REALITY VS. UTOPIA

Global significance of the transport potential of the South Caucasus has increased dramatically amid the Ukrainian conflict and the subsequent geopolitical changes. Azerbaijan is best positioned in this respect. There is an extensive railway, road and port infrastructure supporting both the Middle Corridor and the North-South routes, while the transport and logistics potential of the Zangezur corridor is developing rapidly. Given the advantages of these routes passing through Azerbaijan, Armenia's idea to involve Iran and India in the implementation of the extremely costly and technically complex Persian Gulf-Black Sea corridor looks preposterous and utopian.

Azerbaijan's transit position

Azerbaijan is currently the undisputed leader in the region in terms of the pace and level of development of transport projects, with active cooperation with Russia, Iran, Türkiye, China, as well as the Central Asian and Middle Eastern states. The success of this policy contributes to the country's annual growth rate: in 2022, the volume of cargo transported through Azerbaijan increased by more than 75% thanks to the European-Caucasus-Asia (TRACECA) route, the Trans-Caspian International Transport Route (TCITR) and other projects.

At the same time, the most tangible dynamics of cargo traffic was recorded in the North-South International Transport Corridor (NSITC): from January 1 to March 28, 2023 the volume of cargo traffic along the western route reached 2.15 million tons (+84.37%). For comparison, 1.16 million tonnes of cargo passed through this corridor in Azerbaijan in 2022. It is projected that by 2030 the volume of annual cargo traffic along the North-South route will increase from the current 17 to 32 million tons. It takes 22-23 days to travel along the ITC from Russia's Baltic harbours to the Indian port of Mumbai (about 7,000 km), which reduces transport costs by 30% relative to the longer sea route (e.g., via the Suez Canal).

The success of Azerbaijan's transport sector is based on multi-billion dollar investments in the construction of highways and seaports, radical reconstruction of railways and rolling stock, procurement of cargo ships, etc. The modernisation of the Baku International Sea Trade Port (BISTP) in Alat is underway, and its capacity will be increased from 15 to 25 million tonnes of cargo annually. The government is funding the infrastructure expansion of the Baku-Tbilisi-Kars railway line to increase its annual throughout capacity to 5 million tonnes of cargo.

According to the State Agency of Roads of Azerbaijan (SARA), 20,000 km of roads of various categories have been built and repaired, including 460 new bridges, road junctions, etc.

Similar projects are underway in the liberated territories of Azerbaijan. The construction of roads, bridges, tunnels and other road infrastructure with a total length of over 2,000 km has been launched three years ago and ongoing in the difficult mountainous terrain. All the above achievements were reflected in the recently published Davos Economic Forum report, where Azerbaijan was ranked 27th in the world in terms of road network quality, ahead of most post-Soviet countries and even some highly developed states.

Another Armenian illusionary project

Obviously, Azerbaijan is many times ahead of neighbouring Armenia, which has been the economic outsider in the South Caucasus for three decades, in terms of its transport potential. Yerevan's expansionist policy has deprived the aggressor state of historical chance to connect to international transport corridors in the region. The lack of financial resources makes it impossible for Armenia to form a modern infrastructure with access to neighbouring countries on its own. According to a number of international experts, Armenia, which is deadlocked logistically, ranks first in the South Caucasus in terms of corruption in the road construction sector. In the past, attempts to build highways to the south and west have ended up with misappropriation of funds and long construction periods.

Yet, Yerevan has suddenly began to nurture hopes of establishing a full-fledged connection to the North-South and South-West corridors, assuming a role of a transit country for Armenia, which would provide access to Georgian ports in the Black Sea. This refers in particular to the Persian Gulf-Black Sea corridor project announced back in 2016, with Iran, Armenia, Georgia, Bulgaria and Greece expected to join the project. However, the parties have so far failed to agree upon the joint financing of the project.

The talks about the prospects of the project were renewed in Armenia about a month ago, after having been prompted by the recently intensified talks between Armenia and India on developing transport cooperation and Iran's promises to participate in these initiatives. The project aims to reduce the distance between the south of the country and the north, which would give Armenia a transit role in the North-South corridor.

But as was the case in 2016 and the following years, India has not yet expressed its willingness to take on the funding of the Persian Gulf-Black Sea project; Iran, too, is silent. Experiencing an acute economic crisis under the sanctions, the Islamic Republic is extremely limited in terms of currency spending.

The prospect of attracting loans from international donor organisations is also very dim for Iran's participation in the project. In 2021, Yerevan already tried to use €600 million allocated by the EU to modernise roads along the North-South route, planning to involve Iranian companies as construction contractors. However, the combination failed - the EU could not fund projects involving the Islamic Republic. On the other hand, there have been no clear signals from Tbilisi to involve Georgia in the project. For Georgia, effective cooperation with Baku and Ankara in the energy and transport sectors is more important than the vague benefits of a project lobbied for by Yerevan.

Armenia cannot build roads on its own, due to a lack of budgets, inefficient use of resources, organisational failures and corruption. Especially since upgrading dilapidated roads is very costly, given the difficult mountainous terrain. For example, Armenian authorities have been unable to complete a bypass as an alternative to the Goris-Kapan highway for the past three years. This 21-kilometre road section is currently under the control of Azerbaijani border guards, as it is part of the Azerbaijani territory. The Shamb-Tatev alternative road was due to be completed by the end of 2021 and then 2022. But the deadline has been postponed several times, and only 6.2km of the road has been asphalted. Therefore, all traffic is diverted to the Shinuayr-Tatev-Kapan section with its steep passes and narrow sections, making communication very difficult. Overall, Armenia's attempts to build a North-South road infrastructure from the Iranian to Georgian border have been unsuccessful, with just under 100 km of the 490 km highway completed by early 2021.

Armenia's attempts to build a railway line to Iran also ended in a complete fiasco: the most difficult mountainous terrain calls for laying rails through tunnels and bridges, which, according to preliminary estimates, requires some $3-5 billion. Neither India nor Iran is prepared to accept such expenses, with a highly questionable payback period. And without a through rail link there is no prospect of the Persian Gulf-Black Sea project becoming a full-fledged component of the North-South corridor. Cargo traffic by road trucks in terms of tonne-kilometres will always be much more expensive than transportation by railways.

Why reinvent the wheel?

Indeed, there is no need to build expensive alternative roads in Armenia, let alone railway lines, as all of this has long existed and is functioning well in Azerbaijan. It is therefore suffice to connect the missing small sections to Iran's communication network and, in the event of a peace treaty, to Armenia as well.

Azerbaijan is the most optimal onshore section of the North-South corridor, with well-developed rail and road infrastructure. The Azerbaijani route has the advantage of a double-track electrified and optically connected railway, which was modernised in the Baku-Yalama section with a $400 million Asian Development Bank loan. The Alat-Astara railway will be modernised afterwards as well.

In addition, the construction of the new Samur-Baku motorway in Azerbaijan will be completed by the end of 2023. Also back in 2019, the Yalama-Hazmalar road bridge on the Samur River on the Azerbaijan-Russian border was put into operation. A new checkpoint Khanoba (about 1,000 trucks per day) and the modernised Shirvanli checkpoint are now operational for the transportation of empty trucks. Thanks to these measures, there is now no congestion at the Azerbaijan-Russia border. On the contrary, the volume of cargo traffic is steadily increasing.

Azerbaijan is also effectively developing transport infrastructure on its southern borders. The 243km long multi-lane Alyat-Astara-Iran border highway has been in operation since 2018. Rails have been laid from Astara to the state border, a railway bridge, as well as new terminals and checkpoints on the border, including the largest grain terminal in the region, Astara Grain Terminal, with an annual capacity of 500,000 tonnes of grain, have been constructed.

Azerbaijan is beyond competition in the South Caucasus in terms of the degree of development of transport infrastructure in the northern and southern directions. This opens a window of opportunity for the expansion of traffic along the North-South ITC: the advantages of transit through Azerbaijan include a shorter distance of approximately 1,450 km. The alternative eastern route connecting Russia with Iran via Kazakhstan and Turkmenistan is almost twice as long, with the railway line passing through the Ak-Yayla checkpoint being more than 2,500km long. In other words, the route leading through Azerbaijan is optimal in terms of time and cost (tonne-kilometre) of transported cargo. In addition, Azerbaijan has an even milder climate and snow-free winters, which facilitate year-round unimpeded traffic, especially by road.

The quality of railway deliveries through Azerbaijan in some respects is not less than those between the Russian port of Olya and Iranian ports of Enzeli and Bandar Abbas on the Caspian Sea. Despite the relatively short distance (1,200 km) and the lack of transit territories, the sea route between Iran and Russia is limited by the insufficient cargo carrying capacity of the countries' fleets and the need to expand port infrastructure. This requires billions of dollars in investments. In addition, the advantages of sea cargo are offset by the difficulties of navigating in the Caspian in winter, low speeds of dry cargoes, delays in handling, and overloaded ports.

Prospects for the Zangezur corridor

The only obstacle to the completion of the western route along the North-South corridor remains the unfinished construction of the 167-kilometre Resht-Astara railway line in Iran. Overall, however, the problem is solvable. On May 21, 2023, respective Iranian and Russian bodies are expected to sign an agreement on the joint construction of this section. This construction work is several times cheaper than the cost of laying a railway track in Armenia: the construction of the Resht-Astara section is estimated at about $500 million only.

However, even if the long-delayed construction project fails to get off the ground, there is another option for expanding the potential of the western route of the ITC. Azerbaijan has been conducting the infrastructure works along the Zangezur corridor for the third year. Significant progress has been made in the construction of the 123.6km of road, as well as the 110-km railway link Goradiz-Jabrayil-Zangilan-Aghbend. The works on the motor-road and railways are almost 75% and more than 40% complete, respectively. The bulk of the work on the Goradiz-Aghbend section is expected to be completed by the end of next year.

The railway line and the Goradiz-Aghbend highway could be continued through Armenia or Iran towards the Nakhchivan Autonomous Republic (NAR). As soon as the access to Nakhchivan is unblocked, it will be necessary to reconstruct 160km of existing highways in the autonomy, upgrade the border junction in Julfa for access to Iran, and construct another combined station in Ordubad for the uninterrupted movement of vehicles and trains. Eventually, Nakhchivan will be connected to Türkiye by a branch line from Kars, which is an excellent option for the integration of the Middle and Southern Corridors.

It is worth recalling that in March 2022 Baku and Tehran reached an agreement on an alternative version of the route—a 55km motor-road as well as a parallel railway line from Imishli (Azerbaijan) to Parsabad (Iran).

In terms of the cost of investment, the projects implemented by Azerbaijan are the most cost-effective. If Tehran and Yerevan opt for good business relations with Baku instead of geopolitical confrontation, all parties will only benefit from these projects.