One of the positive fallouts
of the Iran – Saudi Arabia rapprochement could be a new impetus given to the
International North South Trade Corridor (INSTC). If implemented the deal could
result in greater integration of India through Iran to Russia and the focus
will now be on trade with Eurasia. The INSTC could also become a key component
of the future of both Saudi Arabia and Iran. The progress on INSTC will lead to
security, stability, development and economic growth of the region and this could
be integrated with the BRI.
Announced in September 2000
at the Euro-Asian Conference on Transport, by India, Russia and Iran in St Petersburg,
Russia, this 7,200-km long multi-modal transport corridor is primarily meant to
speed up movement of goods between India and Russia through Iran.[i]
While India, Russia and Iran
remain the founding members, INSTC was soon expanded to include eleven other
countries to include Azerbaijan, Armenia, Kazakhstan, Kyrgyzstan, Turkey,
Tajikistan, Ukraine, Oman, Syria and Belarus. Bulgaria has ‘observer’ status.
The realisation of the trade
potential of East Europe, the Persian Gulf and India began to be actively
pursued only after the formation of the Eurasian Economic Union (EAEU) free
trade agreement (FTA) in 2015, led by Russia.[ii]
Iran is at the centre of the
route between Europe and Asia via the INSTC which offers multi-modal
connections between India to the Iranian Gulf Ports at Bandar Abbas and
Chabahar. From there, goods can transit Iran, North via rail to the Caspian Sea
Ports at Anzali and then onwards to Baku Port in Azerbaijan, heading West via
rail to Turkey and Europe via the Black Sea, North to Russia at Lagan Port, or
East to Turkmenistan and Kazakhstan in Central Asia. The multi-modal operations
give faster connections than the current Suez Canal link.
In July 2022, the first
commercial consignment transported in containers from Astrakhan Port in
Southern Russia through Iran’s Anzali Port in the North and Bandar Abbas Port
in Southern Iran, reached Mumbai’s Nhava Shewa Port, establishing INSTC’s
viability. [iii]
Major Impediments
There are major impediments
to the INSTC reaching its full potential. One of it is poor Iranian infrastructure. Much
of the transit of goods on the INSTC still takes place on roads in Iran and
most of Iran’s railway is single track. There are also unfinished railway
sections.
After the First Nagorno
-Karabakh War, the regions near the Iranian border came under Armenian control
and the railway connection between Nakhichevan and mainland Azerbaijan was
severed. Iran’s railway connection with the Caucasus was cut and Iran does not
have a direct rail connection with the Caucasus region. In fact, to the East of
the Caspian Sea there is a working railway route from Russia through Kazakhstan
and Turkmenistan to Iran, along the Western shore of the Caspian, in the South
Caucasus region, the linked railway networks of Russia and Azerbaijan still
lack a physical connection with Iran. Completion of the railway route no doubt
is imperative, however tensions between Iran and Azerbaijan in recent months
have held construction plans up.
Iran needs to improve its
Port capacities, rail and road infrastructure, transportation terminals and
modernise its transportation fleet. There is a clear need investment in
transportation infrastructure, which has been difficult due to US sanctions on
Iran. Further, private companies are unwilling to invest in projects in Iran
for fear of being blacklisted. There are also tensions between Azerbaijan and
Iran.
Apart from this some of the
other issues are, problems related to customs procedure and documentation. Low
level of existing containerisation and shortage of wagons on the route. Higher
tariff by rail vis-à-vis road transport relating to movement from Bandar Abbas. High harbour duty rates
charged by the Caspian ports. Lack
of common Border crossing rules among the participating nations and the existing
security problems which result in high insurance costs.[iv]
In a related development, Armenia
has proposed a Persian Gulf-Black Sea corridor to connect Indian traders with
Russia and Europe. The offer was made last week by a visiting Armenian Team
comprising senior officials and experts. It came at a time when Armenia's
Foreign Minister Ararat Mirzoyan was also visiting India. The proposed
corridor-which will run parallel to the International North-South Transport
Corridor (INSTC)-will aim to connect Mumbai with Bandar Abbas in Iran and then
Armenia and onward to Europe or Russia. [v]
Armenia, has sought Indian
investments for the corridor in the Armenian territory. Since the beginning of
the Russia-Ukraine war, India's trade with Russia has increased manifold via
the INSTC that connects Mumbai with Russia via Iran and the Caspian Sea.
Azerbaijan is a key element under INSTC but has been slow in completing an
infrastructure.
India will no doubt benefit
once there is seamless rail freight connectivity through Iran by the INSTC.
According to a 2014 study by the Federation of Freight Forwarders’ Association
of India (FFAI), transporting goods through INSTC is 30% cheaper and 40% faster
than through the traditional Suez Canal route. Mumbai could then become an
Asian trans-shipment hub for goods to Europe.[vi] If INSTC’s full potential
as a seamless transportation corridor is likely to be realised, India could
also attract a significant chunk of the export-oriented manufacturing
activities that are looking to move out of China.
For the pathways of the
INSTC, Iran’s integration is necessary. Stability
in the region will enable Iran to provide safe, reliable and stable routes on
the North-South Corridor, alongside developing its Southern port of Chabahar.
For doing this there has to
be reduced tension in the region and investments to develop infrastructure
which could now be provided with Saudi Arabia. On 15 March Saudi Arabia’s
Finance Minister Mohammed Al-Jadaan stated that Saudi investments into Iran
could happen “very quickly” following the agreement to restore diplomatic ties.
[vii]
The timing is important as
India holds the presidency of the Shanghai Cooperation Organisation (SCO) in
which Iran is due to become a permanent member. Further, on 29 March 2023 Saudi
Arabia’s King Salman bin Abdulaziz approved a Memorandum of Understanding (MoU)
that grants the Kingdom the status of a dialogue partner in the SCO.[viii]
While India’s economic and
strategic ties with Saudi Arabia have witnessed a significant upswing in recent
years. With Iran there have been strains in the relationship as India stopped
importing crude in 2019 when the US imposed sanctions on Iran after President
Trump pulled out from the JCPOA in May 2018 calling it ‘the worst deal’. The progress
of the Chabahar Port project which is an important gateway not just to
Afghanistan and Central Asia, but also potentially to Europe via the
International North-South Transport Corridor INSTC corridor also got impacted.
The Iranian Ambassador to
India stated that the Saudi-Iran agreement should be viewed positively by
India.[ix]
The INSTC network is vital
to connect South Asian-Central Asian and European markets to Russia, India and
China. Iran can conceivably become a Gulf regional transit hub serving all of
these markets. Saudi Arabia is also a rapidly emerging economy and one of the
fastest growing regions in the world. Iran meanwhile needs to make regional
allies and the INSTC to facilitate movement of goods ‘without the fear of
sanctions.’
Progress on the corridor has
been spurred by the sanctions imposed on Russia and its increasing trade in
crude oil with India. The
severing of Europe from Russian energy seems to have created the incentive to
accelerate investments by key stakeholders. While Iran lies centrally on the
India-Russia trade route, it will no doubt benefit from the potential of
increasing trade between Russia and India. With an investment boost from
Russia, Iran is trying to speed up the completion of improved railway networks
that will connect to the existing railways of Russia and Azerbaijan and
Chabahar Port.
Following the announcement
of the Saudi Arabia – Iran rapprochement deal, the Chairman of the Russian
State Duma Committee on International Affairs Leonid Slutsky praised the deal and
paid particular attention to the INSTC.[x]
The importance of INSTC as
an alternative transport route for international trade in unforeseen situations
was reaffirmed by the incident in the Suez Canal on 23 March 2021, when a
container ship ran aground and blocked all traffic between the Red Sea and the
Mediterranean Sea. It caused a global failure to meet liner shipping and cargo
delivery schedules, an increase in freight rates, and uncertainty regarding the
logistical chains of goods delivery between Europe and Asia. Of course, the
INSTS will not be able to completely replace the entire cargo flow through the
Suez Canal, but the establishment of an alternative route is important.
Conceived in 2000 but still
in its nascent stages, the question now is whether INSTC can be built and
operationalised. The increasing trade and transit
between Russian and India post the Ukrainian Conflict, has shifted the focus
back on the INSTC more seriously than in the past. The Saudi Arabia and Iran
rapprochement and the potential investments by Saudi Arabia in Iran has the
potential to give it a major boost.
A strong push by India to the INSTC now will be a strategic step to protect and advance its interests in the Middle East and establish Mumbai port as an Asian transhipment hub. The benefits are manifold particularly once this transportation corridor transforms into a trade and economic corridor.
Endnotes
[i] Ministry of Commerce &
Industry,GoI, Exploring opportunities on
the INSTC http://commerce.nic.in/publications/INSTC_Conference_Report_Final.pdf
[ii] Vali Kaleja, Iran and Eurasian
Economic Union Negotiations: Upgrading EAEU-Iran Preferential Trade Agreement
into a Free Trade Agreement, Russian International Affairs Council , 24 January 2022, https://russiancouncil.ru/en/analytics-and-comments/columns/middle-east-policy/iran-and-eurasian-economic-union-negotiations-upgrading-eaeu-iran-preferential-trade-agreement-into-/
[iii] Golnar Motevalli, Iran begins 1st
transfer of Russian goods to Indian port using new trade corridor, The Print, 13
June 2022. https://theprint.in/economy/iran-begins-1st-transfer-of-russian-goods-to-indian-port-using-new-trade-corridor/994352/
[iv] Will Iran-Saudi Arabia rapprochement
sparks hope for INSTC progress?, Maj Gen Jagatbir Singh, The Firstpost, 04 April 2023,
https://www.firstpost.com/opinion/will-iran-saudi-arabia-rapprochement-sparks-hope-for-instc-progress-12402822.html
[v] Dipanjan Roy Chaudhury , Armenia
proposes Iran-Black Sea corridor for Indian traders, The Economic Times, 10
March 2023, https://economictimes.indiatimes.com/news/international/world-news/armenia-proposes-iran-black-sea-corridor-for-indian-traders/articleshow/98526297.cms?from=mdr
[vi] INSTC to reduce cargo transport cost
by $2,500/15-tn, the Business Standard, June 20, 2017, https://www.business-standard.com/article/pti-stories/instc-to-reduce-cargo-transport-cost-by-2-500-15-tn-117062001322_1.html
[vii] Rachna Uppal and Aziz El Yaakoubi,
Saudi Arabia could invest in Iran 'very quickly' after agreement – minister,
The Reuters, 15 March 2023, https://www.reuters.com/world/middle-east/saudi-investment-iran-could-happen-very-quickly-after-agreement-minister-2023-03-15/
[viii]
Saudi Arabia to become SCO dialogue partner, ANI, 30 March 2023, https://www.aninews.in/news/world/asia/saudi-arabia-to-become-sco-dialogue-partner20230330203046/
[ix] Saudi-Iran
deal for regional stability, doesn’t impinge Delhi interests: Iran envoy, The
Indian Express, 18 March 2023, https://indianexpress.com/article/india/saudi-iran-deal-for-regional-stability-doesnt-impinge-delhi-interests-iran-envoy-8504127/
[x] Eurasian Integration of Iran Proceeds
Despite US ‘Maximum Pressure’ Campaign, Financial Tribune, 03 April 2023 https://financialtribune.com/articles/domestic-economy/117558/eurasian-integration-of-iran-proceeds-despite-us-maximum-pressure
Major General Jagatbir Singh, VSM (Retd) is a Distinguished Fellow at the USI of India. Commissioned in 1981 into the 18 Cavalry, he has held various important command and Staff appointments including command of an Armoured Division.
Uploaded on 11-4-2023
Disclaimer : The views expressed are those of the author and do not necessarily represent the views of the organisation that he/she belongs to or of the USI of India.