Russia Faces Serious Problems in Developing North-South Trade Corridor via Caspian Sea

Moscow had counted on the expansion of its north-south trade via the Caspian Sea to help end-run Western sanctions; however, the sanctions regime, which led the Russian government to seek to expand the capacity of this route in the first place, has been largely effective and resilient. According to Russian merchant marine officials, over the past two years, sanctions have helped drive down the number of ships in Russia’s armada, the usage rates of Russian ports on Caspian, as well as the amount of goods passing between Russia and Iran via that route. The change in the nature of those goods still being traded, from agricultural to industrial products, gave officials in both Moscow and Tehran an opening to claim that trade between the two countries has been growing rapidly. But even this kind of growth is unlikely to continue, not only because of the West’s sanctions regime but also because of the fundamental problems that Russia faces in building ships, modernizing its ports and overcoming the long-standing logistical problems in handling intermodal trade. Indeed, even if the sanctions were to end in the near future, the likelihood that the Caspian route will achieve Russia’s and Iran’s proclaimed goals is far from certain.

For many years, as officials in both capitals acknowledge, the north-south transportation corridor and especially its Caspian Sea path have “existed only on paper.” That changed, they say, when the West imposed sanctions prompting Russia and Iran to expand cooperation. And when the two countries concluded that instability in the South Caucasus and Central Asia coupled with the topographic difficulties and high costs of finishing rail links in both regions, especially in northern Iran, would be burdensome, it prompted Moscow and Tehran to decide that the Caspian itself was a safer bet than either of the land-based routes. Even so, the Caspian route faces some difficult and, at least in the short term, insurmountable obstacles to being the royal road to the future that Russian President Vladimir Putin and Iran’s leaders have hoped for in their bilateral relationship.

Nikolai Kovalev, the Russian government official who oversees the three Russian ports on the Caspian—Olya, Astrakhan, and Makhachkala—put it bluntly: “The problems that Caspian ports now face are characteristic for practically all the sea basins of the country. They include violations in the logistics of transferring goods from one kind of transport to another, financial limitations, the lack of sufficient shipping capacity, bans on transferring goods to the ports of European states, export limitations on the import of particular categories of goods, including grain, that have been introduced as a countermeasure by the Russian government and a number of other factors.” Among these other factors, Kovalev says, are the lack of sufficient icebreaker capacity, something that affects two of the three Caspian ports—Olya and Astrakhan—which freeze over in the winter and block navigation, and the sad reality that many of the Russian ships and even more of the foreign ships involved in Caspian trade violate basic safety norms and cannot be put to sea.

However, in truth, improving Russia’s Caspian ports and their ability to handle expanded trade, including improving their links to rail lines and highways within Iran and the Russian Federation, is only the beginning. Neither Iran nor Russia has a sufficient number of modern ships, especially those with the roll on/roll off capacity needed for a rapid boost in trade along this route. Russia has only 19 such vessels on the Caspian, and Iran has even fewer. In comparison, Azerbaijan has 10 and, thus, is a formidable competitor.

Other Caspian littoral states are also expanding rapidly in this regard, Kazakhstan, in particular, is leaving Russia and Iran in the dust. This makes it ever-more likely that countries further afield that would like to use the north-south route advertised by Moscow will, for a time, use only part of it and will not send goods through Russia—thus limiting its attractiveness to the Kremlin as a geo-economic and geopolitical tool. Indeed, these other Caspian littoral states may be doing more in the merchant marine sector than in the military realm, though they are active in that sector as well. In recent months, Moscow has taken some limited steps to address this trend but without the great success it clearly had expected 

Shipping on the Caspian is thus a bottleneck on Russia’s much-ballyhooed north-south route, but it is far from the only one. For the Kremlin, the Caspian is only a small part of its north-south project. Most importantly, Moscow wants to dredge the Volga-Don Canal so that ships from the Caspian will be able to proceed further north and west into Central Russia and the Sea of Azov for eventual trade with the West. Russia is so committed to doing so that it has allowed Chinese and Iranian companies to participate in the project, even though this will open the way for Beijing and Tehran to expand their influence deep into the heart of Russia. And this trend will likely become even more significant as Moscow is forced to continue to cut back its support of such projects due to budgetary stringencies arising from Putin’s war against Ukraine.

It is certainly the case that, on the Caspian, Putin’s north-south corridor is no longer just “on paper,” but it is also true that it is not the outstanding success he wanted. Instead, like so many of the mega-projects of the Soviet past, this one is likely to fail due to bottlenecks that may seem small in and of themselves—such as the lack of icebreakers in ports, the dredging of canals and the failure to build enough roll on/roll off ships—but that are likely to prevent the entire project from being achieved. That is all the more likely to prove true if Moscow is forced to cut funding further, something that it will have little choice in as Russia’s war against Ukraine rages on.