2023 Research and Study
- Commentary
- publication date:2024/11/22
The Challenges of Building International Transport Corridors and Neighborhood Diplomacy in Iran under Sanctions: Focus on Relations with Pakistan and the Republic of Azerbaijan
MEIJ Commentary No.7
Hisae Nakanishi,
Professor, Graduate School of Global Studies, Doshisha University
Introduction
Two wars are currently ongoing in Eurasia, with one in Ukraine and the other in Gaza, further destabilizing the situation in this region. Iran's gradual shift towards Russia after the start of the Ukrainian War has affected the relationship between the US and Iran, which has been hostile since the Iranian Revolution. The West had been increasingly critical of Iran for providing drones to Russia, and in early September, the US imposed additional sanctions on Iran for providing new short-range missiles to Russia as well. These sanctions have had an increasingly negative effect on Iran's economy.
Iran stated that it would retaliate after the assassination of a Hamas political leader in Tehran on July 31, and the US has increased its fleet stationed in the Persian Gulf to two ships in preparation for Iranian retaliation against Israel. As the conflict between Israel and Iran deepens, the safe navigation of ships in the Persian Gulf is of vital importance for Japan's energy security. Tankers transport Middle Eastern oil imported into Japan from the Strait of Hormuz in the Persian Gulf via the Indian Ocean and Strait of Malacca. Iran, which faces the Persian Gulf to the south, has developed a security policy for these waters, which is an important issue for Japan.
Two aspects of Iran's security policy should be considered: maritime and economic security. The first relates to avoiding a possible Israeli attack on Iran in the Persian Gulf, which has become increasingly hostile to Israel since former Iranian President Ahmadinejad stated in 2005 that Israel should be wiped off the map. The second centers on the development of the port of Chabahar, which will be an important base in the planning of this corridor in the context of Iran's recent efforts to establish an International North–South Transport Corridor. Regarding the former, that Iran has been increasing its presence in the Persian Gulf to strengthen its naval defense capabilities is well known. However, how Iran has aimed to economically develop the area around the Strait of Hormuz has received little attention. Therefore, this study focuses on the economic security of Iran.
The International North–South Transport Corridor generally extends from Mumbai, India, northwards from the Iranian ports of Bandar Abbas and Chabahar, and from the Caspian Sea to St. Petersburg, Russia; however, in practice, it is connected by various branch lines, not only to Russia but also in the direction of the Black Sea towards Europe. Iran has devised a corridor plan with a view to linking it to the Black Sea, calling it the “Persian Gulf Black Sea Corridor,” in addition to the International North–South Transport Corridor. Accordingly, Iran has positioned strengthening relations with neighboring countries as a pillar of its diplomacy.
How has Iran framed the task of building an international north–south transport corridor in the Strait of Hormuz? The following discussion first provides an overview of this issue and then examines Pakistan and the Azerbaijan Republic as examples of Iran's neighborhood diplomacy.
Regarding Iran–Pakistan relations, the next section will explain how the region from the southern part of Iran's Sistan–Balochistan province to Pakistan's Balochistan province, linking the southern end of the International North–South Transport Corridor from the port of Charahar to the port of Gwadar, an important hub at the southern end of the corridor, is tense today. Then, this study sheds light on Iran's relations with another important neighbor, the Republic of Azerbaijan, regarding the conflict over the Zangezur Corridor, which became an important trade route following the Second Karabakh War in 2020.
1. Economic Security in the Strait of Hormuz: The Makran Development Project and Iran–Pakistan Gas Pipeline Case Study
Makran Development Project
The pillar of Iran's maritime security policy in the Persian Gulf is increasing its presence in the waters between the Gulf of Oman and Strait of Hormuz. According to Dresman's report, Iran is building military bases on several islands the Persian Gulf, including Bandar-e Emam Khomeini, Bandar-e Mahshahr, Khorramshahr, Kharg Island, Bandar-e Bushehr, Asaluyeh, Bandar-e Abbas, Jask, Bostan, Chabahar, Qeshm Island, Sirri Island, Abu Musa Island, and the islands of Greater and Lesser Tomb (Dolesman, 2022, Iran and the Gulf Military Balance).
However, some of these military bases, such as Bandar-e Abbas and Kharg Island, are also trade bases. Iran intends to build a base to serve as a transportation hub and has begun to develop the area from Bandar-e Abbas east to Pakistan's southern border, which it calls the Makran Coast.
In Iran, this plan is known as the Makran Development Project, which Supreme Leader Khamenei first conceived around 2008 and asked the Iranian Navy to implement in 2015. The background of this project is a sense of crisis, as at least 80% of Iran's oil is exported through the Kharg Island oil terminal. Thus, Iran faces the challenge of how best to diversify the concentration of oil export routes in the Strait of Hormuz.
The Makran region has 600 km of coastline stretching from the Gulf of Oman to the western part of Karachi, Pakistan, with the port of Chabahar at its center. Iran plans to build a hub for its petrochemical industry in the region and develop routes for transporting oil and natural gas. Iran has made an agreement with Pakistan to build the Iran–Pakistan natural gas pipeline (IP Pipeline) in 2010, while implementing industrial development projects in the Makran region.
Figure: Map of Makran Development Project
[Source：https://iranthisway.com/wp-content/uploads/2020/11/147971_523.jpg]
Iran–Pakistan gas pipeline project and security issues in the Balochistan region
The construction of the IP Pipeline was initially conceived as a three-country project, with Iran and India first agreeing to its construction in 2005, with Pakistan subsequently included. However, after India withdrew from the project in 2008, it became a bilateral project between Iran and Pakistan. Iran began construction of the Iranian side of the pipeline in 2013, completed the 902 km section from Asaluyeh to Iran Shahr in November 2023, and completed construction of the entire 1,150 km section on the Iranian side of the pipeline in April 2024 (Reuters, 24 April 2024).
Figure: Iran–Pakistan natural gas pipeline route
[Source：https://blog.knak.jp/2013/03/post-1221.html]
However, a lack of funds prevented construction of the 780 km on the Pakistani side, and Pakistan requested a 10-year extension in 2014. The deadline for the extension was in September 2024, and on September 3, Iran appealed to Pakistan to fulfil the contract, threatening to file a complaint with the Paris Court of Arbitration otherwise. If Iran does in fact file such a suit, Pakistan is expected to be fined USD 18 billion. This places Pakistan in an awkward position, as implementing an agreement with Iran could potentially result in US economic sanctions and, furthermore, risk difficulties borrowing from the IMF. Therefore, Pakistan is expected to negotiate with Iran and potentially reduce the fine. Paying the fine would mean abandoning construction, making it difficult for Pakistan to complete the construction of the IP pipeline.
Iran has indicated its intention to increase its trade with Pakistan to USD 10 billion over five years, with former President Raisi visiting Pakistan in April 2024. Once the gas pipeline is completed, Iran would transport 750 billion cubic feet of natural gas per day to Pakistan over five years. If Iran's natural gas exports are not expected through the IP pipeline, it will hinder the growth of Iran's trade volume with Pakistan, which will be distressful for Iran under sanctions. Furthermore, as the IP pipeline was to run north of the Port of Gwadar on the Pakistani side, it would be convenient for India, which does not want Chinese influence in Gwadar, to see Gwadar's importance in Pakistan reduced by the stalled IP pipeline.
Security is currently deteriorating around Gwadar, a hub of the China–Pakistan Economic Corridor located in Pakistan's Balochistan Province. In this area, an armed group called the Balochistan Liberation Army (BLA) has been attempting to secede from Pakistan, attacking government vehicles and engaging in a gun battle with Pakistani security forces on August 26, 2024. The Pakistani government claims that India is providing arms to these forces, whereas India has criticized Pakistan by highlighting how the Baloch ethnic people have been subjected to violence by the Pakistani and Chinese militaries and exploited by regional development projects by both countries. Thus, relations between India and Pakistan have deteriorated in recent months.
The Baloch separatist movement has been a national security challenge for both Iran and Pakistan, as it has developed between ethnic Baloch groups in Iran and Pakistan. The Baloch in Pakistan are the same ethnic group as the Baloch (mainly Sunnis) living in Iran's Sistan-Balochistan Province, albeit separated by a border. In January 2024, Iran attacked Pakistan's Balochistan Province with missiles and drones, to which Pakistan retaliated with a cross-border attack on Iran, temporarily straining relations between the two countries. Iran justified their attack by claiming it had targeted the Jaish al-Adl (JAA), a Sunni militant rebel group for Iran. Pakistan also explained that the attack was against the BLA and Balochistan Liberation Front, anti-Pakistan government armed groups on the Iranian side of the border. Relations between Iran and Pakistan did begin to recover following this incident; however, the gas pipeline issue has caused them to further deteriorate.
The extent to which India was behind the attack by ethnic Baloch militants in Pakistan in late August 2024. India and Iran are cooperating in the development of the Chabahar port. Traditionally, as hubs of the Indian Ocean corridor, Chabahar and Gwadar have been considered a competition of India versus China. Security issues and the unfinished pipeline have reduced Gwadar’s importance, which would seem to increase the dominance of Chabahar. However, this problem is more complex. As the port of Chabahar is also located in Iran's Sistan-Balochistan Province, which is inhabited by armed ethnic Baloch groups, the aftermath of the separatist movement on the Pakistani side could spread to Iran. Balochistan, which straddles the border between Iran and Pakistan, is a hotspot that influences the future of the Indian Ocean transportation corridor.
Geopolitical risks are high in many other areas in Eurasia due to the same ethnic groups straddling the border. Iran is involved because the Azerbaijanis of the Republic of Azerbaijan and those of Iran's East and West Azerbaijan Provinces are of the same ethnicity. (I will not refer to them as “ethnic Azerbaijanis” here because they do not necessarily form a tribal-based society.) In the next section, I discuss recent developments in the issue of the Zangezur Corridor, which is located along the border between Iran and Armenia.
2. The Zangezur Corridor issue: the conflict between Iran and Azerbaijan over the South Caucasus as a transit point for the International North–South Transport Corridor
What is the Zangezur Corridor?
The Republic of Azerbaijan, a resource-rich country in the South Caucasus, is an important transit point where the International North–South Transport Corridor and Central Corridor overlap. The Zangezur Corridor lies within the territory of Armenia, but halfway between the main territory of the Republic of Azerbaijan and its enclave territory of Nakhchivan. Azerbaijan won an overwhelming victory during the Second Karabakh War in 2020, reclaiming almost 70% of the Karabakh region. Consequently, Azerbaijan sees an opportunity to open the Zangezur Corridor, which is only approximately 35 km wide, between Karabagh and the enclave of Nakhchivan. Once opened, this corridor will connect Azerbaijan to Turkey, which is bordered by Nakhchivan, by land. After the Second Karabakh War, Azerbaijan and Turkey began emphasizing the importance of the Zangezur Corridor and envisaged its construction, which Iran opposes.
Russian President Vladimir Putin made an official visit to Baku on August, 19 2024, and met with Azerbaijani President Ilham Aliyev. Several agreements on strengthening strategic partnerships and bilateral economic relations were signed. This move appeared to ignite conflicts in the South Caucasus between Iran and Russia and between Iran and Azerbaijan. These conflicts manifest in the microcosm of the issues surrounding the Zangezur Corridor project. The following section addresses the relations among Iran, Armenia, and Azerbaijan regarding the Zangezur Corridor issue.
Figure: Zangezur Corridor and Aras Corridor
[Source：CCBS HP https://ccbs.news/en/article/7374/]
Iran–Armenia–Azerbaijan relations
Iran has long placed great importance on its relations with Armenia and maintained economic cooperation with the country. For Iran, the opening of the Zangezur Corridor meant bypassing the trade route between Iran and Armenia. Furthermore, Azerbaijan's rising nationalism, heightened by great victory in the Second Karabakh War, has provoked Iran, turning relations between the two countries acrimonious (see Hisae Nakanishi, “Changes in Iran-Azerbaijan relations and the concept of a Middle East-Eurasia regional corridor,” Journal of Middle Eastern Studies, No 550, 2024).
The ethnic Azerbaijani population is divided between the Republic of Azerbaijan and Iran's East and West Azerbaijani provinces, which straddle their shared border. Azerbaijanis are estimated to account for 30% of Iran’s population; however, they constitute a minority group. The Iranian Government fears that Azerbaijanis within the country will awaken to their uplifting identity across the border and move towards a separatist movement.
Relations between the two countries remained tense for three months, between October 2022 and January 2023, but gradually began to mend in the spring of 2023. However, after Azerbaijan retook Karabakh in the blitzkrieg on September 19–20, 2023 (Third Karabakh War), Turkey and Iran became more confrontational over the Zangezur Corridor. On September 24, 2023, Turkish President Erdoğan visited Nakhchivan and stressed the need for an early opening of the Zangezur Corridor.
In response, on October 23, 2023, Iran hosted a meeting of the foreign ministers of Armenia and Azerbaijan in Tehran and included the foreign ministers of Turkey and Russia. The Azerbaijani Foreign Minister announced a proposal to develop a route bypassing Armenia and allowing Azerbaijan to pass through Iran. This route refers to the Aras Corridor, which Iran proposed as an alternative to the Zangezur Corridor, between the end of 2023 and January 2024. In fact, construction of a land bridge across the border between Iran and Azerbaijan began along the Aras River in late December 2023. The idea of the Aras Corridor was often discussed during the author's visit to several thinktanks in Baku in February 2024.
However, it was more important for Azerbaijan to complete the renovation of the Baku–Tbilisi–Kars (BTK) railway, a route that would connect to Turkey via Georgia. The extension of the Georgian part of the BTK railway was completed in May 2024, expanding freight traffic. Although the construction of the Aras and Zangezur Corridors is at the conceptual stage, with no rapid progress made, the BTK, a railway that passes through the north of the Republic of Azerbaijan and bypasses Armenia, is being steadily extended. The BTK forms part of the Central Corridor for Azerbaijan and is important as a railway connecting Turkey to Europe.
Iran has fewer options than Azerbaijan for developing its entry into the International North–South Transport Corridor. In May 2024, the construction of a railway between Rasht-Astra and the Caspian Sea coast was expected to progress with Russian funding, which was good news for Iran. However, its completion is still several years away, as it has been set for 2028. Therefore, Iran must maintain its trade routes with Armenia and is sensitive to the progress of the Zangezur Corridor.
Under these circumstances, President Putin's abovementioned visit to Baku in mid-August was a major event for Iran. The intention of the visit was essentially to expand economic cooperation with Azerbaijan and strengthen the strategic partnership. President Putin is attempting to find a way for Russia to strengthen its relations with Azerbaijan, despite the Russian economy being under sanctions. In fact, the two countries reportedly signed several agreements. Due to the limited space of this commentary, we focus on issues in Iran.
President Putin proposed that the Azerbaijani Government act as a mediator to restore relations with Armenia, which have been at a standstill since the Third Karabakh War. This demonstrates Russia's intention to pressure Armenia, through its intermediary role, to implement the Tripartite Agreement at the end of the Second Karabakh War in 2020, and push for the opening of the Zangezur Corridor. Needless to say, the Tripartite Agreement is a Russian-initiated document. Article 9 states that the Zangezur Corridor should be built as follows:
All economic and transport links in the region are unblocked. The Republic of Armenia guarantees the safety of transport links between the western regions of the Republic of Azerbaijan and the Nakhichevan Autonomous Republic in order to organize the unimpeded movement of citizens, vehicles and goods in both directions. Control over transport communication is carried out by the bodies of the Border Guard Service of the FSB of Russia.
By agreement of the Parties, the construction of new transport communications linking the Nakhichevan Autonomous Republic with the western regions of Azerbaijan will be provided (commonspace. eu. https://www.commonspace.eu/news/document-full-text-agreement-between-leaders-russia-armenia-and-azerbaijan ) .
Although the name Zangezur Corridor is not mentioned in the above Article, it is geopolitically clear that the construction of new transport routes meant this corridor. Iran argues that the construction of the Zangezur Corridor emerging at Russia's initiative is a threat to its national security, as it also includes changing its borders. This is because Armenia's transit point in the Zangezur corridor is in the Meghri area, which is the heartland of Syunik Province, the possession of which has historically been mixed. Syunik Province was at one time the territory of Safavid Persia before going through a period of Ottoman invasions. The region was then recaptured by Russia from Qajar Persia under the Treaty of Turkmanchay, which concluded after the Russo-Iranian War. Although Armenia says it signed the Tripartite Agreement, it fears that if the Zangezur corridor is built, the transit point Meghri area (the center of Syunik province) will fall into an extraterritorial status (i.e., a type of Azerbaijani special zone). This stems from Syunik Province having been within the Nagorno-Karabakh region under the USSR, and Azerbaijan is aware that it is its own territory, including this land as “Karabakh’ territory.” If the Meghri area became a special zone for Azerbaijan, it would increase Azerbaijan's presence along the Armenian–Iranian border, which both Iran and Armenia fear. Iran is particularly concerned about the expansion of Azerbaijan's power in relation to Israel. Azerbaijan's relations with Israel have been growing since before and after the Second Karabakh War, creating the possibility of Israeli aircraft taking off and landing at three airports built after the war in areas close to its border with Iran.
Although Azerbaijan does not currently claim territorial rights to the Meghri area, it would be natural for Azerbaijan, which retook all of Karabakh in the Third Karabakh War in September 2023, to think that “only Meghri remains.” In contrast, Syunik Province is particularly important for Iran’s economic interests.
Since the Raisi regime, Iran, under sanctions, has adopted a foreign policy emphasizing neighboring countries, of which Armenia is one. On December 25, 2023, Iran signed a free trade agreement with the Eurasian Economic Union (EAEU) in St. Petersburg, Russia. The EAEU is headed by Russia and includes Belarus, Kazakhstan, Kyrgyzstan, and Armenia, with Armenia being one of Iran's most important trading partners.
Trade between Armenia and Iran has grown rapidly over the past few years. According to 2022 statistics, Iran is Armenia's third-largest importer, exporting natural gas, refined oil, and iron. Armenia has been importing natural gas from Russia; however, to reduce its dependence on Russia, it has increased the amount of natural gas imported from Iran. Approximately 60% of Armenia's exports to Iran are electricity and electricity infrastructure-related goods. On September 20, 2024, Iran announced that its largest overseas trade center would be opened in Yerevan, the capital of Armenia, starting on October 1. Reportedly, Armenia has pushed its de-Russian policy for the past year and intends to develop transport routes to the Indian Ocean through Iran while pursuing a policy of strengthening relations with Europe. How Iran, whose relations with the West are deteriorating, and Armenia, which aims to strengthen its ties with Europe, can maintain a cooperative relationship will be a key issue to observe.
Although not well known, Russian troops remain stationed in Armenia's Syunik Province. During his visit to Baku, the author was told that the presence of Russian troops at the southern end of the corridor was behind Azerbaijan's decision to leave the issue of opening the Zangezur Corridor and instead develop the Aras Corridor with Iran. Russia withdrew its peacekeeping forces from the Rachin Corridor on April 17, 2024, a year and a half earlier than planned, as stipulated by the Tripartite Agreement. However,, to date, it has not withdrawn from Armenia's Syunik Province. Thus, Russia is attempting to maintain its influence over the South Caucasus through its forces in Armenia and its pipeline with Azerbaijan, with which it has strengthened its economic ties through the oil and natural gas trade. Similar to Iran, the sanctioned Russia is also attempting to build an international North–South transport corridor for its own benefit.
Conclusion
Iranian President Pezeshkian, who was elected in June 2024, is reportedly following the previous government’s policy of strengthening relations with neighboring countries as a pillar of his foreign policy. During the last year of the previous Raisi administration, Iran embarked on strengthening its relations with Central Asian countries. In February 2023, Iran began negotiations with Turkmenistan to expand trade. In March of the same year, it moved to establish comprehensive transport cooperation with Uzbekistan. Later, in May 2024, Iran and India signed a 10-year contract for the development of the Chabahar port, and in July, Iran, together with India, encouraged Uzbekistan to formally join that contract. These developments show that Iran is attempting to mediate access to the Indian Ocean for Central Asian countries and is playing the role of a trading hub.
However, relations with Pakistan and Azerbaijan are deteriorating, with overlapping issues of two ethnic minority groups straddling the border and developing trade routes. The Zangezur issue has cast a shadow over Iran’s relations with not only Azerbaijan but also with Russia. Although the US imposed further sanctions on Iran for allegedly providing ballistic missiles to Russia, this report makes it clear that Iran is not solely focused on Russia.
Following the outbreak of the Gaza War, three major Japanese shipping companies suspended operations along the Red Sea route, beginning at the end of 2023 and continuing today. In this context, the International North–South Transport Corridor is becoming an increasingly important alternative to the Red Sea route. This corridor is also important for Iran, which remains under sanctions and is key to surviving its resistance economy. However, the realization of this corridor remains a challenge for Iran, which has also affected the progress of the entire corridor.
Author’s Biography
Hisae Nakanishi
Professor, Graduate School of Global Studies, Doshisha University. Specializing in contemporary Iranian politics, security issues in the Middle East addressing Iran, and the Iranian women’s movement. Ph.D. (History) from the University of California, Los Angeles (UCLA) in 1994. From 1999 to March 2010, she served as a professor at the Graduate School of International Development at Nagoya University before assuming his current position. In 2001, she was a visiting researcher at the Iranian Institute of International Studies, and in 2014 was a visiting scholar in the Department of Asian and Middle Eastern Studies at Duke University, as well as in 2022 was a visiting scholar at SOAS, University of London.
*“MEIJ Commentary” is a timely commentary on current affairs by MEIJ research fellows and external committee members. It focuses on the restructuring of the regional order in the Middle East and great power-led connectivity strategies.
