Editor’s Note: Mohammad Salami, a young Pakistani academic, is a frequent contributor to Stimson on Iran’s economic problems and has a particular focus on the energy sector.
By Barbara Slavin, Distinguished Fellow, Middle East Perspectives
Iran’s sensitive geopolitical location at the crossroads of Europe, the Middle East and Asia, would seemingly provide it with a unique opportunity to serve as a hub for trade in energy exports and other goods.
However, Iran has not been able to find its place in regional transit and corridor competitions due to four decades of global isolation, Western sanctions, and poor transportation infrastructure. Iran’s weak position regarding two potential routes — the Trans-Caspian International Transport Route or Middle Corridor and the International North-South Transport Corridor (INSTC) — show that Tehran is losing the competition to rivals.
Iran has faced sanctions of one sort or another since the 1979 revolution. U.S. withdrawal from a landmark nuclear deal in 2018 and European sanctions imposed due to Iran’s support for Russia’s aggression in Ukraine have added to the sanctions burden, including the European Union’s recent decision to ban three major Iranian airlines from flying to European countries. As a result, airline ticket prices in Iran have increased by a third. The price increase, along with Iran’s dilapidated and small fleet, weaken its ability to compete with other countries for air transportation.
Due to sanctions, the average lifespan of Iranian civilian airlines is 28 years, which has made the Iranian fleet among the most unsafe in the world. According to the Aviation Safety Network, in the last 44 years, 1,755 Iranian passengers have died in air accidents, and of 335 national planes, half are grounded due to breakdowns and lack of spare parts. Compare this to Qatar Airways with 209 aircraft (with an average age of 5 to 8.5 years,) Emirates with 265 modern aircraft serving more than 150 destinations worldwide, and Turkish Airlines with 350 aircraft.
Ground transportation in Iran is better but only marginally so. According to Iran’s statistics center, transit volume in last Iranian calendar year was only 17.8 million tons, far below its capacity of 80 million tons. Iran accounts for only four percent of the 300 million tons of goods transited regionally.
Masoud Polmeh, secretary general of the Iran Shipping and Related Services Association, said in a recent interview that the country’s underperforming transit capacity was due to poor productivity and management structure. He said goods move five times more slowly through Iran than in neighboring countries and cost three times more than the regional standard. For example, he said, “It takes an average of about four days for commercial ships to unload, which increases the freight cost, while in the UAE [United Arab Emirates] it takes three hours.”
As a result, in 2002, while the unloading and loading capacity of ports in the north of the country was estimated to be around 35 million tons per year, their operational volume did not exceed six million tons. If one assumes that the annual transit capacity of goods in Iran is 80 million tons and the revenue from each ton is about $100, Iran could earn $8 billion annually, equivalent to 25 percent of non-oil exports, if it met its potential.
Iran is also underperforming when it comes to rail transportation. Statistics show that Iran ranked 23rd among 66 countries in rail transportation. In 2022, Babak Ahmadi, the head of the trade association of railway transport companies and related services, said that out of 900 locomotives in the country, almost half were out of service due to a lack of resources to obtain parts and perform repairs.
Corridor Wars
Various corridors for trade and transit of goods have been proposed and built in the region in recent years. Iran should occupy a prime position for both the middle and INSTC routes, but it has lagged behind its neighbors, obliging rivals and even allies such as China and Russia to seek alternatives.
In a recent report, the Research Center of the Iranian Chamber of Commerce stated that Iran has been practically ignored in major projects such as China’s Belt and Road Initiative (BRI) and the Trans-Caspian Sea, and that alternative routes were rapidly advancing in areas adjacent to northern Iran. For example, failure to complete construction of the Rasht-Astara railway in the INSTC corridor has deprived Iran of access to 7 million tons of freight and 600,000 passengers annually.
Iran’s competitors have invested in alternative routes such as the $17 billion “Development Road” from Iraq’s al-Faw port to Turkey, the United Arab Emirates, and Qatar. The so-called Lapis Lazuli Corridor is planned to connect Turkmenistan, Azerbaijan, Georgia, and Turkey with Europe with a central role for Afghanistan. The route connects Turkmenistan’s Turkmenbashi port to the Azeri port of Baku and the Baku-Tbilisi-Kars rail connection between Azerbaijan, Georgia, and Turkey.
Due to Iran’s failure to complete the Rasht-Astara railway, China chose the Trans-Caspian alternative to deliver goods through Kazakhstan, Azerbaijan, and Georgia to the Black Sea, Turkey, and on to Europe. Russia is reportedly not satisfied with the financing for the Rasht-Astara railway. Given strained relations between Iran and Azerbaijan over Azeri plans to construct the Zangezur corridor along the Iran-Armenia border to Turkey, Baku is less willing to facilitate operation of the INSTC corridor through Iran.
In sum, Iran is losing out in this lucrative area and losing a key means of supplementing oil revenues. It is another reason why Iran is seeking negotiations with the incoming Trump administration in an effort to ease sanctions.
Dr. Mohammad Salami is a research associate at International Institute for Global Strategic Analysis (IIGSA). His areas of expertise include politics and governance, security, and counterterrorism in the Middle East and especially the Persian Gulf region. @moh_salami
Editor’s Note: Mohammad Salami, a young Pakistani academic, is a frequent contributor to Stimson on Iran’s economic problems and has a particular focus on the energy sector.
By Barbara Slavin, Distinguished Fellow, Middle East Perspectives
Iran’s sensitive geopolitical location at the crossroads of Europe, the Middle East and Asia, would seemingly provide it with a unique opportunity to serve as a hub for trade in energy exports and other goods.
However, Iran has not been able to find its place in regional transit and corridor competitions due to four decades of global isolation, Western sanctions, and poor transportation infrastructure. Iran’s weak position regarding two potential routes — the Trans-Caspian International Transport Route or Middle Corridor and the International North-South Transport Corridor (INSTC) — show that Tehran is losing the competition to rivals.
Iran has faced sanctions of one sort or another since the 1979 revolution. U.S. withdrawal from a landmark nuclear deal in 2018 and European sanctions imposed due to Iran’s support for Russia’s aggression in Ukraine have added to the sanctions burden, including the European Union’s recent decision to ban three major Iranian airlines from flying to European countries. As a result, airline ticket prices in Iran have increased by a third. The price increase, along with Iran’s dilapidated and small fleet, weaken its ability to compete with other countries for air transportation.
Due to sanctions, the average lifespan of Iranian civilian airlines is 28 years, which has made the Iranian fleet among the most unsafe in the world. According to the Aviation Safety Network, in the last 44 years, 1,755 Iranian passengers have died in air accidents, and of 335 national planes, half are grounded due to breakdowns and lack of spare parts. Compare this to Qatar Airways with 209 aircraft (with an average age of 5 to 8.5 years,) Emirates with 265 modern aircraft serving more than 150 destinations worldwide, and Turkish Airlines with 350 aircraft.
Ground transportation in Iran is better but only marginally so. According to Iran’s statistics center, transit volume in last Iranian calendar year was only 17.8 million tons, far below its capacity of 80 million tons. Iran accounts for only four percent of the 300 million tons of goods transited regionally.
Masoud Polmeh, secretary general of the Iran Shipping and Related Services Association, said in a recent interview that the country’s underperforming transit capacity was due to poor productivity and management structure. He said goods move five times more slowly through Iran than in neighboring countries and cost three times more than the regional standard. For example, he said, “It takes an average of about four days for commercial ships to unload, which increases the freight cost, while in the UAE [United Arab Emirates] it takes three hours.”
As a result, in 2002, while the unloading and loading capacity of ports in the north of the country was estimated to be around 35 million tons per year, their operational volume did not exceed six million tons. If one assumes that the annual transit capacity of goods in Iran is 80 million tons and the revenue from each ton is about $100, Iran could earn $8 billion annually, equivalent to 25 percent of non-oil exports, if it met its potential.
Iran is also underperforming when it comes to rail transportation. Statistics show that Iran ranked 23rd among 66 countries in rail transportation. In 2022, Babak Ahmadi, the head of the trade association of railway transport companies and related services, said that out of 900 locomotives in the country, almost half were out of service due to a lack of resources to obtain parts and perform repairs.
Corridor Wars
Various corridors for trade and transit of goods have been proposed and built in the region in recent years. Iran should occupy a prime position for both the middle and INSTC routes, but it has lagged behind its neighbors, obliging rivals and even allies such as China and Russia to seek alternatives.
In a recent report, the Research Center of the Iranian Chamber of Commerce stated that Iran has been practically ignored in major projects such as China’s Belt and Road Initiative (BRI) and the Trans-Caspian Sea, and that alternative routes were rapidly advancing in areas adjacent to northern Iran. For example, failure to complete construction of the Rasht-Astara railway in the INSTC corridor has deprived Iran of access to 7 million tons of freight and 600,000 passengers annually.
Iran’s competitors have invested in alternative routes such as the $17 billion “Development Road” from Iraq’s al-Faw port to Turkey, the United Arab Emirates, and Qatar. The so-called Lapis Lazuli Corridor is planned to connect Turkmenistan, Azerbaijan, Georgia, and Turkey with Europe with a central role for Afghanistan. The route connects Turkmenistan’s Turkmenbashi port to the Azeri port of Baku and the Baku-Tbilisi-Kars rail connection between Azerbaijan, Georgia, and Turkey.
Due to Iran’s failure to complete the Rasht-Astara railway, China chose the Trans-Caspian alternative to deliver goods through Kazakhstan, Azerbaijan, and Georgia to the Black Sea, Turkey, and on to Europe. Russia is reportedly not satisfied with the financing for the Rasht-Astara railway. Given strained relations between Iran and Azerbaijan over Azeri plans to construct the Zangezur corridor along the Iran-Armenia border to Turkey, Baku is less willing to facilitate operation of the INSTC corridor through Iran.
In sum, Iran is losing out in this lucrative area and losing a key means of supplementing oil revenues. It is another reason why Iran is seeking negotiations with the incoming Trump administration in an effort to ease sanctions.
Dr. Mohammad Salami is a research associate at International Institute for Global Strategic Analysis (IIGSA). His areas of expertise include politics and governance, security, and counterterrorism in the Middle East and especially the Persian Gulf region. @moh_salami
