The emergence of “New Economic Order” would transform the way logistics and transport in global market is being carried out. The North-South Transport Corridor (INSTC) member countries must contribute effectively for the overall development of corridor i.e., the improvement of inland waterways, security of container and general cargo terminals in Caspian ports, the modernization of border crossing points and the construction of logistics hubs and roadside service facilities, writes Muhammad Athar Javed, founder, CEO of Pakistan House, especially for the 12th Valdai Club Middle East conference
Introduction
The fact that a “New Economic Order” is in the making and continue to impact the strategic outcome in major regions of the world. While crises can lead to difficult times, they can also present unique opportunities for countries. On that account, a time of crisis can be considered an opportunity by a country to review its foreign policy to develop new alliances and to work with other countries for building stronger relationships as well as addressing common challenges to create economic and political stability within the respective region and strengthen international cooperation. In the wake of Special Military Operation (SMO) in Ukraine, the Russian economy is adapting its logistics to tackle the emerging situation, to deal with the sanctions imposed by the United States and European Union (EU).
Russia is improving its ties with non-Western allies particularly Asia and Eurasia for market diversification. As a result, Russia is giving major attention to long delayed International North-South Transport Corridor (INSTC), which is now being considered as the potential economic pathway for Russia against the sanctions.
International North-South Transport Corridor: An Overview
The multimodal International North-South Transport Corridor (INSTC) connects the Nordic countries and the western Eurasian Economic Union (EAEU) to the countries of Central Asia, the Persian Gulf, and the Indian Ocean. The INSTC will enhance the transportation cooperation among member countries and will reduce the transit time for goods transportation from 40-60 days to 25-30 days, and will cut costs by 30 percent.
The Northern and northwestern Eurasian Economic Union (EAEU) nations are linked to the nations of Central Asia, the Persian Gulf and the Indian Ocean via multimodal INSTC. The corridor includes Caspian Sea ports, Persian Gulf ports as well as infrastructure of 7,200 kilometer of railway, highways and inland water transportation connecting Russia and India through Iran. The agreement was signed on September 12, 2000, at the Second International Euro-Asian Conference on Transport in Saint Petersburg by the three countries i.e. India, Iran and Russia, establishing the legal foundation for the North-South Corridor. Later, eleven new countries were added which expanded the INSTC. Even though the agreement to build the corridor was signed more than 20 years ago, it failed to take off for a long time. But, now the successful operationalization of the INSTC is being supported by a number of factors such as COVID-19 outbreak and current economic and political conditions in Europe because of Ukraine. It is anticipated that by 2030 the INSTC corridor will be able to handle 25 million tons of freight annually or 75% of the cargo traffic between Eurasia, South Asia and the Gulf.
Russia’s “Pivot to the East”
Russia’s policy to strengthen ties with countries in Asia took a turn in the past year that has come to be known as its “pivot to the East.” Due to Russia’s cold relations with West and EU, the Asia and Eurasia have become a priority in Moscow’s foreign policy for deeper strategic cooperation. The main focus of this pivot has been to strengthen economic ties as well as to increase cooperation on security matters with countries in the region. Russia has also sought to build closer ties with the regional powers such as South Korea, India, Pakistan, and ASEAN countries, to gain access to new markets, technology, and resources. It is because Russia seeks to diversify its economy away from relying too heavily on energy exports to Europe.
This is why, trade between Russia and the countries of Asia and Eurasia has increased throughout the past months. Russia will likely continue to play a significant role in Asian and idle Eastern markets as trade and economic relations will countries to grow in the coming years.
Significance of Eurasia transportation routes for Russia
Eurasia is a region of immense economic and political importance, as it contains some of the world’s most important transportation routes, energy resources, and emerging markets. Eurasia’s transportation routes have significant importance for Russia as they provide the country with a variety of economic and strategic benefits. In recent times, economically, these routes are providing access to international markets, allowing Russian companies to participate in global trade and take advantage of the different economic opportunities available. Strategically, these routes are allowing Russia to maintain its presence in Eurasia while playing a role of an influential player in the area. The transportation routes of Eurasia also provide a basis for Russia to expand its influence in the region by providing a platform for increased economic and political cooperation between different countries in the region.
Transport and Trade Routes amid Special Military Operation in Ukraine
Since the US and allies’ sanctions on Russia, more trade maps to be changed in Eurasia and Asia, as well as the landscape of transportation routes to shift significantly. The emergence of new trade patterns including Asia and Middle East. The first-ever pilot transit of cargo from Russia to India utilizing the INSTC was announced by Iran in June 2022 through the Strait of Hormuz port of Bandar Abbas, which was followed by the transfer of 39 more containers from Russia to India’s Arabian Sea port of Nhava Sheva in July 2022.
During the initial phase of SMO in Ukraine, global exports of Russia decreased by approximately 50%, since June 2022, this trend has slowed down considerably. At that time of the period, three countries including China, Iran and Türkiye expanded their exports to Russia, and as a result, trends in exports to Russia improved. Whereas, since the Ukraine crisis initiated, China, Brazil, Vietnam, Turk, Serbia increased their imports and particularly India raised its imports from Russia by more than 100 percent in trade during each month which is the largest shift in trade relationships among the world’s largest economies in the past year.
Prospects of North-South Transport Corridor
There are number of opportunities that are emerging for INSTC. In a report released in October 2022, the Eurasian Development Bank (EDB) emphasized the significance of corridor’s enormous untapped potential. This potential can be unlocked by proper investments to make it a hub for new Eurasian logistics routes, services and markets. Also, there are multiple projects that are in pipeline to develop North-South Transport Corridor, introduced by Russia, Azerbaijan and Iran which will be completed this year. Despite the challenges, INSTC has the potential to develop into a crucial component of Eurasian transportation, as well as function as a network for North-South and East-West services that connect countries i.e. Central Asia, Europe, Asia and the Middle East. On the Iranian-Azerbaijani border at Astana, the Russians want to construct a logistics hub as part of the Rasht-Astana-Qazvin railway line’s completion. On the other hand, it is also investing in Sarakhs, which is the gateway between Turkmenistan and Iran and is situated on the eastern branch of INSTC.
Conclusion
