During the past year, very important and positive developments have taken place in the cooperation between the two countries in the Caspian Sea, which needs to be strengthened and developed.
Executive summary: In his article, Dr. Vali Kaleji, a Tehran-based expert on Central Asia and Caucasian Studies, postulates that the year 2022 was a “turning point” in the development of maritime trade between Iran and Russia in the Caspian Sea. Although it was not limited to bilateral trade between the two countries, and was an important part of the “Preferential Trade Agreement” (PTA) between Iran and the Eurasian Economic Union (EAEU), “International North–South Transport Corridor” (INSTC), and the economic and commercial relations of Russia, Iran and India in framework of “multimodal transportation” by sea, road and rail. However, maritime trade between Iran and Russia in the Caspian Sea suffers six main challenges that need to be solved. In this case, we can hope that the share of maritime trade in the economic relations between Iran and Russia, Iran and the EAEU, and INSTC will increase significantly and sustainably.
The conflict in Ukraine, the extensive western sanctions against Russia, Russia’s transit restrictions to Eastern Europe, the continuation of unilateral American sanctions against Iran and the uncertainty of the JCPOA revival process, the emphasis of the Ebrahim Raisi government in Iran on the “Look to the East Policy,” the “Preferential Trade Agreement” (PTA) between Iran and the Eurasian Economic Union (EAEU), “Neighborhood Policy” and “Economic Diplomacy” has caused attention to be more serious than in the past to the “International North–South Transport Corridor” (INSTC) that the maritime trade in the Caspian Sea between Iran and Russia is an important part of it. According to Head of Iran’s Khazar Sea Shipping Lines, “the shipment of export container goods has risen 120 percent in the Caspian Sea in the first seven months of the current Iranian calendar year (March 21-October 22) compared to the previous year”.
Iran and Russia have several active ports in the northern and southern parts of the Caspian Sea. On the one hand, Makhachkala, Olya, Astrakhan, Solyanka and Lagan are the main Russian ports in the Caspian Sea and on the other hand, Astra, Anzali, Caspian, Nowshahr, and Amirabad are the Iranian ports.
Another important development was agreements between Iran and Russia for shipbuilding in the Caspian Sea. On July 7, 2022, the government of Russia’s Astrakhan Region and Iran’s Mostazafan Foundation, one of the largest Iranian funds, signed an agreement to establish a shipping company to develop the North-South International Transport Corridor. Indeed, on June 17, 2022 Iran and Russia reached a preliminary agreement for the establishment of a joint shipbuilding venture in the Caspian Sea region during meetings held within the framework of the 25th St. Petersburg International Economic Forum (SPIEF) in Russia. Alireza Peimanpak, head of Iran’s Trade Promotion Organization (TPO) mentioned that “Russia’s logistical support for Iran’s fleet of commercial ships will help plans to increase traffic along the INSTC”. In the continuation of this process, “Russia and Iran have confirmed their readiness to develop cooperation in the field of joint construction of “large-capacity vessels” at Iranian shipyards and cargo vessels at Russian shipyards, according to a statement of the Russian government’s website following a meeting of the Russian-Iranian intergovernmental commission in Grozny in November 1, 2022”.
Finally, on January 4, 2023, the Islamic Republic of Iran Shipping Lines (IRISL) ordered Russia to build a ship for use in the Solyanka port which the two countries are developing with joint investment. The ship is of the type capable of carrying all kinds of cargo – at least 200 cargos – and, according to the contract, it should be ready in 9 months. Indeed, Russia sent a ship to be repaired in Iran for the first time by Iran Marine Industrial Company (SADRA) in December 28, 2022. The ship has hit large pieces of ice in the Volga River. Although the cooperation between Iran and Russia to build ships and vessels in the Caspian Sea is still in its early stages, it is a new and important development that has not been seen in the past three decades.
The next important development was the rise of “multimodal transportation” among Russia, Iran and India in the Caspian Sea. In this regard, the first transit shipment from Russia to India was sent through Iran by way of the INSTC in June 11, 2022. This shipment passed on a “multimodal route” through Astrakhan Port, specifically the Solyanka port (Russia); Bandar Anzali in the Caspian Sea and Bandar Abbas and Chabahar ports in Persian Gulf and Oman Sea (Iran); and Nhava Sheva Port in the Indian Ocean (India). In this process, the Solyanka section’s role was critical: it was classified as the first among 15 ports on the Volga River and in the Republic of Dagestan in 2020.
Indeed, since a decade ago, the Islamic Republic of Iran Shipping Lines has bought 53 percent of Solyanka shares in Astrakhan. In this process, the Islamic Republic of Iran Shipping Line Group invested $10 million in Solyanka Port. Part of this investment, which has been funded through Russian banking loans, was spent on purchasing a vessel with a capacity of 270 containers. The wharfs and inner roads of the port have also been overhauled”. It should be noted that Solyanka is important because the main part of Iranian sea trade is in the Caspian Sea with the Port of Astrakhan; a smaller portion of this trade is also dedicated to Makhachkala Port.
Although Iran’s attention to Astrakhan Port is not new and, in the past decade, has not been limited to the purchase of 53 percent of Solyanka shares. Iran has a consulate general and a branch of Mir Business Bank in Astrakhan, which, along with the Moscow and Kazan branches, is crucial in facilitating banking and financial transfers between Iran and Russia. Likewise, the Iran Trade Center was inaugurated in Astrakhan on October 25, 2017. This 200-year-old center had been closed after the Russian Revolution of 1917. Additionally, in recent years, various Iranian companies have invested in the Lotus special economic zone (SEZ) in Astrakhan and a tripartite agreement was signed between the Lotus SEZ, Anzali Free Zone Organization in the Caspian Sea and Chabahar Free Trade–Industrial Zone in the Gulf of Oman June 19, 2019 that has very important role in “multimodal route” in framework of the “International North–South Transport Corridor” (INSTC).
The importance of transit and port trade between Anzali port with Astrakhan port as well as Makhachkala is also important from another aspect. Since no direct rail connection exists between Iran and the Caucasus, the Astara-Baku-Dagestan land route is considered the main transit route from Iran to Russia, which has experienced increased traffic in recent months. This condition is one important reason for Iran and Russia to expand the transit capacity of the sea route through the Caspian Sea. In fact, the passage through Astrakhan, Solyanka and Makhachkala ports to Iranian ports makes it possible to re-route portions of the Caucasus traffic through the Caspian Sea”.
In the process of expanding cooperation between Iran and Russia in the Caspian Sea, Ali-Akbar Safaei, head of the Iranian Ports and Maritime Organization, after a meeting with Russian Deputy Transport Minister Dmitry Azarov in Tehran in October 10, 2022, announced Moscow’s readiness to allow Iranian ships to pass through the Volga River. It was very important, because before this, Russia did not allow foreign ships, including Iranian ships, to pass through the Volga River nor utilize the Volga-Don Canal. In fact, the Russian authorities consider this river to be an internal waterway, and due to national security considerations, Moscow did not allow foreign ships to pass through the Volga and its existing channels inside Russian territory. Therefore, Iranian ships had to transfer their containers to Russian ships at Astrakhan Port so the shipments could reach their final destination inside Russia or move onward to the Black Sea through the Volga-Don Canal. If such an agreement becomes final and is then implemented, Iran will have access to the longest river in Europe, which begins in Tver Oblast (about 400 kilometers north of Moscow) and ends in Astrakhan (southern Russia) on the northern shore of Caspian Sea, passing through 15 Russian regions, including Samara, Nizhny Novgorod, Kazan and Volgograd. Indeed, Iranian ships would be able to use the Volga-Don Canal, which provides the shortest navigable connection between the Caspian Sea and the Mediterranean, via the Sea of Azov and the Black Sea”.
The first challenge is the small number of Iranian shipping fleet in the Caspian Sea. Although 53 Iranian ships are active in the Caspian Sea, considering the increasing trend of export and import between Iran and Russia, at least 100 ships are needed. In this regard, eight new vessels have been added to the fleet of Khazar Sea Shipping Lines in December 10, 2022 which increases the number of Iranian ships to 61”. In this process, the construction of 5,000 ton ships is very important to increase the volume of trade between the two countries and the Russian shipbuilding industry in Astrakhan can play an important role in increasing Iran's shipping capacity in the Caspian Sea.
The second challenge is the small number of “Roll-on/roll-off (ro-ro) ships” in maritime trade between Iran and Russia in the Caspian Sea. While Russia has 19 ro-ro ships and the Republic of Azerbaijan has 10 ones in the Caspian Sea, Iran’s shipping lacks such a capacity. For solving this problem, a contract for the construction of two ro-ro ships was signed by Iran Marine Industrial Company (Sadra) on the order of Islamic Republic of Iran Shipping on July 2022. With a capacity of four thousand tons, the length of these ships is 140 meters, which is the maximum length for ships that can travel in the Caspian Sea and the Volga River. These multi-purpose vessels can be used to transport containers, wood, cars, etc”. Indeed, as mentioned earlier, on May 4, 2022, Iran’s northern port of Noshahr hosted the first Russian ro-ro cargo vessel after 21 years. Although these steps are important, it is not enough considering the growing volume of trade relations between Iran and Russia in the Caspian Sea. Therefore, it is necessary to dedicate a larger part of the capacity of Russian ro-ro in the Caspian Sea to trade with Iran.
The third challenge is the time and day of the ships’ departure. The fact is that at the moment, the land routes including the Astara-Baku-Dagestan may be more expensive, but it is easier and more comfortable. Regular planning of ships’ departure helps Iranian and Russian exporters and importers to use the capacity of all the ports of the two countries in the Caspian Sea. A very important point is that Iranian and Russian ships can load and unload on both sides of origin and destination. Unfortunately, in many cases, ships are only loaded in one of the ports of Iran or Russia and return empty and without cargo. Therefore, it is very important that transit maritime routs should not only be one-way, so that the cost is reduced and it is economically justifiable. It certainly will have positive impacts for creasing the volume of maritime trade between Iran and Russia in the Caspian Sea.
The fourth challenge is the situation of the Astrakhan port is that it freezes in the winter season. In such circumstances, there are serious restrictions for the ships to reach the port. The best alternative option for Iranian and Russian ships is the port of Makhachkala, which does not have the freezing problems of the Astrakhan port in winter. In fact, Makhachkala is the only Russian port that can host Iranian ships for the whole year and the strengthening of maritime trade through this port will lead to reducing the cost and duration of transporting goods from Iran to Moscow by more than 30% compared to road transportation through the border of Azerbaijan.
The fifth challenge is the severe lack of dredging in the Volga river and Volga-Don Canal that has caused the waters to become more shallow, which has increased the difficulty of moving ships through the Volga and Volga-Don Canal”. For this reason, the ships have to move in draft (draught) of 3.7-meter, which led to the ships being loaded with only 70% capacity. Therefore, dredging the Volga river and Volga-Don Canal for drafting of 4.5 meters is very necessary for the traffic of ships with full capacity. For this reason, Denis Vitsnarovsky, deputy head of FSUE Rosmorport’s capital construction and repair division, announced on February 16, 2022 that the project on reconstructing the Volga-Caspian Seaway Canal will start in 2023–2024, with it being completed by 2028. The scope of dredging is preliminary estimated at 15 million bcm [billion cubic meters]. The main goal of the program is to ensure safe passage of vessels with a draft of up to 4.5 meters”.
The sixth challenge is that unlike the ports of Astrakhan and Makhachkala, which have access to the Russian national railway, only one Iranian port in the Caspian Sea, Amirabad in Mazandaran province, has direct access to the rail network. Therefore, other Iranian ports suffer from the lack of access to the rail network which is an important weakness in the “multimodal transportation”. However, Iran is trying to solve this challenge. In this regard, Iran is trying to complete 35 km of the rail route between Rasht (the capital of Gilan province) and the Caspian port, which is a seaport located in Anzali Trade-Industrial Free Zone. This rail network can connect Anzali Port and Caspian Port to Iran’s rail network and southern Iranian ports in the Persian Gulf, especially Bandar Abbas, which will be an important development in “multimodal transportation” with Russian ports in the north of the Caspian Sea. In this regard, if the 164 km Rasht-Astara railway is completed, as the only part of the North-South Corridor, Astara port in Gilan province will also be connected to the Iranian rail network.
Iran desperately needs to complete the Rasht–Astara railway. But since the Republic of Azerbaijan has been unable to fulfil its financial obligations due to sanctions, Tehran is turning to Moscow for support. In January 2022 President Ebrahim Raisi travelled to Moscow, where the two sides finalized a previously agreed-upon $5 billion credit line for the completion of several development projects in Iran. Among those projects, Iranian Economics Minister Ehsan Khandouzi noted, would be the Rasht–Astara railway. On January 18, 2023, special assistant to Russian President Igor Levitin and his accompanying delegation visited the Resht-Astara railway line and announced Iran and Russia have reached an agreement to build the Rasht-Astara railway within three years.
In general, during the past year, very important and positive developments have taken place in the cooperation between the two countries in the Caspian Sea, which needs to be strengthened and developed. In this process, it is very important to solve the six main challenges that were mentioned, as well as facilitate the logistics, bureaucratic, customs, insurance and banking processes. In this case, we can hope that the share of maritime trade in the economic relations between Iran and Russia and Iran and the Eurasian Economic Union in the North-South corridor will increase significantly and sustainably.
