Russia pivots south for trade

**EMBARGO: No electronic distribution, Web posting or street sales before Wednesday at 12:01 a.m. ET on March 13, 2024. No exceptions for any reasons. EMBARGO set by source.** A cargo ship is unloaded at the port on the Caspian Sea in Baku, Azerbaijan, June 13, 2023. Russia has been forging new trade routes that will allow it to skirt Western restrictions, and a planned railway through Iran could be key for those ambitions. (Sergey Ponomarev/The New York Times)

FOR centuries, trade with Europe was the main pillar of Russia’s economy.

The war in Ukraine ended that, with Western sanctions and other restrictions increasingly cutting Russia off from European markets.

In response, Moscow has expanded ties with the countries more willing to do business with it – China to the east, and, via a southern route, India and the countries of the Persian Gulf.

That southern route has now become a focus of Russian policymakers as they try to build infrastructure for their plans to pivot away from the West for good.

The effort faces challenges, including questions over financing, doubts over the reliability of Russia’s new partners, and threats of Western sanctions targeting countries that trade with Russia.

A key part of the southern plan is a 160km US$1.7bil railway set to begin construction this year that would be the final link in a route between Russia and Iranian ports on the Persian Gulf – providing easy access to destinations like Mumbai, India’s trading capital. Russia has agreed to loan Iran US$1.4bil to finance the project.

“As Russia’s traditional trade routes were largely blocked, it had to look at other options,” said Rauf Agamirzayev, a transport and logistics expert based in Baku, Azerbaijan, referring to the southern route.

Russia has found numerous ways to skirt the Western trade restrictions, bringing in things like machinery from India and arms from Iran, as well as a host of consumer goods – often through Gulf countries and Turkey – that the government see as crucial for showing Russians that it can maintain living standards during a time of war.

While some consumer goods still trickle in legally from Europe, a whole range of restricted or difficult-to-get items are also widely available in Russia. Oysters from France, brought in by plane with a detour in some third location, are available at one Moscow restaurant, and Italian truffles and French Champagne, whose export was banned by the European Union, can be found at an upscale grocery store chain.

The Russian government sees the railway project through Iran – and another line it hopes to restore that would provide access to Turkey – as essential for locking in and speeding the flow of all such imports into the country.

It is also seen as critical for stepping up exports of the Russian natural resources that are critical for the economy.

President Vladimir Putin of Russia has said that the new route will cut the time for cargo to travel to Mumbai from St Petersburg to only 10 days, from 30 to 45 days now. Russian officials are calling it a “breakthrough revolutionary project” that will compete with the Suez Canal.

It will also complement Russia’s trading routes toward China, its largest trading partner, as those reach overcapacity.

Since 2021, just before the invasion of Ukraine in February 2022, Russia’s trade with China has soared 61%, to more than US$240bil in 2023, according to Chinese figures.

Trade is also surging with India, reaching US$65bil, more than four times what it was in 2021.

Russia’s trade with both countries in 2023 surpassed its prewar trade with the European Union, which stood at US$282bil in 2021.

The new railway will link two Iranian cities, Astara and Rasht, connecting tracks between Iran and Azerbaijan to the north, and then to the Russian railway grid. When finished – the new link is expected to be completed in 2028 – the resulting “North-South Transport Corridor” will stretch unbroken for more than 6,920km, out of reach of Western sanctions.

From Iranian facilities on the Persian Gulf, Russian traders will have easy access to India, as well as to destinations like Saudi Arabia, the United Arab Emirates, Pakistan and beyond.

A trading route through the Caucasus and Central Asia and across the Caspian Sea to Iran has already been a significant one for Russia in recent months, according to Lloyds List, which specialises in maritime news and intelligence. Russia has also been shipping oil and products like coking coal and fertiliser the opposite way.

Gagik Aghajanyan, the head of Apaven, the biggest freight-forwarding company in Armenia, said his fleet of trucks often picks up loads of consumer goods, delivered by rail from ports in Georgia on the Black Sea, and then transfers them north across the land border to Russia.

Other goods that are more sensitive, like those that are prohibited by Western states, can be shipped via Iran, which shares a border with Armenia, he said. From Iranian ports, goods can then travel to Russia over the Caspian.

“The Georgians say, ‘These are sanctioned goods; we will not let you through to Russia,’” Aghajanyan said in an interview. “And the Iranians say, ‘We don’t care.’”

In 2023, trade volumes across the route increased by 38% over 2021, according to Russian officials, and could triple by 2030.

In addition to the line through Iran, Russia also wants to restore an old Soviet railway that connected Moscow with Iran and Turkey via Armenia and the Azerbaijani enclave of Nakhichevan. The railway was abandoned in the early 1990s when war broke out between Armenia and Azerbaijan.

Russia hopes to have the railway up and running within a few years, but the project has been entangled in the complicated geopolitics of the region.

The Azerbaijani railway company is close to finishing its stretch of tracks toward Armenia through territories it had occupied before the 2020 war. From there, it can go either via Armenia or via Iran, if Armenia decides to stay away from the route.

“Russia can get a railway route to the Persian Gulf and Turkey,” said Nikita Smagin, an expert on Russian policy in the Middle East with the Russian International Affairs Council think tank. “It can do it pretty quickly, in up to two years.”

Rovshan Rustamov, the head of the Azerbaijani railway company, said Azerbaijan’s part of the project should be completed by the end of this year. Logistics, he said, may even replace oil as the biggest driver of Azerbaijan’s economy.

While Russian officials have lauded the new trade routes, some business leaders are not so sure.

“This looks like a forced decision that hasn’t been formed because of objective reasons,” said Ivan Fedyakov, who runs InfoLine, a Russian market consultancy that advises companies on how to survive under the current restrictions.

“What is being created in essence is a trade route for the pariahs,” said Ram Ben Tzion, whose company Publican analyses evasion of trade restrictions. — ©2024 The New York Times

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