The EU joins the global transport competition, proposes a Trans-Caspian Transport Corridor

The EU joins the global transport competition, proposes a Trans-Caspian Transport Corridor
Globalisation has been undone by first the global pandemic and now growing international tensions. New trade routes are proliferating, and now the EU is getting into the game with a route to connect to Central Asia. / bne IntelliNews
By Ben Aris in Berlin February 6, 2024

The global pandemic, the war in Ukraine, rising tensions between China and the West and the increasingly fractured world has forced the global economy to remake its major transport routes. A fierce competition to find the best route to ship goods around the globe has broken out as shipping becomes a weapon of geopolitical competition.

China, Russia, India, the Middle Eastern states and all the countries that lie between the mega-markets of Asia and Europe are pushing their various pet projects. And now the EU is getting in on the game. Brussels proposed a new Trans-Caspian Transport Corridor connecting Europe to Central Asia via the Caucasus to bind the region closer to the West at a summit at the end of January.

Trade between Europe and Central Asia has soared by hundreds of percent in the last two years as countries like Kyrgyzstan become a major way station for sanction-busting goods deliveries being imported by Russia. But the same trade is being used as a tool by Brussels to bind Central Asia more closely to the West as significant flows and free trade deals also give Brussels some leverage over Central Asia that it currently lacks.

The EU plans to attract up to €10bn worth of investments for creating a transport corridor from Central Asia to Europe through the Caucasus region and Turkey, bypassing Russia, with Brussels ready to allocate €2.97bn for those purposes, according to a statement issued by the European Commission (EC) at the recent EU-Central Asia transport investment forum in Brussels on January 31.
"The €10bn commitment is a mixture of ongoing and planned investments which… the European Commission foresees to be mobilised for sustainable transport development in Central Asia in the short term," the statement said.

Russia's “special military operation” in Ukraine, "has underlined the urgency to find alternative reliable efficient trade routes between Europe and Asia that do not transit Russia," the EC said.

"The European Investment Bank (EIB)… signed Memoranda of Understanding totalling €1.47bn with the Governments of Kazakhstan, Kyrgyzstan and Uzbekistan as well as the Development Bank of Kazakhstan. These loans will be made possible by guarantees provided by the European Commission. Later today, the European Bank for Reconstruction and Development (EBRD)… will sign a Memorandum of Understanding with Kazakhstan, with an investment pipeline worth €1.5bn with projects already under preparation for the overall development of transport connectivity in the Central Asian region," according to the statement.

Geopolitics of trade

The coronavirus pandemic began a process of deglobalisation where companies looked to shorten supply chains and began a process of “near shoring” that has been catalysed by the growing geopolitical rivalries between the East and the West.

There are two families of routes that are being discussed: those that include Russian and China and those that don’t. And the global transport networks have become more important as the global chokepoints in international shipping are increasingly threatened by regional wars such as a sharp drop in trade via the Suez Canal, are under the threat of blockades due to the East-West tensions, or have been negatively impacted by the Climate Crisis, such as the Panama Canal.

China has been investing into its Belt and Road Initiative (BRI) for decades that will provide a land-based connection between Europe and Asia avoiding the US navy control over sea lanes between the two mega-markets. Russia is heavily involved in many of these projects as they run through Eurasia, which is central to Russia’s latest foreign policy concept and is also a key focus of China’s plans.

Russia has also been investing in developing the Northern Route that connects Europe and Asia by sailing around the top of Russia – a journey that has been made easier by the receding ice thanks to Global Warming and cuts weeks off the transit time of the southern routes. It also significantly shortens the trip from Europe to the US west coast and avoids the increasingly congested Panama Canal.

The Northern Route has been working for more than a decade and trade is expanding as Russia continues to invest into the nuclear-powered icebreakers needed to plough the route. The amount of cargo travelling by the Northern Route has been climbing steadily from around 8mn tonnes in 2017 to a new all-time record high of 36.2mn tonnes in 2023 reports Xinhua– not far off the goal of 40mn tonnes a year set by Beijing and Moscow several years ago.

And the route is being increasingly used to ship the strategically important LNG from Russia to Asia; LNG accounted for over a half of the cargo traffic on the Northern Route last year.

Northern Route map

Central Asia and SE Asian countries are also keen to see new routes appear and are catering to both those with Sino-Russian cooperation and those that don’t as they play both sides of the fence. Central Asia has been the biggest winner from the current global brouhaha as its trade with the rest of the world has flourished creating a significant windfall and its geopolitical relevance has been lifted to a status it has not enjoyed for more than a century.

However, transport via Central Asia still faces several problems, including a logistics bottleneck as the region doesn’t have enough modern warehousing to facilitate the volumes of cargo in transit.

And the instability in Afghanistan remains a serious problem, in effect corking a Eurasia-Asia Transport Corridor that all five ‘Stans and Russia would like to see opened. Afghanistan remained the least peaceful country in the world last year according to the Global Peace Index.

A Middle Corridor that connects Central Asia to Europe is in the works that can halve transit times from around 30 days to as little as 15 days. And as it runs from China through Kazakhstan, Georgia and Azerbaijan to Turkey and on to the EU, this route is one of the most politically neutral of the options on the table.

Middle Corridor map

One project that seems to have died almost as soon as it was born is the India-Middle East-Europe Corridor. In a shock announcement during last summer’s G20 summit, India and the Kingdom of Saudi Arabia (KSA) announced they were creating a new corridor, with the blessing of the US and EU, that connects India to Europe and runs over Saudi Arabia to ports in Israel and then on to Europe – by passing their erstwhile allies, Russia and China.

The route was an overt challenge to China’s BRI and also slightly to Russia’s Northern Route. A geopolitically charged alternative transport route, the India-Middle East-Europe Corridor was an attempt by both India and KSA to get into the geopolitical transport game with a new alternative route over which India and the Middle East were major players.

However, following the Hamas attacks on Israel on October 7 and the flaring of tensions in the Middle East, the route is off the table for the time being as relations between Riyadh and Tel Aviv have dramatically soured.

India-Middle East-Europe Corridor map