian separatists for more than 30 years. The government is essentially watching from the sidelines. . Now the Armenians want to control part of the railway line itself, centered around the town of Meghri, which is strategically located on the border with Iran.
For now, Megri’s train station remains a relic from the Soviet era, its rooms filled with old train maps and tickets hidden under dead leaves and dust. Its railway tracks, built by Tsarist Russia more than a century ago, were long ago replaced by vegetable gardens.
Azerbaijan’s railway company is nearing completion of a line that will run through territory it occupied before the 2020 war to Armenia. From there, it could proceed either through Armenia or, if Armenia chooses to move away from the route, through Iran.
“Russia can get rail links to the Persian Gulf and Turkey,” said Nikita Smagin, an expert on Russia’s Middle East policy at the Russian Council for International Affairs, a think tank. “It can happen pretty quickly, up to two years.”
The head of the Azerbaijan Railway Company, Rovshan Rustamov, said that the Azerbaijani part of the project should be completed by the end of 2024. He said logistics could even replace oil as the biggest driver of Azerbaijan’s economy.
Azerbaijan also hopes to benefit from the Baku port’s new status as a strategic hub for goods transported between Russia and the outside world, and between Asia and Europe, conveniently bypassing Russia. are doing.
After Russia’s invasion of Ukraine began, Baku authorities rushed to plan a second phase of the port’s development to cope with the anticipated surge in cargo traffic.
“Previous feasibility studies showed that there is no need to rush the expansion,” said Tare Ziyadov, director of Baku Port. “After the war, we conducted new research and found that we needed to move that date forward, perhaps to 2024.”
While Russian officials have praised the new trade route, some business leaders are less confident.
“This seems to be a forced decision that was not formed from objective reasons,” said Ivan Fedyakov, who runs Infoline, a Russian market consultancy that advises companies on how to survive under the current restrictions. he says.
“What is essentially being created is a pariah trade route,” said Lam Ben Tzion of Publican, a firm that analyzes trade restriction circumvention.
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