Moscow’s Plans for Trade Corridor with Iran Faces Ever More Problems

Executive Summary:

• Since becoming the Russian leader, Vladimir Putin has made developing a north-south trade corridor a centerpiece of his geoeconomic and geopolitical program. This would counter the impact of east-west routes and align the global south against the West.
• He has now declared this corridor the foundation of a new strategic alliance with Iran, one designed to help him with his war against Ukraine, which disturbed many in the West as a sign that he will be able to end-run sanctions and overturn the current global order.
• The much-ballyhooed plans for a trade corridor between Russia and Iran face many problems. They are unlikely to be realized until the next decade unless Western sanctions end and outside investment flows in to fund this project.

Twenty-five years ago, with great fanfare, Russia and Iran signed an agreement to open a north-south intermodal transportation corridor between Russia in the north and the Indian Ocean in the south. Progress has been slow, however, and is unlikely to accelerate anytime soon, Russian analysts say on this anniversary. This conclusion is in striking, sharp contrast to Russian President Vladimir Putin’s and Iranian leaders’ boosterism this month and to Western fears about what the development of this route will mean for international relations (“Kaspiskii Vestnik”, January 5). The economic benefits Russia and Iran would obtain if this route became fully operational are abundant, so concerns about that development explain why many Western commentaries are increasingly alarmist. Problems with the route include the politics of the countries between Russia and Iran, the topographic difficulties involved in building it, and the shortage of funds to construct both intermodal transit points and rail lines. These all mean, as Russian analysts acknowledge, that the corridor is not going to be fully operational until sometime in the 2030s unless the West ends its sanctions regime against Moscow and allows the influx of investments that might give Russia and Iran a victory on what is a critical front for both.   

Progress toward the completion of this corridor over the last two decades has been slow despite Putin’s commitment to the construction of a north-south transit corridor and the support he has received from Iran and, to a lesser extent, India and other South Asian countries. There simply are not enough rail and sea lanes in place either north or south of what was once the Soviet border for the situation to be otherwise, the topography of the area makes building new routes extremely difficult and expensive, and the shifting politics of the countries in between has forced Moscow to keep changing its plans for where the corridor will run from west of the Caspian to east to the Caspian Sea itself (see EDM, September 1, 2015, February 26, 2019, February 22, 2021, January 4, 2023, April 11, 2023, August 8, 2023, 2023).

Moreover, the development of the route in Iran has faced serious problems. Not only are its rail lines of a different gauge than those of Russia and the other post-Soviet states, but Iran has few rail lines at all in the north and thus cannot handle the trade that Russia wants to make the corridor fully operational. Iran has announced plans for nine strategic railway corridors to overcome these problems, but it lacks the funds to do so on its own (Eurasia Today, January 9). Russia’s war in Ukraine and sanctions have compromised Russia’s ability to assist it, and its dependence on China is also undercutting Tehran’s commitment to building the north-south corridor, as Beijing has a different agenda than Moscow as far as routes are concerned (see EDM, February 22, 2021, May 16, 2022). Unless sanctions against both Russia and Iran are lifted, the financing needed for this project is unlikely to come from the West.

Leaders of Russia and Iran continue to speak as if the route were already fully functioning because of the advantages that the completion of the north-south route would bring both Moscow and Tehran. Those statements, along with the shipment of Iranian arms north to Russia, have driven Western alarm. (For a useful recent survey of the former, which clearly are the reasons for the latter, see “Kaspiskii Vestnik”, December 2, 2024.) That pattern makes the correction offered by Aleksey Sidelnnikov, a Russian specialist on the Caucasus and its transportation routes, especially important (“Kaspiskii Vestnik”, January 5). After surveying what both Moscow and Iran have said over the past 25 years about the corridor as compared to what has actually happened, he suggests that it is critically important to recognize that the claims have often outrun the realities.

That pattern, he suggests, is likely to continue given the importance of the corridor once completed and the difficulties Moscow and Tehran are now facing and will likely continue to face in the next decade. Sidelnikov points to five difficulties that he says are almost certain to constitute obstacles to achieving what Moscow and Tehran hope for:

• First, sanctions and the geopolitical tensions that have produced them. These trends mean that outside funds are unlikely to become available and that both Moscow and Tehran will be unable to come up with more money on their own because of their other commitments, including rising tensions between the two and the West;
• Second, unresolved differences among the partners in the corridor project over its routing, especially over which country will build what on the territories of others. This has already delayed construction in northwestern Iran;
• Third, the lack of existing infrastructure in both Russia and Iran and in the countries in between. This shortage involves not only the rail mainlines but feeder routes and intermodal transfer stations as well;
• Fourth, the failure of the two sides and their partners in between to come up with a single tariff policy or even agreements on the harmonization of border procedures. These all slow the flow of goods and hence the importance for the participants in completing the corridor infrastructure; and  
• Fifth, growing concerns in these countries and others further afield about the environmental impact of the corridor. These concerns may seem small now but are growing as ever more of the trade planned shifts from land to the Caspian Sea, which is already suffering from serious environmental degradation and as Iran copes with water shortages and a burgeoning population in its ethnically fractious northwestern provinces (see EDM, November 16, 2023). 

None of these problems by themself or even all of them together means that Moscow and Tehran will not be able to complete the corridor at some point. They suggest, however, three important caveats for the West to take into consideration. First, Moscow’s claims about the corridor are just that, claims rather than realities, and should be treated as such. Second, the problems that Moscow and Tehran face in this area are increasing rather than decreasing, and consequently, even today’s projected completion dates in the next decade should be treated with skepticism. Third, and by far the most important, as long as the West keeps sanctions against Russia for its war in Ukraine and Iran for its nuclear program and support for terrorism in place, Moscow and Tehran are unlikely to be able to achieve the breakthrough with the north-south corridor against the West they hope for anytime soon if at all.