“To follow the Silk Road is to follow a ghost. It flows through the heart of Asia, but it has officially vanished leaving behind the pattern of its restlessness. The road forks and wanders wherever you are. It is not a single way, but many: a web of choices”– Colin Thubron, author of the “Shadow of the Silk Road”
The Caspian Sea is a world unto itself. As an endorheic basin, it is cut off from the rest of the world with no natural connection to the ocean. Stretching over a thousand miles along the meridian, five countries –Azerbaijan, Kazakhstan, Turkmenistan, Russia and Iran – call the world’s largest inland body of water their home. The Caspian Sea is not only a source of sustenance, it also holds vast amounts of wealth deep within its waters. Oil and natural gas coursing through pipelines lead westward, bringing economic growth and stability to a region that was once engulfed in war and chaos following the end of communism. Its legal status has been a subject of dispute for decades until 2018, when the five nations were able to hammer out an agreement, finally settling a long-standing dispute over the allocation of the coastal borders.
But there is more to the Caspian Sea than oil and gas rigs perennially exploiting its natural riches. For centuries, Europe and Asia have been linked by commerce, with the Silk Road routes dating back to medieval times. This network of overland paths connected Asian dynasties with European empires, where goods, ideas, and culture were exchanged. Located at a juncture where Europe converges with Asia, the Caspian states, Azerbaijan and Kazakhstan, see a comparative advantage in reviving this ancient connection with The Middle Corridor infrastructure project. While the Chinese-led Belt and Road Initiative is sought to mimic the Silk Road’s success, drawing parallels with the Middle Corridor overlooks the standalone economic ambitions of the South Caucasus and Central Asia.
Bypassing two of the heaviest sanctioned countries – Russia and Iran – the purpose of the Middle Corridor is obvious: establishing a safe cargo route between Europe and Asia. The sanctions may not directly target the transit status of these nations, but they do create headaches for foreign companies cooperating with sanctioned national rail and port infrastructure. With western sanctions already stalling the BRI’s Northern Route, transiting through Russia and Belarus, World Bank estimates a 40% decrease in China-EU shipments since 2022. In the same period, cargo shipments through the Middle Corridor have risen sixfold, to 3.2 mmt (million metric tons).
Caspian Emerging Economies
The four countries at the steering wheel of the Middle Corridor project are Azerbaijan, Turkey, Georgia, and Kazakhstan. The key, however, lies in the logistical connectivity between Azerbaijan and Kazakhstan. The economic integration into global supply chains has been a tough challenge for the two countries in times of trade dominated by maritime routes, leaving them somewhat excluded. On top of these hurdles loom the weighty geopolitical pressures. To the north lies a legacy of Soviet colonialism and repression, while to the north international outcasts impede global integration. In such a landscape, the value of maintaining political and economic sovereignty cannot be overstated; it becomes an invaluable asset.
But the countries have taken Herculean strides to increase international connectivity. In 2018 the Azerbaijani Parliament passed a bill designed to make the Port of Alat a Free Economic Zone. Kazakhstan has pursued similar bills creating FEZs of its own as well as Trade Hubs along its borders with China and on the Caspian shores. In the realm of economic policy, free economic zones have emerged as a tool for promoting growth, innovation, and competitiveness in targeted regions. By offering a range of incentives, such as tax breaks, reduced tariffs, and streamlined regulations, these zones create an environment that is conducive to business and investment, fostering a virtuous cycle of economic activity. Japan and South Korea used similar export-oriented policies to promote the development of their domestic industries and become global leaders in cars and electronics manufacturing.
When it comes to the virtues of an export-oriented growth model, the evidence is clear: the long-term benefits of investing in productive, high-quality manufacturing sectors can be immense. By embracing such an approach, countries can not only increase their output and exports but also achieve a range of other important goals, from creating new jobs to spur technological innovation and enhancing economic resilience. It can lay the foundation for a prosperous and dynamic economy, one that is well-equipped to thrive in the face of a rapidly evolving global landscape.
Setting up an FEZ around Alat makes it a manufacturing and transportation hub for goods arriving from Kazakhstan and directing it towards the European markets. The Middle Corridor consists of four main infrastructure projects:
- Trans-Kazakhstan railroad, which upon completion in 2014, shaved 1000 km off of the East-West transport route across the country.
- Along with the modernization of the rregion’srailroad system, the Ports of Alat and Aktau on the Caspian Sea have been developed with only 470 km of distance and 28 hours separating each other.
- Baku–Tbilisi–Kars (BTK) railway, which became operational in 2017, reopened direct rail transport between the South Caucasus countries and Turkey. The opening of freight transportation between Azerbaijan and Turkey not only came to complete the shortest railway corridor between China and Europe but also enhanced connectivity between Turkey and the states of Central Asia and the South Caucasus.
- The final piece to the puzzle is GeoGeorgia’sack Sea access via the Port of Poti, where cargo is moved back to container ships destined for Eastern European ports in Romania.
The entire route lasts at most 21 days, which is 19 days shorter than the deep-sea route connecting Shanghai and Istanbul. Danish Maersk and Finnish Nurminen Logistics shipping companies are already operating the Middle Corridor in light of increased demand. Earlier this year, the European Investment Bank approved an investment amounting to $1 billion dedicated to the infrastructure projects along the Middle Corridor, bringing their total investments close to a $2 billion mark.
Charting The Future
The nascent Middle Corridor requires a purposeful injection of European capital and strategic support to reach its full potential. This trade route provides an opportunity for the European Union to cultivate its ties with the developing and emerging markets of the Caspian Sea. Although not the most budget-friendly option, in a world fraught with rising uncertainty, it would be imprudent to dismiss it outright. While traversing the forgotten roads of the old Silk Road may be impossible in the 2020s and beyond, forging new trade routes that unite two continents will undoubtedly give rise to a fresh crop of emerging economies.