Charting new routes

Why is the Kremlin prepared to shell out billions of dollars for a railway in Iran?

Russia and Iran plan to connect the Iranian cities of Rasht and Astara by rail as part of the “North–South Transport Corridor,” which runs from St. Petersburg to Mumbai. This railway holds significant importance for both countries, especially given the economic strain of sanctions. To expedite things, the Kremlin is even willing to finance nearly the entire project. However, experts remain skeptical about its completion: negotiations have dragged on for more than 20 years, and construction has yet to begin. Meduza explores the obstacles impeding Moscow and Tehran’s plans, where Russian authorities plan to source the funds, and how much the railway would actually boost exports from Russia to Iran.

In May 2023, Russian President Vladimir Putin held a video call with his Iranian counterpart, Ebrahim Raisi. (Raisi would die in a plane crash a year later.) During the meeting, the transport ministers of both countries signed an intergovernmental agreement on the Rasht–Astara railway in the “presence” of the presidents.

This 160-kilometer (100-mile) railway will connect the Iranian port city of Astara on the Caspian Sea to Rasht, the largest Iranian city on the same coast. According to the Kremlin’s transcript of the call, Raisi “expressed joy” that the agreement was “finally” signed. In response, Putin called the construction of the railway “a significant event for the entire global transport infrastructure.”

The two heavily sanctioned nations are working to develop a major international project: the “North–South Transport Corridor,” which will allow cargo to travel from St. Petersburg to Mumbai through Georgia, Armenia, and Iran. The Rasht–Astara railway will be part of this corridor, which spans more than 7,000 kilometers, or 4,350 miles, in total.

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Pathways and politics

Russia and Iran’s plans have already made waves in Western media. “Russia is pressing ahead with construction of two new transport corridors linking Asia and Europe, seeking to weaken sanctions,” Bloomberg wrote in April. The New York Times warned the corridor would put goods “out of reach of Western sanctions.”

In reality, however, this transport corridor is already operational. Essentially, it consists of three cargo routes by sea, rail, and road. The western route runs from the Russian border to Iran along the Caspian Sea’s western coast (through Armenia and Georgia). The eastern route goes through Kazakhstan and Turkmenistan, while the trans-Caspian route crosses the Caspian Sea.

The Rasht–Astara railway will be part of the western route. A few years ago, there was a possible alternative, wrote British journalist Thomas de Waal, who specializes in the South Caucasus region. He noted that instead of building a new section, existing railways could have been used to transport goods to Jolfa, Iran, a city bordering Azerbaijan’s Nakhchivan Autonomous Republic. From there, cargo could continue through Nakhchivan via Azerbaijan and Armenia’s railways. Although these railways would have required significant modernization, it would have been cheaper and faster than building new infrastructure.

However, the plans to develop transit through Armenia faced opposition from Azerbaijan. And in the wake of Armenia’s defeat in the Nagorno-Karabakh conflict and Iran’s growing ties with Azerbaijan, the prospects of integrating Armenian railways into the “North–South” corridor became even less realistic. Displeased with Armenia’s efforts to strengthen relations with the West and weaken its ties with Russia, Iran has prioritized collaboration with Azerbaijan — including joint transport projects. As early as 2022, Russia cautioned that Armenia could be left out of the “North–South” corridor because the alternative routes were more economically viable.

Paper plans

Over the past year, less than 18 million tons of cargo were transported along the three routes of the Russia–Iran corridor. In comparison, domestic freight transport by Russian railways totaled 818 million tons, and international shipments reached around 550 million tons.

The largest category of goods shipped is food, particularly grain, which Russia delivers to Iran and then needs to be transported further within the country. The new railway will facilitate the transport of these and other goods. According to the Russian authorities, the transport volume along the “North–South” corridor is expected to grow to a modest 32 million tons per year by 2030 — although infrastructure issues may throw a wrench in these plans.

One such issue is the Rasht–Astara railway. Currently, goods arriving in Astara by rail or sea need to be moved to trucks for further transport, slowing down shipment times and increasing costs. Russia and Iran have been planning to build a railway from Astara to Rasht for over 20 years; it’s been mentioned in several intergovernmental agreements and memorandums of understanding since the first agreement was signed back in 2000. However, everything has remained only on paper.

Since the start of the full-scale war against Ukraine, Russian–Iranian cooperation talks have intensified. Yet, even statements by Putin and Raisi highlighting the project’s importance haven’t accelerated its construction. More than a year has passed since the latest agreement was signed, but work on the project hasn’t begun, despite frequent announcements from both countries about the imminent start of construction.

Recently, Russia’s Transport Ministry stated that the railway would be built by 2028. However, a source in the railway industry told Meduza that unofficially, state-owned Russian Railways is now projecting completion by 2030 (Russian Railways did not respond to requests for comment). In early June, Igor Levitin, a Russian presidential aide and advisor on transport issues, said that the land needed for the future railway hasn’t even been purchased yet, making construction impossible.

Preparatory work remains limited to official meetings. For instance, in Tehran in mid-June, Levitin briefed Iran’s acting president Mohammad Mokhber on the project’s progress, though it’s unknown what exactly he said. At the end of June, Putin’s aid attended the opening of a 37-kilometer (23-mile) section of railway adjacent to the Rasht–Astara line. Iran built it over the past five years, despite the project being first announced back in 2006.

Paying for a pipe dream

Russia intends to almost entirely finance the “new” project. According to the intergovernmental agreement presented last year by Putin and Raisi, Moscow pledged to give Tehran a 1.3-billion-euro ($1.4-billion) loan at a six percent annual interest rate for the railway’s construction. The total project cost is estimated at 1.6 billion euros ($1.7 billion), with Iran expected to contribute the remaining 300 million euros (about $327 million dollars). In late December 2023, Iran’s deputy minister of roads and urban development, Shahriar Afandizadeh, announced that Russia would lower the loan’s interest rate to three percent.

Whether Iran has already received the funds is a matter of speculation. The Russian Finance Ministry hasn’t reported on this, and information on current budget expenditures has been restricted since 2022. It’s also unclear whether the money will come from the federal budget or funds that the Russian Federation puts aside in the National Wealth Fund. (The Russian Finance Ministry’s press service did not respond to Meduza’s request for comment.)

What’s more, it’s not even clear which company will be responsible for building the railway. Deputy Prime Minister for Transport Vitaly Savelyev previously mentioned that the project would be a joint effort between Russian and Iranian entities, but he didn’t specify which ones. Analysts at the Eurasian Development Bank suggested that a subsidiary of Russian Railways might be involved. Many large construction contracts are currently awarded to Russian Railways because other contractors either lack the necessary capacity and financial resources or are unwilling to take on significant risks, especially those related to sanctions, an employee told Meduza. Still, some private companies have also expressed interest.

In total, Russia’s budget expenditures for the “North–South” corridor could turn out to be even higher than expected. The Russian government estimates costs will reach 183 billion rubles (over $2 billion) by 2030, according to a project “roadmap” obtained by Meduza. However, nearly 150 billion ($1.7 billion) of this is only provisionally planned for 2026–2030, raising doubts about whether the budget will actually have the necessary resources. Furthermore, another 200 billion rubles ($2.3 billion) are listed as “additional needs,” indicating that this amount will have to be sourced elsewhere, potentially from private investors. So far, Russian businesses have shown little interest in financing the project.

All this spending, however, may be in vain. According to the private Russian analytical company N.Trans Lab, the Rasht–Astara railway should have a transport capacity of 15 million tons per year, but the Iranian tracks following this section only have a carrying capacity of 10 million tons. The country’s railway infrastructure is generally underdeveloped: rail lines haven’t been extended to many Caspian ports, and the existing railways are single-track and not electrified. As a result, most cargo within Iran is transported by road.

The likelihood that the Rasht–Astara railway will never be built is higher than the chance that it will be, believes Nikita Smagin, an expert on Iran with the Russian International Affairs Council. While the new route is a good idea from a regional logistics development perspective, the downside is that it’s all being done at Russia’s expense. It’s unlikely that Iran will repay the loan, as the country is already defaulting on its debts to Russia. Moreover, there seems to be little interest in the project among businesses. “All this raises doubts that this railway will ever be built,” concluded Smagin. “Although, of course, Putin could put his foot down, and people would get it done.”

Story by Margarita Liutova