Russia builds new Asia trade routes

Bloomberg reports.

Rail and shipping routes to connect European Russia to India through Iran

According to Bloomberg, Russia is forging ahead with the creation of two new transportation routes connecting Asia and Europe, aiming to counteract sanctions amidst global trade disruptions caused by Middle East instability. 

These corridors, spanning shipping and rail networks through Iran and an Arctic sea passage, could enhance Moscow's alignment with major Asian players like China and India while reducing dependence on Europe. This strategic move positions Russia at the center of global trade dynamics despite efforts by the US and its allies to isolate President Vladimir Putin over the war in Ukraine.

The routes could cut 30%-50% off transit times compared to the Suez Canal and avoid security problems plaguing the Red Sea as Houthi rebels attack international shipping over Israel’s war against Hamas in Gaza. Iran’s missile and drone strikes aimed at Israel have added to the regional turbulence.

Although the routes supported by Russia are being avoided by the US and its Western allies, significant Asian and Gulf economies have expressed interest due to the potential for cost savings.

Russia plans to invest heavily in Arctic Sea route infrastructure

The development of the International North-South Transportation Corridor, which connects India to the European part of Russia, is hindered by outdated Iranian infrastructure. Additionally, while accelerating climate change is making the Northern Sea Route (NSR) more feasible by melting Arctic ice, there are still formidable logistical obstacles along Russia's remote coastline.

Russia plans to invest over $25 billion in upgrading the route through Iran and improving infrastructure along the Arctic coast with new icebreakers. A 1.3 billion euro loan to Iran aims to construct a crucial rail link connecting St. Petersburg to Bandar Abbas, facilitating global transport diversification.

The north-south route's transportation capacity, expected to reach 35 million tonnes annually by 2030, will link Russia with Iran, India, and potentially South Asia, the Persian Gulf, and Africa. Russia's inaugural direct cargo train to Saudi Arabia in August signifies its expanding connectivity.

“If the other routes are interrupted, this one will continue working because it’s sanctions-proof,” said Nikita Smagin, an analyst at the Kremlin-founded Russian International Affairs Council. “That’s the main idea.”

Driven by Russian oil sales and purchases of electronics, industrial equipment and cars, trade with China hit a record $240 billion in 2023, more than double the $108 billion reached in 2020. Trade with India grew to almost $64 billion last year, versus around $10 billion three years earlier, as New Delhi’s purchases of Russian oil have soared since the war in Ukraine began.

Russia is investing heavily in upgrading its eastern railroads to boost capacity on the Trans-Siberian and Baikal-Amur Mainline by 2030, driven by growing trade with China. Meanwhile, Turkey's trade with Russia is declining, with exports falling by a third in the first quarter of the year, amid US and EU restrictions on dual-use goods.

Western sanctions imposed over the invasion of Ukraine have hindered the development of the Northern Sea Route, delaying Russia's plans to export liquefied natural gas from the Arctic LNG 2 plant to Asia. These punitive measures have led to the freezing of key foreign investments and disrupted contracts for specialized icebreaker vessels necessary for navigating the Arctic waters.

“International transit traffic through the NSR was considered risky because of changes in the geopolitical situation,” said Mikhail Grigoryev, an Arctic expert who is the co-owner and director of consulting company Gecon.

In October, the UAE's DP World partnered with Russia's Rosatom to develop container shipping along the route between Vladivostok and Murmansk. Putin hailed the construction of Russia's nuclear-powered icebreakers, emphasizing their role in enhancing the country's export potential and establishing efficient logistics routes, particularly to Southeast Asia.

India is investing in Chabahar, Iran's sole port with direct Indian Ocean access, backed by Russian-backed rail connections, providing a shorter route to Europe via central Asia, including Afghanistan, bypassing US sanctions.