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Russia and Iran are building a new transcontinental trade route bypassing sanctions
Material posted: Publication date: 05-01-2023
The two countries are spending billions of dollars to speed up the delivery of goods by rivers and railways connected by the Caspian Sea. Vessel tracking data collected by Bloomberg shows that dozens of Russian and Iranian vessels, including those subject to sanctions, are already cruising along this route. This is an example of how competition is rapidly changing trade routes in a global economy that seems ready to break up into rival blocs. Russia and Iran, under enormous pressure from sanctions, are turning to each other - and together they are also looking to the east.

The goal is to protect commercial ties from Western interference and establish new ties with the giant and fast-growing economies of Asia.

Trade routes from Russia to Asia

"It's about creating sanctions-resistant supply chains all along the way," he says Maria Shagina, an expert on sanctions and Russian foreign policy at the London International Institute for Strategic Studies.

The emerging trade corridor will allow Russia and Iran to reduce existing routes by thousands of kilometers. At its northern tip is the Sea of Azov, which borders the Crimean Peninsula, the southeastern coast of Ukraine, including the Russian-controlled port of Mariupol, and the mouth of the Don River.

From there, river, sea and rail networks extend to Iranian hubs on the Caspian Sea and, eventually, in the Indian Ocean.

According to Shagina's estimates, Russia and Iran are investing up to $25 billion in this internal trade corridor, helping to facilitate the flow of goods.

"These two countries are playing cat and mouse," she says. "They will study all loopholes for the transportation of prohibited products and weapons."

This worries the US and its allies as they seek to block the transfer of Iranian drones and other military supplies, which they say are helping the Kremlin in the conflict in Ukraine.

"This is an area that we are closely monitoring - both this route and Iranian-Russian ties in general," said a senior Biden administration official on sanctions James O'Brien after last week's announcement of new punishments against Russian Railways executives. "We are concerned about any attempts to help Russia avoid sanctions."

Robert Malley, the Biden administration's representative in Iran, says that any new trade corridor requires close attention in terms of stopping the supply of weapons between the countries.

"The decision they made is extremely destructive and reckless," says Malley. 

In addition to the arms trade between the countries, the new transit route has good economic reasons.

Ships sailing along the Don and Volga are traditionally loaded with oil products and grain (Iran is the third largest importer of Russian grain), but this range will expand. The two countries have announced a slew of new deals involving goods including turbines, polymers, medical supplies and automotive parts. Russia also supplies nuclear fuel and components for Iran's Bushehr reactor.

Russia needs to compensate for the sudden severance of its commercial ties with Europe, which was its largest trading partner before the war, and also find workarounds for US and European Union sanctions.

"As European transport networks are closing, they are focused on developing alternative trade corridors that support Russia's turn to the East," he says. Nikolay Kozhanov, an expert on the Persian Gulf countries from Qatar University, who from 2006 to 200

For 9 years he worked as a Russian diplomat in Tehran. - It is possible to establish control over the sea routes, but it is difficult to monitor the land routes. And it's almost impossible to keep track of everyone."

Of course, there are many obstacles, and Russia and Iran are spending a lot of money to overcome them. 

Russia plans to invest $1 billion in improving navigation through the Azov, the Don River and through the channel connected to the Volga.

Russia is finalizing the rules that will give ships from Iran the right of passage on inland waterways on the Volga and Don rivers, the Iranian Maritime News Agency reports.

Data on vessel traffic collected by Bloomberg already shows that at least a dozen Iranian vessels, some of which belong to the US-sanctioned group of shipping lines of the Islamic Republic of Iran, ply between the Caspian coast of the country and key ports on the Volga River.

Iran's semi-official news agency reported last month that Tehran-based IRISL has invested $10 million in a port on the Volga. The goal is to almost double the capacity of the Solyanka port in Astrakhan to 85,000 tons per month.

Inside its borders, Iran invests money in terminals where cargo can be reloaded from ships to railways crossing the country from the Caspian Sea to the Persian Gulf. It also expands the railway network, which already has about 16,000 kilometers and is part of the UNESCO World Heritage List.

Trade delegations are increasingly shuttling between Iran and Russia, and trade is also growing. Officially, it has almost doubled in August this year. The annual figure is likely to soon exceed $5 billion. There is a "clear path" to reaching $40 billion after the conclusion of a free trade agreement, the head of the Russian Chamber of Commerce and Industry said at a conference in Tehran last month. Sergey Katyrin.

Expansion of Iran's railway network

For Iran, the reversal has become more relevant against the backdrop of uncertain attempts to restore the 2015 agreement with world powers, according to which sanctions were lifted in exchange for restrictions on the country's nuclear program. Tehran's support for Moscow, as well as the brutal suppression of nationwide protests, has led to the fact that its uncompromising government has become even more cut off from the West.

Iranian officials say they are fully focused on what they call the "eastern axis" - abandoning any plans to restore economic ties with Europe and instead replenishing a number of trade and energy agreements with Russia, China and Central Asian countries.

Being largely out of sight of Western governments, concerted efforts have been made for many years to unify this entire Eurasian territory. China and Russia are already members of the Shanghai Cooperation Organization, an economic security body that will make Iran its ninth member. China and Iran are close to gaining membership in the Eurasian Economic Union, which will make free trade between the countries possible.

Another institution linking the economies of the region and beyond is the BRICS Group. It originally consisted of Brazil, Russia, India and China, and now also includes South Africa and is ready for further expansion.

In all this, some analysts see echoes of an idea that has existed for more than a century and is considered the basis of geopolitical thinking. He focused on the struggle between the oceanic world power — Great Britain then, the USA today — and the land giants of Eurasia.

For both Russia and Iran, India is the most important node in the networks they are trying to build.

As the semi-official Mehr news agency reported last month, the first batch of 12 million tons of Russian grain bound for India has already passed through Iran.

Trade flows could increase if Iran manages to connect the unfinished and much—delayed Chabahar port complex in the Indian Ocean - a project in which India has invested - with its long-distance train network. So far, Chabahar has not been subject to US sanctions, but this may attract Washington's attention.

"If any organization is involved in violating our sanctions on assistance to Russia or in any other area in which Iran has been sanctioned, they will also be sanctioned," says Malli, a White House representative in Iran.

According to Bharat Gopalswamy, executive director of District Consultancy LLC, a Washington-based trade consultant, this illustrates perhaps the biggest threat to the Russian-Iranian gambit aimed at evading sanctions.

Success or failure does not depend on the two countries themselves. It will depend on whether other countries, from India to the Middle East, agree to support sanctions or whether they defy pressure.

"The creation, use and maintenance of such infrastructure will require cooperation not only between Russia and Iran, but also all other countries that are part of this corridor," Gopalswamy says. "Any change in the geopolitical circumstances or relations between these countries will affect the fate of the project."

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Tags: Iran , Russia

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