Sanctions against Russia and the voluntary boycott of Russian ports and transit routes by major global transport and logistic companies, created the need for alternative routes to carry the growing volume of trade between China and Europe. This has created considerable interest and investment in new and expanded trade routes crossing the Caucasus and the Caspian Sea into Central Asian states en-route to China.

“What happens to the Middle-Corridor when Russia sanctions start to ease? Or the Northern Caspian continues to shrink?

The EU, EBRD, and other IFIs are investing heavily in the TRACECA, aka the Middle Corridor, route which is the main Russia by-pass to China. Trade volume has been growing quickly since early 2022 and projections are for further rapid expansion to the end of the decade. Although there is considerable uncertainty about what happens when the Ukraine-Russia conflict ends, and the Russia transit routes (shorter, cheaper and less bureaucratic with fewer border crossings) again become available.

One problem for the TRACECA trans-Caspian route, which runs from Baku to the northeastern Kazakhstan ports, is that the level of the Caspian Sea is slowly shrinking due to both evaporation and dams on the Volga River and in Iran. It means that dredging costs will grow and the logistics of port operations in Kazakhstan, will become more difficult.

The threat of depth reduction in the northern and north-eastern Caspian has created growing interest in transit routes from Baku to Turkmenbashi port. This route also connects more efficiently with routes to Uzbekistan and, from there, to Kyrgyzstan, Tajikistan and the southern regions of China. Rail lines to the International North-South Transport Corridor (INSTC) running north-south and which connects St. Petersburg with the southern Iranian ports and, from there, by ferry to Dubai and Mumbai.

Beijing has spent billions on the BRI (Belt & Road) network to carry goods to export destinations and to import critical materials along secure routes. The reason is partly economic (sea routes, albeit slower, are considerably cheaper) but also because China is fearful of a trade conflict with the U.S. and the danger of a boycott or blockade of its ports. Land-based routes are safer.

Russia is now blocked from direct trade with the EU, previously its biggest trade partner, as almost all border crossings are now closed. Moscow is more reliant on trade routes coming from the Caucasus (Türkiye via Azerbaijan and Georgia) or Central Asia (via Kazakhstan, Kyrgyz Republic, and Turkmenistan). It is investing heavily in the INSTC.

Iran signed a free trade agreement with the Eurasian Economic Union (EaEU), although the agreement has been informally in place for several years. It means that Iran is now rapidly growing trade with Russia and Central Asia and is hosting more and more rail and road traffic, both carrying its goods and transiting to its ports for onward export. While the main investment is in transit routes across the Caucasus and Central Asia, the expanding networks have also created opportunities to expand regional trade and are opening the landlocked Stans to more global market export routes, which are faster and cheaper than previously available.

The 21st Century Silk Road creates opportunities for investors in infrastructure, such as trains, wagons, signalling, safety and maintenance services, and other equipment. Caspian port and land port facilities are also now attracting more investment. Shipping is a major beneficiary as the Caspian Sea is on its way to becoming one of the world’s busiest water transport corridors.

Investors are also looking at those manufacturing, mining, and agriculture sectors which will benefit and expand because of the new routes, such as tourism, and cheaper, more efficient export routes from countries that previously struggled to reach global markets because of poor logistics. Exporting oil to Black Sea and Mediterranean ports is a high priority for Kazakhstan as it seeks to diversify its export dependency on Russia’s Novorossiysk port. Some uranium exports from Kazakhstan, previously and exclusively shipped westwards via Russia, are now starting to use the trans-Caspian routes. Similarly, the growing interest in Central Asia’s critical minerals potential (see our separate report on Eurasia Region Critical Minerals potential) will increase demand for port and shipping facilities.

What happens after a peace deal? One of the main issues for those who have switched to the new trans-Kazakhstan and trans-Caspian routes, and those investing in infrastructure, is what happens when there is an eventual peace agreement between Russia and Ukraine and sanctions are removed (as is promised by the Trump Administration). The China-Europe transit routes across Russia are faster and cheaper than the Central Asia-Caucasus-Black Sea routes and only have two land border crossings, i.e. between the EU and Russia and the Russia-China crossing. The Middle Corridor has two sea crossings (the Black Sea and Caspian) and four border crossings (EU-Georgia, Georgia-Azerbaijan, Azerbaijan-Kazakhstan and Kazakhstan-China). Russia and China continue to upgrade these routes, and Beijing said it plans to switch back to this route when sanctions, both formal and informal, allow.

That prospect, or concern, is a major reason why there is a disconnect between the political enthusiasm for Caucasus-Central Asian routes and the slower pace of investment relative to what is required.

Christopher Weafer is CEO of Macro-Advisory, a Eurasia based strategic consultancy.