Trade route of the future?

Trade route of the future?

Over the past five years, the U.S. and the European Union have emphasized the important role that countries in the former Soviet Union and Central Asia play in the development of east-west energy and transport routes linking Central and South Asia with Europe. Less noted, however, have been ongoing developments in the creation of north-south trade lanes linking markets in South Asia with Europe via Iran and Russia.

While the recent news of Russian-Iranian relations has largely focused on weapons and technology transfers from Russia to Iran, the nascent North-South Transport Corridor signals an attempt to restore the historic trade of conventional commodities between South Asia and Europe. The project also demonstrates the common interest of regional countries to expand the number of trade route options that extend north and south, as well as east and west.

Due to politics, in particular the U.S. inclusion of Iran in the "Axis of Evil," existing organizations that promote regional infrastructure and transit routes in Central Asia have excluded Iran. Russia and Iran have responded by pushing alternative transport routes by restoring Soviet-era ties and developing port and rail infrastructure. Two years ago, Russia, Iran and India signed an agreement aimed at developing the North-South Transport Corridor.

The project stretches from ports in India, across the Arabian Sea to the southern Iranian port of Bandar Abbas, where goods transit Iran and the Caspian Sea to ports in Russia's sector of the Caspian. From there, the route stretches along the Volga River via Moscow to Northern Europe.

Analysts say Indian cargo transported via the route has increased over the past year, reversing a dramatic decline of the 1990s. In the Soviet era, millions of tons of cargo a year passed from Europe to Iran via the Soviet Union and between the Soviet Union and India along this same route. In 2000, small shipments of tea and tobacco again moved to Russia from India through Iran.

"During trial operations that have been on for a year now, the route has already logged shipment of some 1,800 containers and the figure is expected to touch the 8,000 mark later this year," Shishir Gupta, a noted author and expert on India's international transport systems, wrote in a recent edition of the weekly news magazine India Today reported in a recent edition. It added that the corridor is expected to handle 15 million to 20 million tons of freight annually and annual trade worth $10 billion.

For India, "A cut in transport costs will make goods cheaper and therefore more competitive in European markets," an official with the Confederation of Indian Industry said. "The corridor will not only boost India's trade with Russia and Iran but also that with the Baltic states and the Central Asian countries."

The revived route is expected to offer quicker and cheaper transportation than the primary alternative - the shipment of goods from South Asia through the Suez Canal and the Mediterranean and then into the Atlantic and North Sea to Baltic ports. Russian analysts predict that delivery time using the North-South Corridor will be reduced by up to 20 days, and the cost per container will decrease by $400 to $500. Moreover, they estimate the Russian government will receive hundreds of millions of dollars - or more - from taxes and customs revenues.

The project's momentum has increased in the past year. Representatives from the respective transport ministries met in New Delhi in January 2002 to establish an agency to deal with customs, financial and legal issues. In May, the transport ministers officially launched the North-South transport corridor project.

But significant obstacles remain. While Russia and Iran have pledged to invest in road, rail and port infrastructure, shortcomings in infrastructure remain a concern.

During an April 2002 visit to the Astrakhan region on the Caspian coast, President Vladamir Putin singled out the economic importance of the North-South transport corridor but called for an improvement in the Port of Olya, which he called the "weak link" of the corridor. Olya, strategically located at the mouth of the Volga, is now being upgraded to allow for year-round transport of ocean container traffic.

Significant political differences between Iran and Russia, largely related to the future of the Caspian Sea that separates them, also cloud the picture. Iran has protested Russian plans for military exercises in the Caspian, even though both countries have used their militaries in the Caspian before.

But even as political and economic challenges remain, bilateral agreements related to the corridor continue to be signed. Iran is particularly interested in forging trade relations with Central Asia, and President Mohammad Khatami signed several trade and transportation agreements during a tour of Central Asia last year. A transportation corridor through Turkmenistan already exists between Iran and Uzbekistan, and the development of an additional route via Afghanistan is under discussion.

Iran has perhaps most actively promoted relations with Kazakhstan and Azerbaijan, both of which support the north-south corridor project. Kazakhstan over the past decade has attempted to build strong relations with its neighbors while ensuring multiple export routes for the country's vast energy reserves. The country began to supply oil products to Iran by rail in May 2002.

Azerbaijan, which has largely focused on the east-west energy corridor, is discussing construction of a 220-mile rail line linking the country to Iran, while also considering rehabilitation of the existing Baku-Astara railroad.

The North-South Corridor also has the potential to incorporate other interested countries - in the Caucasus, Central Asia, Eastern Europe and perhaps Oman. But history has not been kind to regional transportation projects. The Trans-Siberian Railway, once hailed as an important strategic and economic project, now moves only about 10,000 containers per year mainly due unreliable service. The Caspian region is also notorious for its lack of investment in essential port and railway infrastructure.

In addition, strategic and political dangers, such as the potential for militarization of the Caspian, could pose a threat. Prominent Russian politicians have noted the route could be used for illicit drug and weapons trafficking. The Russian ports of Olya and Astrakhan, as well as others in Iran, also allegedly are involved in the illicit transfer of components used to develop weapons of mass destruction.

But the upside is immense. If completed, the corridor could transform the face of trade in the region. Compared with the 10,000-mile route through the Suez Canal and the Mediterranean Sea to the Baltic ports of Northern Europe, the North-South Corridor is just 3,900 miles long. It will cut transport time by up to 20 days and transport costs by about 15 to 20 percent.

The corridor connects Mumbai with St. Petersburg via Tehran and Moscow. In effect, it connects the Indian Ocean with the Baltic Sea. Linking the Indian commercial capital of Mumbai with the Iranian port city of Bandar Abbas by maritime transport, the North-South corridor will then rely on road and rail networks to connect Bandar Abbas with the Caspian Sea ports of Bandar Anzali and Bandar Amirabad, via Tehran. From there, cargo will cross the Caspian Sea to the Port of Astrakhan, Russia. A long stretch of road and rail will run up to St. Petersburg, through Volgograd and Moscow.

But the corridor is more than a link connecting Mumbai, Tehran and Moscow. It provides Europe access to Asia and vice versa. The Russian network of roads and railroads are connected to Central and Western Europe via Eastern Europe. Iran has land links to Central Asia, and its ports offer warm-water sea routes to India.

"With India, Myanmar and Thailand getting linked by road, the potential of the North-South corridor is endless," said the official at the Confederation of Indian Industry He added that the route could boost trade between Europe and Southeast Asia.

Indian officials and entrepreneurs have been looking to explore the trade possibilities with the Central Asian republics of Turkmenistan, Uzbekistan, Kazakhstan, Kyrgystan and Tajikistan. India, which has depended on oil from the Mideast, wants to tap into the massive energy reserves of the Central Asia. The Central Asian countries, meanwhile, are a ripe potential market for Indian heavy machinery, pharmaceuticals and tea.

Until now, India's trade with the Central Asian republics has been hamstrung because the shortest route for that trade is through Pakistan, a traditional enemy. "We do not have to wait for India-Pakistan relations to normalize to tap into Central Asia," said an official in the Indian Ministry of External Affairs.

When all is said and done, however, the route's success comes down to money, and some wonder where the necessary funds to upgrade the rail, road and other infrastructure networks will come from. "None of the signatories - Russia, Iran and India - have that kind of money," the CII official said.

Security through the politically unstable Caucasus region is also a major concern, especially as it relates to conflict-ridden areas like Chechnya. And Western nations are unlikely to opt for a route that runs through Tehran. Will economic sense eventually win out? After all, the Suez Canal continues to lure shipping companies, despite the political instability of the Mideast.