Azerbaijan - major transit gateway of North-South corridor Armenia sitting on the sidelines

The formation of the North-South International Transport Corridor (ITC) has come to the finish line. On May 17, Russian Transport Minister Vitaly Savelyev and Iranian Minister of Roads and Urban Development Mehrdad Bazrpash signed an agreement on the construction of the Resht-Astara railway section. The Russian share in the interstate loan for this project will be 85%. The two heads of state took part in the signing ceremony via video link. One of the key beneficiaries of this agreement will also be Azerbaijan, whose territory is crossed by the ITC rail and road, and along the route terminals, interchanges, and other cross-border infrastructure have been created.

The geopolitical rift in Eurasia caused by the war in Ukraine and the sanctions confrontation has minimised transport links between the West and the East along the Northern Corridor. In order to overcome the limited transport vectors, cargo carriers from Iran, the Middle East, India, and China intend to multiply trade and logistics cooperation with the countries of the South Caucasus and Central Asia, through whose territory the optimal alternative routes to the northwest run. In addition to the Middle Corridor, which has been developing rapidly over the past few years, the North-South route also has great potential: it takes around 22-23 days to transport goods over the ITC from Russia's Baltic harbours to the Indian port of Mumbai, a distance of around seven thousand kilometres, and reduces transport costs by 30 percent compared with a longer sea route, for example, through the Suez Canal. The shorter western overland route through Azerbaijan has even higher cost-effectiveness (tonne/km).

Russia, Iran and India have been particularly interested in this route, but various factors have prevented its full-scale implementation over the past decade and a half, most notably sanctions against Iran that have hampered international financing of the project, which has repeatedly hindered implementation of the signed agreements and delayed construction of the rail links that pass through Iranian territory. However, since last year, the sluggish negotiation process to complete the Rasht-Astara railway, as well as the unresolved aspects of the railway extension to Iranian ports in the Persian Gulf, has gained significant momentum. Last year and this year, Russian-Iranian talks at various levels agreed to increase trade between the two countries from the current four to $40 billion in the next few years. Moscow and Tehran have pushed forward the work of a special working group aimed at resolving infrastructure issues, with Russia ready to allocate around $1.5 billion for expanding bottlenecks and modernising the railways' infrastructure of the Motorway Transport Ministry.

A logical continuation of the new strategy was the agreement signed on 17 May in Tehran by the heads of the transport agencies of the Russian Federation and Iran on joint financing, design, and construction of the 170-km long Resht-Astara railway section. Agreements have also been reached on the supply of materials and services within the framework of this project. Under the agreement, Russia will provide a €1.3 billion loan for the construction of the railway section, while the total cost of the joint project is estimated at about €1.6 billion. According to preliminary estimates, the construction of the new railway section will be completed within four years.

The signing ceremony was attended by Russian Deputy Prime Minister Alexander Novak, Russian and Iranian Presidents Vladimir Putin, and Ebrahim Raisi via videoconference. In particular, commenting on the agreements reached, the Iranian president noted that the Russian share in the interstate loan is 85%, and the repayment will be made during the payback period of the project. Moreover, in order to accelerate the payback period, it is planned to increase the volume of cargo turnover along the ITC railway corridor to at least 15 million tonnes per year by 2030. Raisi also said that a contract has been signed between commercial companies for the project, design and other preparatory work has commenced and construction can tentatively commence in a year's time.

"Finally, after two decades, the North-South transport corridor connecting South Asia with Northern Europe will be completed. The significant and stable revenues from this route could compete with oil exports," Mohammad Jamshidi, Iran's deputy chief of staff for political affairs, wrote on Twitter.

Russian President Vladimir Putin, who said that the construction of the Resht-Astara section was only the beginning of the work on the systematic increase in the capacity of the ITC railway route, also praised the efforts made to promote the project. "The implementation of this project is carried out in close partnership and cooperation with Azerbaijan, and we look forward to the soonest possible completion of a trilateral agreement on cooperation in the development of railway infrastructure and freight transport on the North-South route," Putin said, stressing that the necessary legal framework for the successful coordination of the three countries will also be formed.

It is noteworthy that Azerbaijan is supposed to be one of the main beneficiaries of the completion of the North-South corridor transport communications, given the developed railway, road, and port infrastructure available in our country, which makes this segment of the ITC the most advantageous, safe and shortest for cargo transit between Russia and Iran.

In terms of the degree of development of transport infrastructure in the northern and southern directions, Azerbaijan is unequivocally beyond competition in the South Caucasus. The advantages of the Azerbaijani route include the existence of a double-track electrified and equipped with optical communication channels, modernisation of which on the section Baku-Yalama was carried out at the expense of a $400 million loan from the Asian Development Bank. Following the modernisation of the Baku-Yalama section, the Alat-Astara railway line will also be reconstructed.

By the end of 2023, Azerbaijan will complete the construction of the new Samur-Baku high-speed road. Earlier, in 2019, a new Yalama-Gazmalar road bridge on the Azerbaijan-Russian border on the Samur River was put into operation, and last year a new checkpoint "Khanoba" (handles about 1,000 trucks per day) and a modernized checkpoint "Shirvanli" - for transshipment of empty trucks - started operating. Thanks to the measures taken, there is now no congestion on the Azerbaijan-Russia border and the volume of freight traffic is steadily increasing.

Azerbaijan has also developed its transport infrastructure on its southern borders even more effectively: In 2018, the 243-kilometre multi-lane Alat-Astara-Iran state border highway was put into operation. In the past four years, rails were built from Astara to the state border, a railway bridge across the border river Astarachai, new terminals, and checkpoints at the border, including the region's largest grain terminal AstaraGrainTerminal with a throughput capacity of 500,000 tonnes of grain per year. As for the connection of railway lines in Iranian Astara with the Azerbaijani border Astara, these works are planned to be implemented in close coordination with Moscow, Tehran, and Baku.

All the above opens a window of opportunity for a multiple expansion of cargo handling along the western route of the North-South ITC: the advantages of transit through Azerbaijan include a shorter distance of about 1,450 km. Even today, in the absence of a through rail link to Iran and the use of a combined rail-road-road scheme for the transshipment of goods in transit, the dynamics in this segment are quite impressive. Thus, from January 1 to March 28, 2023, the volume transported along the westbound North-South route amounted to 2.15 million tonnes, an increase of 84.37%. For comparison, for the whole of last year, 1.16 million tonnes of cargo were transited through Azerbaijan along this corridor.

Overall, it is predicted that after 2030 the volume of predominantly Russian-Iranian North-South cargo traffic could be gradually increased to 32 million tonnes per year, with a tangible potential for further growth.

It is noteworthy that the recently concluded agreements have finally buried the hopes of Armenia to seize the initiative due to last year's disagreements between Baku and Tehran and become an alternative transport route for the North-South corridor. Armenia's attempts to lay steel tracks to Iran ended in a complete fiasco: the most difficult mountainous terrain suggests laying tracks through bridges and tunnels, which, according to preliminary estimates, would require $3-5 billion. Neither India, let alone Iran, which is under sanctions, is ready to agree to such expenses, with very doubtful recoupment. without a through railway connection, all prospects of turning the Persian Gulf—Black Sea highway project lobbied by Yerevan into a full-fledged component of the North-South corridor are unpromising since transshipment of goods by trucks in terms of tonnes/kilometer will be many times more expensive than rail transit through Azerbaijan.