Russia-Iran-Azerbaijan – relations are on the rise
Relations between Iran and Russia are on the rise. Along with agreeing upon a number of burning international issues, 16 intergovernmental and interstate agreements, including three memoranda on energy were signed in the course of the visit of President of Iran Hassan Rouhani to Moscow on March 27-28. Though the value of agreements has not been mentioned, they will definitely pave the way for a long-term cooperation while the statements made by the leaders of the two largest Caspian economies about the ‘importance of sooner completion of preparation of the Convention at the 5th summit of the Heads of Caspian states to be held in Astana this year’ inspires optimism for sooner settlement of the old problem associated with the Caspian status and for promotion of Caspian transport projects both on the east and west shores of the Caspian. As is known, Iran’s stance on ownership of deepwater gas fields, located in the central section of the south part of the Caspian Sea, has been one of the major issues on the agenda of the negotiations about the Caspian Sea status (read: http://caspianenergy.net/en/investor-en/29126-the-field-is-slipping-through-the-fingers-why-socar-and-ministry-of-foreign-affairs-taking-no-action)
The joint statement of the Presidents of Iran and Russia also says that the sides stand for provision of peace, stability and security in the Caspian Sea region, development of shipping, transit and multimodal freight transports, etc.
Iran’s share in the external trade turnover of Russia makes about 0.2% while RF’s share in external trade of Iran totals 1.1%. Though these figure have been in fluctuation, more or less 0.5%, since early 2000s.
Despite the fact that the goods turnover between RF and Iran increased by 70% over the last year, it makes about $1-1.5bln according to the information of the Russian Media. At the same time the economy of Iran with a population of 80mln people is growing. International Monetary Fund forecasts that the real GDP growth of Iran will rise up to 6.6% in 2016/2017.
“Maintenance of growth launched this year has been the main economic problem for the country and all types of the economic policy have to be worked out on basis of this axis”, the President said in a live state television broadcast in December.
Inflation in the country fell down to one digit figures and has stayed at the rate of 9.5% since the mid of 2016.
Iran still has enough problems with free flow of financial means.Therefore it aspires to develop relations with neighbor countries, as well as regional markets. President of Azerbaijan Ilham Aliyev made a visit to Iran on March 5, which also ended up with the signing of a series of memoranda and agreements. 18 documents were signed as a result of bilateral visits made last year, alone. The Iranian side has started investing into Azerbaijan’s economy. In the meantime, Azerbaijan began funding Resht-Astara railway. “The North-South transportation corridor which is being implemented jointly is a historical event”, I.Aliyev said. In July 2016 the first cargo was delivered to Astara and back to Moscow. It doesn’t look like a full-fledge route, but the ice has been broken.
As early as September 12 2000 Russia, Iran and India signed an agreement about International North-South transport corridor in Saint Petersburg. The agreement has entered in force on May 21 2002.
Azerbaijan has joined in the agreement in September 2005. Implementation of the project on construction of the railway within the framework of the North-South project promises big economic benefit compared to other alternative international transport routes. This project will create conditions for more efficient cargo transportation from the Persian Gulf to Europe in terms of the delivery time, which is certainly beneficial from the financial point of view.
North-South is a multimodal route for passenger and cargo transportation from Petersburg to the Indian port of Mumbai. According to preliminary estimates, at the first stage the carrying capacity of the railroad will total 1.4mln passengers and from 5 up to 7 mln cargoes per year, and 15-20mln tons in future. 22 tunnels and 15 bridges will be erected along the railroad.
Early in March Iran and Azerbaijan opened a railway at a 10km long section which is one of the missing parts of the North-South transport corridor that is just about to get completed after a 17 year construction.
In mid of March Azerbaijan, Iran and Russia agreed to lower railway tariffs by 50% in order to activate cargo transportation along the International North-South Transport Corridor.
The main goal of the three-sided meeting was to determine concessional tariffs for 2017 in order to activate the route for cargo transportation from Russia, Azerbaijan, Belarus, Latvia, Estonia and Finland to the Persian Gulf countries, India and back. The meeting participants ‘reached the consensus’ about the tariff rates.
“According to the decision made in the course of the three-sided meeting, the route will be commissioned with a 50% decline of tariffs”, Deputy Head of the Company “Railways of Iran” said and expressed optimism that the new corridor would be seriously loaded after Finland, Estonia, Latvia and Belarus join in the route.
Thus, Iran and Azerbaijan aspire to assert themselves as regional transport junctions between Asia and Europe, while other countries in whole Asia try to employ these new networks. Considering interests of the European countries, it is quite fair to name the North-South route as West-North-South
EU-Russia- Azerbaijan –Iran
The western direction anyway remains prioritized, which is also seen from first official visits made by Rouhani after cancellation of sanctions - to Italy and France. It is them who are preferable investment partners for Iran. As early as November 2015 Deputy Minister of Oil of Iran for International and Commercial Affairs Amir Hossein Zamaninia more clearly mapped out Iran’s stance on the European direction, saying that Iran is ready to sell gas to Europe even if it is unprofitable for the country from the economic point of view. “We want our relations develop not only with the Persian Gulf countries but also with the Western countries. Strengthening of economic relations lead to reduction of political disagreements, which also minimizes chances for imposing of new sanctions”, he said.
Early in March Ambassador of France in Tehran Muriel Penicaud stated that the commodity exchange between Tehran and Paris increased by 235% last year vs 2015 and totaled 2.1 bln EUR. France also welcomes Iranian investors and helps them to gain an access to the French market of 65 mln consumers, as well as to the market of 500 mln consumers in Europe and Africa, the French diplomat added.
In October 2016 National Iranian Petrochemical Company (NPC) and Royal Dutch Shell signed a letter of intent to start the surveys in regard to the implementation of the petrochemical projects in Iran. Iranian company Iran Shipbuilding & Offshore Industries Complex Co. (ISOICO) and the Dutch ship-building company IHC signed an agreement about cooperation and exchange of engineering and technical services. Earlier, NPC signed two agreements with Total and Linde Group which will be involved in supply of petrochemical equipment.
In August 2016 BASF said that it thinks of investing about $4bln into the petrochemical projects of Iran.
It is known that BASF together with NPC intends to construct new petrochemical plants close to the Iranian petrochemical and gas industry center in the city of Assaluyeh located in Busher province. The contract between Shell and National Petrochemical Company of Iran (NPC) was signed on October 11 2016.
A total of 200 trade delegations have visited Iran from foreign countries since the launch of the Joint Comprehensive Plan of Actions (JCPOA) in January 2016, Chairman of the Tehran Chamber of Commerce, Industries, Mines and Agriculture (TCCIMA) Masoud Khansari said in his interview with Tehran Times. Iran has managed to attract about $10bln foreign investments within the first 11 months of the current Iranian calendar year (from March 20 2016 to February 18 2017). Besides, TCCIMA also sent trade delegations to 7 countries of the world, including Germany, Denmark, Austria, Romania and Czechia.
“We (TCCIMA) expect to send trade delegations to 9 countries including Russia, Belarus and Germany in the coming Iranian year (which started on March 21 2017)”, the official said.
India-Pakistan-Afghanistan - the support of USA?
However, international investors are limited in their actions in choosing partners. The new draft law on stricter sanctions against Iran was submitted to the US Senate on March 23. The bill was submitted for consideration by 14 senators from the Democratic and Republican parties, including several heads of the United States Senate Committee on Foreign Relations. It is aimed at imposing mandatory sanctions on those who participate in the missile program of Iran and on those who trade with these companies and structures. The bipartisan group of senators in the US Congress introduced the bill suggesting imposing stricter sanctions against Iran in connection with its ballistic missile tests and other activities, Tehran Times reports.
On the other hand, export projects in Asia received a kind of support from the United States. During hearings in the US Senate in mid-March US Army Gen. John Nicholson who commands the US combat operations in Afghanistan said that he welcomes the Chabahar Port Development Project because it would offer Afghanistan a more sustainable and cost-effective alternative to transportation of all its goods through Pakistan.
“The Iran-India-Afghanistan cooperation through the port of Chabahar represents a great economic potential. The large India’s investment worth more than $2 billion in 2002 and another $1 billion announced in 2016 into the Afghan infrastructure, engineering training and humanitarian issues will contribute to the development of the Afghan human capital and long-term stability”, General Nicholson said at the hearings in the US Senate Armed Services Committee.
Under the framework agreement signed between Iran and India in May last year India is equipping and operating the two piers as part of the first phase of the Chabahar Port Development Project. “Iran intends to export gas through pipelines to the countries of the region and gives preference to the Asian markets in the issue of LNG supplies”, Amir-Hossein Zamaninia said in August 2016. Apparently Iran does not pretend to the European gas market, but is ready for talks on gas exports through the Southern Gas Corridor. However, now export of gas through the pipeline to Europe is not economically justified, the deputy minister believes. “Even in the LNG supplies our priority is Asia, not Europe. At the same time Iran wants to diversify its export routes and is negotiating with Russia and Azerbaijan to create a balance between supply and demand worldwide. We should contribute to increasing demand for gas which is an environmentally friendly fuel”, Zamaninia said.
Besides the bilateral agreement on the development of ChabaharPort, according to which India shall invest $500 million, the tripartite agreement signed by India, Afghanistan and Iran is in place to create a transport-transit corridor that starts in Chabahar and stretches to Afghanistan.
In early March, India announced its plans to complete the first phase of construction of the ChabaharPort in 2018. And President of Iran Hassan Rouhani attended the ceremony of launching the construction of the gas pipeline between the cities located in the southeastern of the Islamic Republic of Iran - Iranshakhr and Chabahar.
Kazakhstan – passage way to China
Given the development of transport projects on the eastern coast of the Caspian Sea, namely construction of a modern Caspian port for 34 piers in Amirabad by Kazakhstan and Iran, as well as Iran's entry into the free trade zone with the Eurasian Economic Union this summer, possibilities of the route will expand even more. Kazakhstan is also a central point of the Great Silk Road. According to Chen Cheng-wei, Chief of the Chinese port of Chengdu, “Kazakhstan is the important transport hub along the Chengdu-Europe route and, in general, for implementation of the ‘One Belt, One Road’ initiative - over 80% of trains moving from China to Europe pass through the Xinjiang Uygur Autonomous Region and Kazakhstan (note: more than 1,800 trains were sent from China to Europe in 2016, and more than 500 in the opposite direction). Besides the European direction, there are plans to put in place the first Pan-Asian railway ‘China-ASEAN’ from the city of Chengdu (to the city of Hanoi, Vietnam)”.
Therefore, the ‘One Belt, One Road’ and ‘North-South’ corridors will intersect in the Caspian. This can give a big impetus to the development of the region, but at the same time it can do harm by flooding the markets of Kazakhstan, Azerbaijan, Russia, Iran and Turkmenistan with low-quality products. To prevent this, the governments of the Caspian countries should not forget that countries with highly developed technologies and competitive economies dominate the world market. Besides traffic arteries, new platforms should be also created for a dialogue between large, medium and small businesses, and this dialogue can work in a five-sided format. To that end, it is not compulsorily necessary to create any bodies with supranational jurisdictions. Both foreign and local businesses should feel comfortable in order to develop.
This is very good to create global transport projects, infrastructure and flexible tariff policy. However, without competitive free local markets, free trade zones, international product quality certification and investment immunity mechanism at the legislative level, we will not see the expected effect from global projects, while markets will be flooded with low-quality products. Therefore, transport corridors are most likely not a goal, but a means to create business environment of the non-oil sector of the neighbouring Caspian countries that withstands competition on world markets.
Natalya Aliyeva, Editor-in-Chief of Caspian Energy