Is There a Future for Central Asia’s Indian Ocean Transport Projects?

Central Asian countries are actively exploring new trade routes that could connect them to the Indian Ocean, focusing on partnerships with Iran, Afghanistan, and Pakistan. These routes offer the potential for expanded economic ties with India, the Gulf states, and even East Africa, promising new opportunities for regional trade. However, the realization of such ambitious projects is fraught with political challenges. Ongoing geopolitical tensions, internal instability, and security concerns in key transit countries pose significant hurdles.

Difficult Choices
Central Asian countries face two main options for accessing the Indian Ocean: through Iran or through Afghanistan in order to gain access to Pakistani ports. The key challenge is the presence of political conflicts along both routes, especially against the backdrop of escalating tensions in the Middle East. On the surface, the deterioration of relations between Iran and Israel casts doubt on the further implementation of the International North-South Transport Corridor (INSTC). Similarly, the situation regarding Pakistani ports is equally uncertain. Central Asian nations, particularly Uzbekistan, are promoting the Trans-Afghan railway to gain access to Pakistani ports, as it would enable connection to the Persian Gulf countries, which are actively advancing their own cooperation frameworks with Central Asian countries and are ready to expand investment and economic partnerships.

Additionally, the construction of the China-Kyrgyzstan-Uzbekistan railway will provide Uzbekistan with the opportunity to become a Eurasian logistics hub.

However, the current situation in Pakistan presents difficulties to realizing the full potential of these projects. The trade route through Pakistan, particularly via the Gwadar and Karachi ports, faces its own set of challenges. The domestic political situation in Pakistan remains unstable, with occasional instances of anti-Chinese terrorism, exemplified by the October 2024 attack near Karachi’s Jinnah International Airport. Such security threats undermine investor confidence and complicate the development of Pakistani ports, making them less attractive to Central Asian countries seeking reliable access to the Indian Ocean.

Moreover, Pakistan’s difficulties regarding trade with Central Asian states have been exacerbated by confrontations between Afghanistan and Pakistan. Taliban Deputy Foreign Minister Sher Mohammad Abbas Stanikzai urged Pakistan not to block Afghan agricultural exports during the harvest season, threatening that the Taliban could shut down the transit of Pakistani goods to Central Asia.

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The Afghanistan-Pakistan Transit Trade Agreement, signed in 2010, allows for the transit of Afghan goods through Pakistani ports. Trade between Pakistan and Afghanistan has declined over the years due to border tensions and restrictions, dropping from $2.5 billion in 2010 to $1.8 billion in 2022-23. Afghanistan’s reliance on Pakistani ports for its international trade has been affected by these disputes. The closure of key border crossings like Torkham has resulted in significant financial losses for traders on both sides. Consequently, Afghanistan has sought alternative trade routes, such as the Chabahar Port in Iran, to reduce its dependence on Pakistani ports. This move is seen as a strategic shift to bypass Pakistan and access global markets.

How Central Asian States Address These Challenges
One example of how a Central Asian state is managing the emerging conflicts in Iran and Pakistan is offered by Kazakhstan’s policy. At this stage, Kazakhstan supports the implementation of two transport routes through Afghanistan: the Trans-Afghan railway “Termiz-Mazar-i-Sharif-Kabul-Peshawar” and “Herat-Kandahar-Spin Boladak.” Kazakhstan intends to execute the first project alongside Uzbekistan and the second with Turkmenistan. The second project provides Kazakhstan with a strategic opportunity to redirect part of its traffic to Iranian ports in the event of a conflict on the Afghanistan-Pakistan border.

During the implementation of this project, there is the possibility of directing cargo from Kandahar to Afghanistan’s Farah, then to Zaranj on the border with Iran, and subsequently to Iranian ports. Afghanistan is actively utilizing these routes due to conflicts along its border with Pakistan. Since the beginning of 2023, when Pakistan introduced stricter conditions for Afghan transit trade, including increased import tariffs and the requirement of 100 percent bank guarantees, Afghan traders have been actively seeking alternative routes through Iran. In October 2023, Pakistan imposed new taxes and restricted the transit of certain goods, leading to significant financial losses for Afghan traders. These measures resulted in an increase in the number of containers delayed at Karachi port, affecting the freshness of perishable goods and other products. Afghanistan has invested $35 million in developing the Chabahar Port in Iran to reduce its dependence on Pakistan.

Overall, it is crucial for Central Asian countries to have as many options as possible to expand their economic ties. Therefore, routes through Iran within the framework of the INSTC are also of great interest.

The Promise of the INSTC
Initiated in 2000 by India, Iran, and Russia, the INSTC has evolved into a genuine multilateral integration initiative. Over the years, its membership has expanded to include the Central Asian countries of Kazakhstan, Kyrgyzstan, and Tajikistan, with Uzbekistan and Turkmenistan expressing interest in joining. The corridor’s strategic significance lies in its potential to offer a 30 percent cheaper and 40 percent shorter alternative to the Suez Canal route, reducing transit times from 45-60 days to 25-30 days.

For the energy-rich Central Asia states, the INSTC offers a lifeline that can help diversify their export markets. It provides access to the Indian Ocean, enabling these landlocked nations to reach Southeast Asian markets. Despite its promise, the INSTC faces significant political headwinds. The escalating confrontation between Iran and Israel poses a direct threat to the corridor’s stability. Recent events, such as Israel’s killing of Hezbollah leader Hassan Nasrallah and Iran’s retaliatory missile strikes, have intensified security dilemmas in the Middle East. These tensions risk embroiling Iran in a broader conflict, potentially leading to disruptions along the INSTC routes passing through Iranian territory.

Western sanctions against Iran and Russia further complicate matters. These sanctions limit both countries’ access to global financial markets, hindering infrastructure development and deterring potential investors. The sanctions regime not only affects Iran’s ability to participate fully in the INSTC but also impacts the willingness of other countries to engage with Iran, amid fears of secondary sanctions.

However, it is important to consider the active development of relations between the Gulf countries and Iran. Following a meeting with a Qatari delegation at the Iran Expo 2024 international exhibition, Iran’s Minister of Industry Abbas Aliabadi expressed both sides’ interest in implementing joint investment projects. It is anticipated that the countries will finance mutually beneficial initiatives and enterprises in the fields of industry, agriculture, logistics, and infrastructure in Africa and Asia, as well as in Iraq and Afghanistan. Against this backdrop, Central Asian countries could also be sufficiently involved in implementing Iran-Qatar joint investment projects.

In March 2023, Saudi Arabia and Iran agreed to resume diplomatic ties under a China-brokered deal, ending a seven-year rupture. This agreement aimed to ease tensions in the Persian Gulf and facilitate high-level diplomatic exchanges. Despite the normalization agreement, tensions remain due to ongoing regional conflicts, particularly in Yemen and Lebanon. Saudi Arabia is concerned about Iranian influence in these regions. Recent diplomatic efforts include a visit by Iranian Foreign Minister Abbas Araghchi to Saudi Arabia in October 2024 to discuss attacks in Gaza and Lebanon, indicating a cautious approach to improving relations. Additionally, Kazakhstan and Iran are discussing joint ventures in logistics and transportation. For example, a joint venture with Abu Dhabi Ports is planned to facilitate the delivery of agricultural goods through Iranian ports. This initiative demonstrates some Gulf states’ desire to contribute to connectivity with Central Asia through Iranian ports. Against this backdrop, another major player interested in developing ties with Central Asian countries – India – also emerges.

India’s Strategic Imperatives
For India, the INSTC is more than just a trade corridor; it’s a strategic asset. By providing a route to Central Asia, via Iran, that bypasses Pakistan, the INSTC aligns with India’s broader goals of enhancing connectivity and counterbalancing China’s growing influence through the Belt and Road Initiative. The corridor also offers India direct access to energy resources in Central Asia, crucial for meeting its burgeoning energy needs.

India has been proactive in promoting the INSTC, organizing meetings with member countries and investing in infrastructure projects such as Iran’s Chabahar Port. The port serves as a pivotal node in the INSTC, offering India a foothold in the region and a gateway to Afghanistan and beyond.

Despite the challenges, there are signs of progress. In July 2022, the INSTC commenced operations through its eastern route, linking Russia, Kazakhstan, Turkmenistan, and Iran to India. The inaugural shipment demonstrated the corridor’s viability, reinforcing its potential to handle between 14.6 and 24.7 million tonnes of freight annually by 2030. This capacity would account for over 70 percent of all container traffic between Eurasia, Central Asia, the Gulf region, and South Asia.

The recent diplomatic rapprochement between Iran and Saudi Arabia also offers advantages. Improved relations could lead to increased investments and cooperation, bolstering the INSTC’s development. The INSTC holds significant promise for energy trade between India and Central Asia. By providing direct access to energy-rich nations like Kazakhstan and Turkmenistan, the corridor could help India bridge its energy demand-supply gap. The Ashgabat Agreement further enhances this potential by facilitating connectivity and promoting the use of existing land routes, such as the Kazakhstan-Turkmenistan-Iran railway.

Mitigating Risks and Charting the Path Forward
The future of Central Asia’s Indian Ocean transport projects depends on the region’s ability to navigate geopolitical tensions, security challenges, and economic uncertainties. To address these risks, Central Asian countries must embrace regional cooperation, diversify their trade routes, and build strategic partnerships. Developing multiple transport corridors, such as enhancing both Iran-based routes within the INSTC framework and the Trans-Afghan railway, will ensure greater resilience against disruptions. Strengthening collaboration among Central Asian states through joint infrastructure investments and harmonized trade regulations can create a more stable and unified trading environment.

Building robust partnerships with key regional and global players like India, the Gulf states, and China is essential for supporting Central Asia’s connectivity ambitions. India’s investment in the INSTC and projects like the Chabahar Port highlights the importance of such alliances. Additionally, investing in modern transportation infrastructure and improving security measures will enhance the efficiency and reliability of new trade routes, attracting more investment and fostering economic growth.
(Source: The Diplomat)