Introduction
The International North South Transport Corridor (INSTC), initially launched by India, Iran and Russia in September 2000, intends to boost trade India’s trade with the Eurasian countries in a timely and cost-efficient manner. This project includes ten countries apart from India, Russia and Iran – Azerbaijan, Armenia, Belarus, Bulgaria, Kazakhstan, Kyrgyzstan, Oman, Tajikistan, Turkey, and Ukraine. India aims to become the world’s third largest economy by generating a GDP of $5 trillion by 2025. To achieve this, India wishes to harness the potential of this corridor to boost its exports to $1 trillion by 2025 relying on export-driven growth strategy (Azmi, Khan, Koch, 2024). But how does a trade corridor even between 13 countries achieve this? Is there a broader geopolitical angle to this initiative ? To answer these questions, we need to go into the project’s very strategic makeup and design.
Features and Benefits
It is a 7,200 kilometers long multimodal transportation corridor including land, marine and air components. With aid of reliable infrastructure, logistics, and distribution networks that connect production hubs, urban clusters, and international entry points, the INSTC envisions bringing the regions closer and making the transfer of goods more efficient. It will link the economies of Russia and Europe to that of India and the Persian Gulf via Iran and the Caspian Sea. This will enable easy transfer of goods from the Jawaharlal Nehru and Kandla ports in India to Iran’s Bandar Abbas harbor, going by rail and road north through Baku (Azerbaijan) to Moscow and St. Petersburg as well as pass into Europe (Azmi, Khan, Koch, 2024).
In an interview to Sputnik India Paul Goncharoff, businessman and manager of the consulting firm Goncharoff, LLC., he stated that the corridor will accrue multiple benefits for India. Designed as an alternative to the Suez Canal, It will slash shipping time between India and Russia by a whopping 30 days and almost halve the cost of transporting a 40-foot container from India to Russia from $10,000 to $5,000. Moreover, it will reopen India’s trade routes lost during the 1947 Partition, to the Central Asian markets like Iran and Afghanistan among others. Hence, by opening alternate trade channels, and export infrastructure which brings down the commercial cost significantly, the corridor will unlock the potential of the Indian economy through incentivization of manufacturing sector through schemes like Make in India and Productivity Linked Incentives (PLI) schemes as well as other sectors like transportation and shipping.
Trade routes
It primarily consists of three routes: (a) Western – Indian ports to Western coast with Iran (Astara), Azerbaijan (Baku), and Russia, (b) Central – India to Bandar Abbas, Nowshahr, Amirabad and Bander-e-Anzali running along the Caspian sea, and (c) Eastern – India and Russia to Kazakhstan, Uzbekistan, and Turkmenistan via Iran (Azmi, Khan, Koch, 2024). In May 2016, India and Iran entered into an agreement to develop the Chabahar port as a vital point to connect India’s commerce with the West Central Asia. India has already invested US$2.1 billion to the project: US$500 million for Chabahar, and the remaining US$1.6 billion for a railway network between Zahedan, Southern, and eastern Iran and the Hajigak iron and steel mining project in central Afghanistan.
On 13th May 2024, India and Iran signed an agreement to grant India the rights over management of the Chabahar port for a period of 10 years. By transforming it into a transit hub under the INSTC, India wants to reach out to the CIS (Commonwealth Independent States) countries. Replacing the original contract, this 10-year agreement can be extended automatically in the future, hence, it will open up possibility for an India-Russia-Iran Energy Corridor, a think tanker, Atul Aneja said.
Geopolitical Significance
The traditional idea behind the passage as stated earlier was to encourage trade by connecting the Mumbai port in India to the Bandar Abbas port in Iran and through Baku, Azerbaijan to Astrakhan in Russia. However, even though being launched in 2000 itself, the refusal of Azerbaijan to use Baku as a port, forced the transport of goods to happen directly via the Caspian Sea making it costlier. Having its routes in the Armenian and Azerbaijan conflict over the Nagorno-Karabakh region, and India sale of weapons to Armenia, it has been a major roadblock in the development of the trade corridor. Armenia to this effect had proposed an alternative to let the goods pass from Iran into Armenia, to Georgia and finally, to Russia via road. In April 2024, Russia even warned Azerbaijan in taking an active role in the development of INSTC showing the significant stakes involved for all countries in this project’s success.
Secondly, the Russia-Ukraine War has impacted the global economy in a significant manner. Disrupting the global supply chains for critical commodities like rice, it led to an immediate rise in prices of such commodities and oil, put huge inflationary pressures on all world economies. Moreover, with over 5000 sanctions being imposed by US and Europe on Russia making it virtually impossible to trade with it, the oil prices further escalated to more than $100 per barrel. With Russia also being kicked out of the SWIFT banking system and its US Dollar reserves of over $300 billion forced India and other countries to adopt mechanisms other than the Petrodollar system of exchange.
To make such direct currency-exchange arrangements like the Rupee-Rouble settlement viable, trade needs to be boosted between these countries. Hence, projects like the INSTC from India’s West Coast and the Vladivostok-Chennai trade channel passing through the Mallaca Strait from the Eastern Coast, are being developed to achieve the same. These projects by catapulting shipping traffic away from the Suez Canal, which required insurance to be bought from European companies for the transport to happen, not only reduces the possibility of these companies influencing India’s ability to transport goods to its trading partners, but also makes the process more time- and cost-efficient as stated earlier. In the recent years, the Suez Canal has become so congested, that it caused a complete blockage in 2021, leading to billions of dollars of loss of trade and commerce. And after the flare up of the Isreal-Hamas conflict and Isreal launching a counter offensive against the October 7 attacks, the Red Sea has seen constant attacks by the Houthi rebels on European, American, and Indian ships among others to make them oppose Isreal’s offensive, has proven the route to be highly unreliable for long-term sustainable trade and transportation. Thus, India by leveraging these channels can bypass such uncertainties and increase export of a variety of Indian-made goods to the international markets while import other goods at a more economical cost. This route would additionally act as a great alternative to the One Belt One Road (OBOR) initiative of China. Strengthening India’s position in the Strait of Mallaca, a strategic point through which almost two-thirds of China’s trade passes, India, will accrue strategic benefits from development of trade infrastructure and commercial ties between India and its allies (Dent, 2023). In 2021, Russian President Putin visited India to discuss the development of INSTC.
On June 14th, 2022, the port was operationalized with Russia sending a test cargo to Iran from Astrakhan, to the Mumbai port in India, taking only 24 days which is further expected to be cut down once the trans-Iranian railway is completed. While this project seeks to create an economic boom for its developing partners like India and Russia increasing their trade by US$5 billion every year until 2025, the Chinese BRI, has left many lower- and middle-income countries in a near-bankruptcy state. Therefore, enhancing cultural ties with its trade partners and other countries, the INSTC offers a viable alternative for these countries to rely on (Neythiri, 2022).
Conclusion
The INSTC while on the surface appears to be a normal trade route, the geopolitical events one after the other have made its development much more significant. In an attempt to balance its various alliances and interests, India’s stakes in this project are very high. After the US’s unilateral withdrawal from the Joint Comprehensive Plan of Action (JCPOA) and imposing multiple sanctions on Iran, it became impossible for India to buy cheaper oil from Iran. The growing tensions between Isreal and Palestine, Russia and the West over Ukraine and tensions between India and China, necessitate the successful implementation of this project to ensure not only its economic security but also, national security and an independent foreign policy keeping national interest as paramount.
Notes
- Shaujaat Naeem Azmi, Kashif Hasan Khan & Halil Koch (2024), Assessing the effect of INSTC on India’s trade with Eurasia: an application of gravity model, Taylor & Francis Online, URL: https://www.tandfonline.com/doi/full/10.1080/23322039.2024.2313899
- Anirudh Aggarwal (2024), Russia warns Azerbaijan to play active role in INSTC development. Russia desperate for India Market, Pathfinder by Unacademy, 0:46 to 6:32, URL: https://www.youtube.com/watch?v=QzCaGFY-SyM
- Thomas Dent (2023), The Strati of Mallaca’s Global Supply Chain Implications, Institute for Supply Management, URL: https://www.ismworld.org/supplymanagement-news-and-reports/news-publications/inside-supply-managementmagazine/blog/2023/2023-11/the-strait-of-malaccas-global-supply-chainimplications/#:~:text=Understand%2C%20Adapt%20and%20Innovate,third%20 of%20all%20worldwide%20trade.
- Levina Neythiri (2022), Checkmating China’s BRI through INSTC, Chanakya Forum: Foreign Affair, Geopolitics & National Security, URL: Checkmating Chinese BRI Through INSTC – Chanakya Forum
