Is INSTC Russia the new economic loophole? | Russo-Ukrainian War

As the world worried about the Russian blockade of Ukrainian grain exports to the Black Sea in late June, Vladimir Putin had another trade route in mind. Addressing leaders of nations that sit on the Caspian Sea, the Russian president spoke of a “truly ambitious project” as the centerpiece of Moscow’s efforts to “improve the region’s transport and logistics architecture”.

For more than two decades, the International North-South Transport Corridor (INSTC) – a 7,200 kilometer (4,474 mile) network of railways, highways and sea routes that connects Russia and India via the Iran – was only a pipe dream. But this old wine is finally ready to be uncorked by Moscow, Tehran and New Delhi, according to analysts. A rare confluence of geopolitical and economic incentives is turning the road into a potentially life-saving economic escape route for Moscow as tough Western sanctions prevent the Kremlin from accessing European markets.

In June, Iran announced the first-ever pilot transit of goods from Russia to India using INSTC, via the port of Bandar Abbas on the Strait of Hormuz. The two containers of laminated wood have since been followed by the shipment of at least 39 other containers from Russia to the Indian Arabian Sea port of Nhava Sheva in July.

This is just the beginning, said Vaishali Basu Sharma, a former consultant to India’s National Security Council Secretariat. Earlier this month, RZD Logistics, the largest multimodal transport operator in the former Soviet and Baltic countries, launched a new container train service along the INSTC. And by 2030, the INSTC corridor is expected to have the capacity to transport up to nearly 25 million tonnes of cargo each year, or 75% of total container traffic between Eurasia, South Asia and the Gulf. .

“These are the new routes to the east, and Moscow is very serious about putting them in place, especially since EU sanctions should remain – even after the end of the conflict with Ukraine,” he said. Chris Devonshire-Ellis, founder of Dezan Shira & Associates, a pan-Asian business and investment advisory firm, told Al Jazeera.

The logic behind the INSTC is simple. Historically, the lack of a developed land route has forced cargo from India to Russia to cross the Arabian Sea, the Red Sea and the Mediterranean Sea, then around Western Europe and finally across the Baltic Sea to reach St. Petersburg. Dry trials carried out by the Federation of Freight Forwarders Associations in India have shown that the 7,200 km INSTC – which crosses Central Asia, the Caspian Sea, Iran and finally the Arabian Sea – reduces the time trip from 40 to 60 days to 25 to 30 days. days and cut costs by 30%.

For India, the road is also strategic: it offers access to Central Asia and Afghanistan, bypassing the sworn enemy of Pakistan. In 2016, India pledged an investment of $85 million and a soft loan of $150 million to develop berths at the Iranian port of Chabahar during Prime Minister Narendra Modi’s visit to Tehran. New Delhi wants the INSTC to include Chabahar, a likely possibility.

Change priorities

Despite this allure, the INSTC has so far not been a priority for Russia and India, experts say. Europe was the Kremlin’s economic hub, with the European Union contributing more than a third of Russia’s trade in 2020.

“Most Russian supply chains are designed to meet Europe’s needs,” Gulshan Sachdeva, a professor at the Center for European Studies at Jawaharlal Nehru University in New Delhi, told Al Jazeera. India, too, has largely focused on expanding trade with the West, China and Southeast Asia over the past two decades. Western sanctions against Iran have further complicated the prospect of investing in INSTC.

Now that landscape has changed. In June, Lithuania imposed a transit ban on sanctioned goods bound for the Russian Baltic enclave of Kaliningrad, only reversing its decision after the EU stepped in to clear the way for the cargo to be transported. Earlier this month, The Moscow Times reported that Kazakhstan was proposing a law that would ban the transit of EU-sanctioned goods to Russia. All of this makes it “extremely important for Russia to develop new supply chains and improve others,” Devonshire-Ellis said.

For years, near-stagnant levels of Indo-Russian bilateral trade — which hovered between $8 billion and $11 billion a year — also acted as a drag on the ambitions of potential investors in INSTC, Sachdeva said. “The question was: if this is the limit of trade volume, is the massive investment in the corridor worth it?”

Protesters calling on the EU to impose an oil embargo gather outside the summit carrying placards and wearing blue and yellow - the colors of Ukraine
India’s imports from Russia jumped in April and May on a surge in Russian crude purchases [File: Olivier Matthys/AP Photo]

Here too, the last few months have considerably strengthened the argument in favor of the corridor. In April and May, India’s imports from Russia increased by almost 272% – topping $5 billion in just two months – compared to the same period in 2021. Most of that stems from an increase purchases of Russian crude by India since the beginning of the war: 4.2 billion dollars in April and May. But India also increased its imports of Russian fertilizers by nearly 800% in those two months. This surge in trading serves as a proof of concept for INSTC, Sachdeva said. “Both politically and economically, the stars have finally aligned for INSTC,” he said.

American pressure

This alignment could still face disruptions. New Delhi, already at odds with Washington and Brussels over its increased imports of Russian oil, is likely to come under further pressure from the West if it doubles down on the INSTC, experts have said.

But India is growing tired of conforming to Western demands, suggested Sharma, the national security analyst. India had acted on US demands in the past to stop buying oil from Venezuela and Iran – only to now find that Washington itself is allowing Venezuelan crude to reach Europe, a- she declared. India’s increased trade with Russia and the focus on INSTC show that “emerging economies are finally breaking the hegemony of financing structures created by developed countries,” Sharma told Al Jazeera.

There are also limits to Washington’s pressure on India, said Velina Chakarova, director of the Austrian Institute for European and Security Policy. “US Needs India More Against Dragon Bear [a reference to the deepening China-Russia coalition] that India needs Washington against China in the Indo-Pacific,” she told Al Jazeera.

Other challenges persist. Sanctions against Russia and Iran continue to make investing in INSTC risky. The route is still a patchwork of several independently run rail, road and sea projects, without a single operator in charge, Sharma said.

Yet, Devonshire-Ellis said, other developments suggest that the INSTC is now a priority not just for Russia, India and Iran, but also for other nations: a “middle corridor” that the Georgia, Azerbaijan, Kazakhstan and Turkey signed this year. is an example. “The regional will is now there to make it work,” he said. “It’s already happening.”

About Pamela Boon

Check Also

IntelBrief: Presidential trip to the Middle East aims to reassure historic allies

Intelbrief / IntelBrief: Presidential trip to the Middle East aims to reassure historic allies AP …