Trends of the integration processes in the Caspian Sea region

A vie of the Caspian Sea region taken during ISS Expedition 56 (Earth Science and Remote Sensing Unit, NASA Johnson Space Center, Public domain, via Wikimedia Commons)

Geopolitical Report ISSN 2785-2598 Volume 24 Issue 7
Author: Alexey Sinelshhikov

The Second Caspian Sea Economic Forum highlighted regional countries’ strategies to implement their cooperation in logistics, transport corridors, tourism and energy projects.

On October 6th, 2022, the second Caspian Economic Forum, attended by the Government delegations of the Caspian states headed by their highest officials, Prime Minister of the Republic of Azerbaijan Ali Asadov, First Vice-President of the Islamic Republic of Iran Mohammad Mokhber, Prime Minister of the Republic of Kazakhstan, Alikhan Smailov, Chairman of the Government of the Russian Federation, Mikhail Mishustin, Deputy Chairman of the Cabinet of Ministers of Turkmenistan, Khodjamurad Geldymuradov, completed its work in Moscow.

The Second Caspian Economic Forum was part of a series of major international events that took place in September-October 2022.

The Forum’s central theme was the development of trade and economic cooperation and interaction in ecology, energy, transport and logistics, tourism, urban infrastructure and the social and humanitarian sphere in the changed realities. The Forum program included various issues in the “green economy” and sustainable development fields.

Despite the short period that has passed since the Sixth Caspian Summit, held on June 29th, 2022, in Ashgabat, on the first day of work on October 5th, the parties involved discussed the intermediate results of the implementation of the summit agreements. The Forum is a continuation of the work started by the First Caspian Economic Forum, held on August 12th, 2019, in the Avaza tourist zone of Turkmenistan on the Caspian coast.

Like all the leading states and economies of the world, for Caspian littoral countries, 2022 became a period of recovery growth when, after the pandemic years of 2020 and 2021, their economies adapted to the changed conditions and a decrease in the intensity of economic processes.

Trade turnover between Caspian littoral countries

The trade turnover between Russia and Azerbaijan in January-August 2022 increased by 11.5% and exceeded 2.2 billion dollars.

During the same period, exports of Iranian goods to Russia increased by 31% compared to the previous year. Russia continues to import industrial products such as catalysts, oil and gas equipment, turbines and compressors. Last year, such items accounted for more than 60% of Iranian exports to Russia. In January-August, 2022, the trade volume between Russia and Iran increased by 36% compared to the same period in 2021, to almost 3.3 billion dollars.

In January-August, 2022, mutual trade between Russia and Kazakhstan increased by almost 9% and amounted to 17.5 billion dollars.

According to the information voiced by the Prime Minister of Azerbaijan, Ali Asadov, after the recession due to the pandemic, Azerbaijan’s trade turnover with the Caspian states shows growth, in particular, has increased by more than 45% since the beginning of 2022.

In the first five months of the current Iranian calendar year (starting on March 21st, 2022), Iran’s exports to Azerbaijan grew by 84%, and exports to Turkmenistan increased by 40%.

Azerbaijan’s possible leading role in the Caspian Sea

The Azerbaijani side showed the most significant activity at the Forum. Azerbaijan positions itself as a key player in the Caspian region, standing at the crossroads of the East-West (Kazakhstan-Azerbaijan) and North-South (Russia-Azerbaijan-Iran) international transport corridors.

According to the Prime Minister of Azerbaijan, Ali Asadov:

“Through the East-West and North-South corridors, there is an annual increase in cargo transportation through the territory of Azerbaijan. Thus, for eight months of 2022, transit cargo transportation through our country through the East-West corridor increased by 20% and through the North-South route by 33%”.

These data do not refer to global transport routes between Europe and Asia. Most growth relates to freight traffic in trade with the nearest neighbours.

In addition, Azerbaijan, underlying ​​its crucial position in the Caspian region, did not exclude military ways to expand its transport capabilities, for example, in the Zangezur corridor. Indeed, Ali Asadov emphasised this corridor’s importance for Azerbaijan.

Kazakhstan and Turkmenistan are already actively using Azerbaijan’s transport and pipeline infrastructure to transit their energy resources. The head of the Trade Development Organization of Iran pointed to the importance of the North-South International Transport Corridor, noting that the most tangible, essential and priority project within the corridor is the completion of the construction of the Rasht-Astara railway section, which First Vice President Mokhbar seriously pursues.

The growth of cargo flows through Azerbaijan leads to the need to confirm to partners guarantees of uninterrupted service for both existing and prospective cargo flows. For example, the Baku port, a critical link in the transport corridors in Azerbaijan, is working to increase its handling capacity from 15 to 25 million tons of cargo per year. Given the geographical location of the Baku port, proposals for the use by all the Caspian states of the capabilities of the Azerbaijani civilian cargo fleet and the Baku shipbuilding plant look attractive.

Ali Asadov also pointed out great opportunities for the Caspian states to increase cooperation in the energy sector. For example, Azerbaijan and Turkmenistan agreed on the joint exploration and development of the Dostlug hydrocarbon field in the Caspian Sea.

In addition to cooperation in the trade and economic sphere, Azerbaijan offers to become a platform for discussing the environmental problems of the Caspian. The 6th Conference of the Parties to the Framework Convention on the Protection of the Marine Environment of the Caspian Sea is planned to be held in Baku in October 2022. During this event, Caspian states will share their concerns and discuss issues on minimising the negative impact on the area’s environment, the problem of shallowing the Caspian Sea and taking urgent measures to implement permanent work to deepen the seabed.

Finally, the forum participants drew attention to Baku’s communication projects, within which fibre optic cables are being laid from Azerbaijan to Kazakhstan and Turkmenistan along the bottom of the Caspian Sea. Leading telecommunication operators of Azerbaijan and Kazakhstan signed a memorandum on strategic partnership on the relevant project in Astana.

Kazakhstan is Azerbaijan’s key partner in the East-West transport corridor. For a long time, Kazakhstan has been forming cross-border hubs in this direction, increasing the potential of the North-South and East-West transport corridors. These are the seaports of Aktau and Kuryk, the Khorgos dry port, and the international centre of industrial cooperation “Central Asia”, which ensure the transport connectivity of the region in the direction of Iran and Azerbaijan.

Iranian role and potentiality in the Caspian region

Iran is also interested in developing transport links with Azerbaijan. First of all, by the Qazvin-Rasht-Astara railway. This will allow Iran to diversify oil export routes, and provide Azerbaijan with access to the Persian Gulf along the North-South corridor. The deterrent factors for Iran are still the sanctions imposed on it, as well as the Convention on the Legal Status of the Caspian Sea, which has not yet been ratified, according to which Iran is assigned a share of 12-13%.

However, the changing global situation pushes Iran towards a more active position and integration processes. According to Iranian President Ebrahim Raisi, Tehran’s priority goal in the Caspian direction is the formation of a transit and transport hub of global importance on its territory. And this interest coincides with the interests of other members of the Five. Raisi acknowledged that expanding cooperation with friends and neighbours in the region is extremely important for Iran and confirmed Tehran’s readiness to host the next Caspian summit.

Iran, located at the crossroads of global transit routes and maritime routes, has good rail capacity – three of the four world rail transit routes pass through Iran. If the country reaches the level of annual cargo transhipment with a volume of 50 million tons, the revenue will be comparable to the income from the sale of hydrocarbon raw materials.

Tourism and culture development projects

At the second Caspian Economic Forum, Russia proposed to continue the integration processes in the Caspian region in the field of tourism and culture, for example, by holding a Caspian film festival and organising exhibition projects.

Prime Minister of the Republic of Kazakhstan, Alikhan Smailov, called on the region’s countries to intensify joint steps in tourism: take measures to launch combined tours, develop cruise tourism and liberalise visa and migration regimes. Smailov stated that “the government of Kazakhstan is also working to create a favourable tourist climate on the Caspian coast. In particular, by 2025, it is planned to implement 15 investment projects worth more than 360 million dollars”.

Iran submitted for consideration by the parties a draft agreement on cooperation between the Caspian states in the field of tourism. And at the suggestion of Azerbaijan, a draft agreement on cooperation in organising cruise routes along the Caspian Sea has been developed.

Russia plans to implement Free Economic Zones and make Dagestan a transport hub

Russia proposed to create an association of special economic zones (SEZs) to help coordinate efforts to develop industrial cooperation in the Caspian region. The Minister of Economic Development of Russia came up with such an initiative during the “Business Breakfast” with representatives of the Caspian “five” countries. Iran actively supported this idea.

The prospect of forming a free trade zone in the Caspian region opens up an opportunity for Iran to obtain a market with a capacity of 600-700 billion dollars, Alireza Peymanpak, head of the Trade Development Organization of Iran, said. However, the question of such deep integration is a question of the future. To proceed with the creation of SEZs, it is necessary to unify through tariffs, build a single transport and logistics framework, build a homogeneous and understandable investment environment in the Caspian region, and ensure the rights and legitimate interests of investors are in the implementation of projects.

As a response to the development of the transport infrastructure of the Caspian countries, Russia announced its intention to modernise the transport infrastructure of the Republic of Dagestan, a transport hub on the territory of the North Caucasus Federal District as part of the North-South International Transport Corridor. In particular, they talked about the construction of access roads to the Makhachkala Commercial Sea Port – the only non-freezing and deep-water port of Russia in the Caspian Sea.

Conclusions

Since the collapse of the Soviet Union, the Caspian countries have acquired all the features of states capable of having their own political, economic and military views. They have developed interstate and economic ties, including those outside the Caspian region. And further cooperation is possible only based on equal partnerships, which was noted in the final document of the last Forum.

From the point of view of trade and economic activity, the winner will be the one who, on the one hand, will most quickly fill the volumes of financial activity lost during the pandemic period, on the other hand, will show the best dynamics of growth in trade, investment and the economy as a whole in the Caspian region, and will also offer interesting most countries economic integration projects. Moreover, many projects in the transport and energy sectors require at least bilateral agreements and cooperation activities. In this sense, the Second Caspian Economic Forum has become a platform for voicing proposals for joint implementation, primarily of projects that allow organising mutually beneficial trade and economic ties.

All parties involved confirmed the readiness to continue discussions and develop joint plans with Russia. The Forum showed that Moscow needs to intensify its policy in the Caspian Sea not to lose the initiative and geopolitical leadership in the region. In modern realities, Kazakhstan and Azerbaijan are conducting coordinated, and consistent work on the creation of transport and information highways in the East-West direction, offering their neighbours guaranteed delivery routes far from areas of tension and uncertainty but also presenting information and service opportunities to neighbouring countries. Iran gravitates towards them because it sees in the routes through Azerbaijan an exit to the Black Sea. And Turkmenistan, due to its geographical location, will be forced to join them.

In addition, the Caspian Economic Forum has become another vital step towards implementing bilateral cooperation between Iran and Russia, in which the Caspian region plays an essential transit function.

Indeed, during his stay in Russia, the First Vice-President of Iran, Mohammad Mokhber, not only participated in the Caspian Economic Forum but also conducted a series of negotiations with Russian representatives of the political and business elite. The high-ranking Iranian official, in particular, met with 15 high-ranking heads of Russian companies operating in the fields of energy, oil and gas, shipping, and agricultural products, governors and heads of regions of the Russian Federation participating in trade and economic cooperation with Iran, as well as representatives of Russian business communities. During these meetings, he emphasised the huge potential for strengthening Russian-Iranian collaboration and called for the elimination of existing obstacles to the implementation of the goals of cooperation in the Caspian set by the leadership of the two Caspian countries soon.


Analysis in media partnership with Kaspijskij Vestnik. Disclaimer. The views and opinions expressed in this report are those of the author and do not necessarily reflect the official policy or position of SpecialEurasia.