May 18, 2017 10:00 am JST

Jon B. Alterman and Jonathan Hillman: Iran aims to expand trade with a railway revolution

Tehran wants to lay new track, and China is eager to finance the ambition

If he were alive today, Darius the Great would have cheered the commissioning by Iranian President Hassan Rouhani and Azerbaijani President Ilham Aliyev in March of a new railway connecting their countries. The fifth-century Persian king was able to dominate much of West Asia in part because he understood the strategic importance of transportation and organized one of the world's first highways: the Royal Road. The route spanned all of modern-day Iraq and Turkey and cut messengers' travel times by a factor of 12.

Under Rouhani, who faces re-election on May 19, Iran has made its own bid to replicate Darius' feat. Some may consider Iran a pariah state, but an increasingly impressive network of road and rail links is tying the country into the global trading patterns of powerful neighbors. Although Iran's ambitions are large and strategic, small railway projects like this one play an important role.

The new section is only 10km long, linking Astara in Iran to Astara in Azerbaijan. It is one of the final pieces to complete the North-South Transport Corridor, which will connect India and Russia via Iran.

When the corridor is completed later this year, its government and private sector supporters expect travel on this route will be twice as fast as via the sea, which requires passage through the Suez Canal and the Strait of Gibraltar and eventually the English Channel, ending somewhere on the northern coast of Europe.

While shipping remains the lowest-cost option for long-distance trading, the speed of rail matters for many goods. Fresh foods such as apples, onions, citrus fruit and melons can survive a 20-day train trip from Mumbai to Moscow, for example, but would rot if they spent 40 days in a container at sea. With the continuation of European sanctions on Russia, the idea of a reliable supply route to the country that circumvents Europe is attractive to Russian and Indian shippers.

Iran also stands to benefit from increased transit cargo. At present, roughly 1.5 million tons of foreign cargo are carried by its railways annually. With the North-South Transport Corridor fully operational, Azerbaijani railway officials predict that figure will more than triple -- to an average of 135 fully laden rail cars every day. Over the longer term, some think that figure could double yet again. Combined with an already robust truck trade, India-Russia business transiting through Iran would generate both needed tax revenues and jobs for a struggling Iranian economy.

Beyond its economic logic, this new railway helps return Iran to what it sees as its historic role. As its transportation minister, Abbas Ahmad Akhoundi, said recently: "Iran lies on the crossroads of the East and the West and the Silk Road. This is not a random event. It is history which says Iran is the point of equilibrium in the region."

IN FROM THE COLD Reclaiming that status will not be easy, though. Decades of international sanctions dried up funding for new projects, diverted commerce and scared away many global investors. Railways suffered. Until recently, Iran struggled to add more than 200km of railway each year.

Today, the mood in the Iranian railway industry has changed. With international sanctions lifted and Western investors exploring Iran, the country now plans to add nearly 2,000km of railroad every year for the next five years.

India, Italy and Russia have already stepped up to invest. European companies have signed agreements to supply locomotives. Altogether, the Iranian government reportedly has identified $10 billion worth of railway projects ripe for foreign investment, committed half a billion dollars of its own funds and pledged 1% of oil revenue, which is expected to hit $41 billion in 2017, to its rail sector for the next five years.

No country has been more eager to help Iran than China. Chinese President Xi Jinping was the first head of state to visit Tehran after U.S. sanctions were lifted last year. He signed an agreement to develop Iran's first high-speed railway and pledged to increase bilateral trade to $600 billion annually in 10 years' time. A few weeks later, the first freight train to connect China and Iran arrived in Tehran.

Like Iran, China is seeking to repeat -- and in some respects, rewrite -- history. Invoking the ancient Silk Road, its massive Belt and Road Initiative aims to connect an expanding list of countries, constituting some 70% of the world's population.

A number of other rail projects are also underway. Russia is financing the modernization of a railway between Iran and Turkmenistan. New lines are being built to connect Iran with Basra in Iraq and with Herat in Afghanistan. Those projects that succeed will encourage new patterns of commerce and, over a longer period, could drive relations between the participants.

Western eyes might view these emerging connections with concern. Collaboration between China, Russia and Iran makes many in the West squirm. Even the casual observer recognizes that railways are able to carry not only consumer goods but also military hardware and troops. And given its reach within the Iranian economy, Iran's Islamic Revolutionary Guard Corps will surely be among the beneficiaries of intensive infrastructure projects and associated growth.

Even so, this is not just military work in civilian guise. Iran's economic imperative is clear. It has a greater population than France and more than twice as much territory, but its total railway track is less than half that of the European country. Trucking is a major industry in Iran, but compared to rail, it is expensive, inefficient and polluting. Expanding Iran's rail system makes good economic sense.

The wider region could benefit as well. Iran can be a market for its neighbors, and its robust industrial base means the country can also be an impressive producer. An Iran that is more economically integrated into the region would have a greater stake in maintaining regional stability. Equally important, the international investors Iran is seeking in order to promote its domestic development would surely be eager for signs that Iran is becoming a more predictable actor on the world stage, not least to alleviate concerns that a fresh war or renewed sanctions could harm their investments.

Success in all of this is by no means guaranteed. Deeper connections often have unpredictable outcomes. Darius' road was a central tool in maintaining his empire, and the same road helped Alexander the Great conquer it. Better infrastructure will not make Iran's economic success inevitable, but it certainly will shape the strategic landscape in which Iran makes its future decisions.

Jon B. Alterman is senior vice president and holds the Brzezinski Chair in Global Security and Geostrategy at the Center for Strategic and International Studies in Washington, D.C. Jonathan Hillman is a fellow and director of the Reconnecting Asia Project at CSIS.

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