Regional transit in focus as Azerbaijan, Iran move closer Analysis by Amwaj

The Iranian portal Amwaj Media carries an article by Nikita Smagin, which looks at new opportunities for Iran and Azerbaijan to cooperate in the transport sector and find common ground for partnership despite differences. Caliber.Az reprints the piece.

Azerbaijan’s victories in its 2020 and 2023 conflicts with Armenia over Nagorno-Karabakh have had important repercussions in the South Caucasus. One such development is momentum towards the establishment of a regional transit corridor. While opposition from Iran previously constituted an obstacle to transit proposals, recent changes have seen Baku and Tehran find common ground. The two sides signed an agreement in October 2023 to construct a road and railway from Azerbaijan to its Nakhchivan exclave via Iranian territory, known as the Araz Corridor.

The initiative offers a way forward amid tension over the Zangazur Corridor, a competing route deeply opposed by Iran as it would cut Iranian access to its ally Armenia. By enabling a route from Azerbaijan to Türkiye without impacting the Iran-Armenia land connection, the Araz Corridor is a boost to regional transit infrastructure, an opportunity for Iran’s inclusion in such plans, and may be competitive compared to other existing—but stalled—initiatives.

Building on Soviet foundations

The Araz Corridor will expand on an existing, though in parts dormant, route. During the Soviet era, a fully operational railroad extended into Iran through the South Caucasus, contributing to a peak in Iran-Soviet Union turnover in the 1980s. Connections ran between the Iranian town of Jolfa and the eponymous Julfa over the border in the Nakhchivan region, with a large railway hub on the Soviet side. Hundreds of freight railcars traversed the border daily with a flow of over 3M tons of cargo annually.

Alexander Karavaev, a non-resident expert on transport and logistics at the Caspian Institute for Strategic Studies, explained to Amwaj.media that the railroad within the new Araz Corridor will to some extent renovate the previous Soviet-era transport network. Parts of the non-Iranian side of the route fell into disuse after the collapse of the Soviet Union in 1991. Other sections were closed amid recurring conflict between Armenia and Azerbaijan over Nagorno-Karabakh.

But some tracks have remained in use. Karavaev told Amwaj, “The railroad from Julfa to Ordubad in Nakhchivan and from Baku to Horadiz in the main part of Azerbaijan have been operational.” He added that construction of missing segments from Horadiz to Ordubad began in 2021. Within Iran, Jolfa is already connected to the national railway grid. The border town can be reached from Tehran via a route that runs through provincial capitals Tabriz and Zanjan.

Around 140 km (86.9 miles) of track would have to be built in total to connect the various existing railways together. The joining up of these routes could create a single railway from Russia to southern Iranian ports on the Gulf through Azerbaijan.

Expert Karavaev told Amwaj that Iran would benefit from the creation of a rail route through its territory. “This scenario gives Tehran an option to control the transport lane,” he noted.

From Azerbaijan’s perspective, it is unlikely to give up a separate plan to build a route through Armenia. Karavaev explained, “It is in Baku’s interest to have both tracks…to balance the risks.”

Comparison to Astara-Rasht route

The Araz Corridor is a potential alternative to the long-stalled Astara-Rasht rail project. The latter connects two northern Iranian cities and is a crucial element of the International North-South Transport Corridor (INSTC), a multinational infrastructure initiative joining India to Europe via Iran and Russia.

In May 2023, Moscow and Tehran signed an agreement to resume construction of the Astara-Rasht route, with the project expected to cost 1.6B EUR (1.75B USD). The project is expected to take approximately four years, with construction beginning in 2024.

Arkady Ivanov, Development Director at the Russia-based Transasia Logistics company, described to Amwaj.media how the Araz Corridor railway is “a much simpler task” noting how “expert evaluations suggest that the route doesn't require bridges and tunnels.” The bill for the project would likely be hundreds of millions of euros, compared to over 1.5B for the Astara-Rasht link.

Transportation expert Karavaev also told Amwaj.media that the construction of a corridor through Nakhchivan to Iran could be completed in as little as 18 months. By contrast, the Astara-Rasht project is expected to take until 2028.

Karavaev explained that for the Araz Corridor, Iran needs to “launch the modernization of railway junctions and work on safety and electrification to make the path fully operational.” But even taking that into account, the route should be completed faster than the Astara-Rasht project.

What transit routes provide

Iran remains concerned that the Zangazur Corridor would link Türkiye to the Turkic world and isolate the Islamic Republic—isolating Tehran from Yerevan in the process. Therefore, Tehran’s participation in the Araz Corridor somewhat eases these fears. It could also give the Islamic Republic access to the Mediterranean and Black Seas through Turkish territory.

The construction of a transit corridor from Azerbaijan to Iran would also be a significant step in the development of the INSTC. Expert Karavaev explained, “A transport network develops due to the interaction of different routes in various directions.” A linked-up Azerbaijan and Iran would make their overall transit project safer and more credible in the eyes of international transport operators.

Being a joint railway and road project carries its own benefits. An integrated rail route would significantly simplify cargo delivery between Iran and Russia, reducing costs.

Goods delivered by trucks through Iranian territory is in theory a profitable enterprise due to the Islamic Republic’s low petroleum prices. In practice, however, the situation is more complicated. Logistics company director Ivanov told Amwaj.media that trucks are usually “stopped and examined by customs and local police,” with fines and bribes commonplace. In contrast, cargo trains are subject to much less inspection. Rail transit can therefore make financial sense for both Iranian and regional businesses.

Iranian participation in the Araz Corridor project paves the way for increased regional connections. It also offers additional options to the ISNTC through the potential creation of a single railway path from Russia to Iran via Azerbaijan. Such developments could enhance both regional trade and transit infrastructure, bringing a wide array of economic benefits for all.