Monday, June 30, 2014

SILK ROAD REPORTERS: The Caspian Connection. Published by Joshua Noonan (

( The 826-kilometer (513-mile) Baku-Tbilisi-Kars (BTK) Railway is expected to be completed by late 2015, according to Azerbaijani Transportation Minister Ziya Mammadov who recently attended a tripartite meeting of ministers from Turkey, Georgia, and Azerbaijan.

It is anticipated that this railroad will transport up to 1 million passengers after its launch, ramping up to 3 million passengers and 15 million tons of freight within the first few months of operation. The railroad is seen as the most important strategic infrastructure project in recent history for the region, and will have major implications for the three partners with secondary ramifications for Armenia and Kazakhstan as East-West energy transport routes link the Caspian Basin to Europe.

Azerbaijan and the cities of Baku, Sumgayit, and Gance will notably benefit as their transportation links to Georgia and Turkey develop. The metropolitan areas of these cities comprise at least 20% of Azerbaijan’s population and a large proportion of the economic activity and foreign exchange earning power of the state. Although there is already a Soviet-legacy Baku-Tbilisi passenger and freight network, an improvement in the infrastructure from the dilapidated Soviet legacy railroad will allow for the speedier delivery of goods and transport of passengers.

The BTK is being coupled with the Nakhchivan-Kars Railway, which will connect the politically important Azerbaijani exclave of Nakhchivan with Kars. The deepening of links with Turkey and Georgia will provide for the further westerly economic integration that the leaders of the country seek that started with the Baku-Tbilisi-Ceyhan and the Baku-Tbilisi-Erzurum oil and gas pipelines, signaling the development of the Southern Energy Corridor.

This has continued recently with further Azerbaijan-driven investment in the downstream distribution and sales of gasoline and diesel in Georgia and the continued expansion of natural gas pipelines through Turkey with TANAP and TAP, linking Greece, Albania, and Italy. These mega-projects have been spearheaded by investors originating from Azerbaijan, Turkey, and other partner countries. Politically, these projects allow for the consolidation of Azerbaijani influence in Georgia through its State Oil Company of Azerbaijan Republic (SOCAR) service stations, while providing increased leverage over its adversary Armenia through the deployment of its natural-resource-derived wealth in the guise of SOCAR and State Oil Fund of Azerbaijan (SOFAZ).

Since the Rose Revolution in November 2003, Georgia has been seeking inflows of foreign direct investment (FDI) through internal reforms, cooperation with its neighbors, and integration into the Euro-Atlantic Community. As the current Georgian government has prioritized and campaigned on the promotion of rural development, market access that will be granted through these improved transportation links if coupled with subsequent reforms to the tariff and import regimes of Turkey and Azerbaijan. Georgia ranked eighth in the World Bank Ease of Doing Business Report in 2014. As labor costs increase in Turkey, Georgia could become a source of intermediary-product production, with the process speeded by the development of the BTK. This coupled with extant trade links, geopolitical trends, and entrepreneurial opportunities will assure the continued development of Georgia through this project.

Turkey will continue to develop its role as a hub-state for the transportation of resources and a interconnector for Europe, Asia, and the Middle East. In that role, actions involved with the development of the BTK are quite useful. This mega-project will be paired with the Marmaray Bosphorus Tunnel Project, which will cross the Bosphorus, knitting the European and Asian sides of Turkey together. This action will link the rails of the Absheron Peninsula with those in Berlin. Continued investments in eastern Turkey, linking booming Azerbaijan with this underdeveloped region, will allow for an accelerated growth-path and increased market access for businesses from the Caucasus, as well as provide additional export opportunities for this less developed region while expanding access to cheap and reliable natural gas, petroleum, foodstuffs, and commodities.

The last two countries are not transit countries for the BTK, but rather adjacent countries. The first, Armenia, has protested its exclusion from regional mega-projects. Though it would be a shorter and cheaper route from Baku through Yerevan to Kars, this possibility was forestalled by the over-20-year-old frozen conflict in Nagorno-Karabakh. This has led to its continued regional marginalization, and the BTK is only the latest example. Despite the lack of direct investment, consumers and intermediaries in Armenia will benefit from a more developed method of importing goods from Turkey, all of which are currently transshipped via Georgia on semi-tractor trailers. Moreover, exports from Armenia not bound for Russia or Iran could benefit from transshipment from Tbilisi westwards to European markets.

Kazakhstan as a major commodity and energy exporter may be able to benefit from the export of commodities to Turkey and from there to the Balkans via the Caspian. Issues concerning shipments on the Caspian, including terminals, are starting to be rectified on both shores. Nevertheless, a deeper East-West integration across the Caspian would take additional political capital that the respective leaders do not seem prepared to spend.

Nevertheless, as Europe and the Caucasus are knit together, leaders across the Caspian will start to take due notice of these opportunities.

There are still many hurdles for the project to clear – both technical and politcal – but when this project is finished and finally goes online, the world will behold an important realignment of how it interacts and trades with this once-distant region.

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