RUSSIA, IRAN WITHOUT SANCTIONS $25 BLN

BLOOMBERG - December 21, 2022 - Russia and Iran are building a new transcontinental trade route stretching from the eastern edge of Europe to the Indian Ocean, a 3,000–kilometer (1,860–mile) passage that’s beyond the reach of any foreign intervention.

The two countries are spending billions of dollars to speed up delivery of cargos along rivers and railways linked by the Caspian Sea. Ship–tracking data compiled by Bloomberg show dozens of Russian and Iranian vessels—including some that are subject to sanctions—already plying the route.

It’s an example of how great–power competition is rapidly reshaping trade networks in a world economy that looks set to fragment into rival blocs. Russia and Iran, under tremendous pressure from sanctions, are turning toward each other—and they’re both looking eastward, too. The goal is to shield commercial links from Western interference and build new ones with the giant and fast–growing economies of Asia.

“This is about establishing sanctions–proof supply chains all the way through,” says Maria Shagina, an expert on sanctions and Russian foreign policy at the London–based International Institute for Strategic Studies.

The emerging trade corridor would allow Russia and Iran to shave thousands of kilometers off existing routes. At its northern end is the Sea of Azov, which is bracketed by the Crimean Peninsula, Ukraine’s southeastern coast—including the Russian–occupied port of Mariupol—and the mouth of the River Don.

Earlier this month, listing his country’s gains from the war in Ukraine, President Vladimir Putin said the Sea of Azov “has become an inland sea” for Russia.

From there river, sea and rail networks extend to Iranian hubs on the Caspian Sea and ultimately the Indian Ocean. Putin has flagged the importance of that end of the corridor, as well.

At an economic forum in September he underlined the need to develop the ship, rail and road infrastructure along the route that “will provide Russian companies with new opportunities to enter the markets of Iran, India, the Middle East and Africa, and will facilitate supplies from these countries in return.”

Shagina estimates Russia and Iran are investing as much as $25 billion in the inland trade corridor, helping to facilitate the flow of goods the West wants to stop. “The two countries are playing a cat–and–mouse game,” she says. “They will explore all loopholes to transport banned products and weapons.”

That alarms the US and its allies, as they seek to block transfers of Iranian drones and other military supplies they say are aiding the Kremlin’s war in Ukraine.

“It is an area we’re watching carefully, both that route and more generally the Iranian–Russian connection,” said the Biden administration’s top sanctions official, James O’Brien, after announcing new punishments last week that target executives at Russian Railways. “We are concerned with any effort to help Russia evade the sanctions.”

“It’s important to put the spotlight on it, to try to show the world that they can’t hide.”

Robert Malley, the Biden administration’s Iran envoy, says any new trade corridor needs scrutiny, as part of what’s become his top priority: stopping arms shipments between the countries. “That’s an extraordinarily damaging, reckless decision they’ve made,” Malley says. “It’s important to put the spotlight on it, to try to show the world that they can’t hide.”

Beyond any arms trade between the countries, there are compelling economic reasons for the new transit route.

Ships sailing the Don and Volga rivers have traditionally traded energy and agricultural commodities—Iran is the third-largest importer of Russian grain—but the range is set to widen. The two countries have announced a raft of new business deals that cover goods including turbines, polymers, medical supplies and automotive parts. Russia also supplies nuclear fuel and components for Iran’s reactor in Bushehr.

Russia needs to compensate for the sudden breakdown of its commercial ties with Europe, which before the war was its biggest trade partner, as well as finding workarounds for US and European Union sanctions.

“With European transport networks getting closed off, they’re focused on developing alternative trade corridors which support Russia’s turn to the East,” says Nikolay Kozhanov, a Gulf expert at Qatar University who served as a Kremlin diplomat in Tehran from 2006 to 2009. “You can impose controls over sea routes, but land routes are difficult to watch. It’s almost impossible to track them all.”

There are plenty of obstacles, and both Russia and Iran are spending heavily to overcome them.

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