Implications for the Asian geo-diplomatic economy

The Russian invasion of Ukraine triggered a series of sanctions by Western countries and many others, which will have broad repercussions for some time to come, even in the unlikely scenario of a relatively quick end to the fighting. The impact on the global economy and supply chains from the war and the escalating sanctions regime has already been significant but will have long-term consequences for Asia’s geographic economy and East-West trade that require closer study.

The term economic geography is not well defined in academia. It is frequently used to refer to economies that are used for national security purposes. Here, I use the term specifically to refer to how countries use geography to achieve their economic ambitions in light of issues related to security. In this sense, my definition is closer to scholars who see geoeconomics as the interaction between economics and geopolitics.

I would argue that there are three interrelated and intersecting trends resulting from the Russian invasion of Ukraine and the unprecedented rapid succession of Western sanctions imposed on Moscow, which have redrawn the maps of trade in Asia. Ultimately, Iran will be the primary beneficiary of these changes.

The New Land Bridge for Europe and Asia and China’s Belt and Road Initiative

The first and second findings are closely related to the fact that the war in Ukraine and the associated economic embargo have created significant obstacles in connection with the New Europe-Asia Land Bridge (NELB). As Beijing establishes the Belt and Road Initiative (BRI) in the magic of the ancient Silk Road, its primary overland route to its target markets in Western Europe is through the NELB, which runs through Central Asia and Russia to reach the European continent. This route is so important that Chinese officials have in the past worried about over-reliance on Russia for their logistical needs.

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Now these concerns seem insightful. As many experts have noted, the NELB pathway is becoming increasingly problematic. Regardless of the security issues caused by the war, Western sanctions have made dealing with Russia even more difficult. Major logistics companies pulled out of Russia even before sanctions forced it out, and European countries such as Poland and Ukraine, which once aspired to be major hubs for NELB, have eschewed economic ties with Moscow and advocated sanctions because they prioritize security needs. . All these factors make it increasingly necessary for China to look towards the lower tier of the “belt”, which runs through Iran.

This path has faced various challenges mainly due to the major economic sanctions imposed on Iran throughout the vast majority of the existence of the Belt and Road Initiative. While the Chinese government has been willing to contravene Washington’s edicts by not doing business with Iran economically in many respects, the Chinese private sector and even the major state-sponsored companies that provide most BRI funding are not immune to the pressures of sanctions.

Asian countries look to Iran for East-West trade routes

The second trend, which is also closely related to the NELB ban, is to increase the logistical activity of other Asian countries, especially from Central and South Asia, to reach their target markets in the West via Iran. Over the past weeks, there has been a flurry of activity surrounding the expansion of trade access to Iran and countries to the immediate east.

This supports the Raisi administration’s ambitions to expand economic ties with countries across Asia and pay greater attention to diplomatic ties with Central Asia, things that conservatives accused the previous Rouhani administration of ignoring.

Russia looks eastward to INSTC

A third and perhaps less well-known trend is Russia’s semi-“Looking East” strategy to mitigate the effects of sanctions by diversifying its trade away from Western economies that appear increasingly interested in arming interdependence. While Russia’s path to China or Central Asia is straightforward, its overland route to India, the main trading partner that has refused to join the Western sanctions alliance, is much more complicated. India, which is mostly besieged by rivals Pakistan and China, must be reached by sea. While trade between India and Russia takes place mostly by sea, through the Suez Canal, the lack of a more direct route could become a weakness, especially in the current fraught political environment.

This reinforces the importance of the International North-South Transport Corridor (INSTC)And the which crosses the Caucasus to connect Russia with the Iranian port of Bandar Abbas on the Strait of Hormuz, and from there a shorter sea route to India is available. This not only significantly shortens the transit time of shipped goods between India and Russia, but also avoids narrow sea routes that are likely to be prone to political obstacles. China, for example, is notorious for being concerned about an over-reliance on the Strait of Malacca for its maritime trade (the “Malaka Dilemma”).

If the growing need of many Asian countries and Russia leads to the expansion of financing and the use of these various trade routes, Iran could become a major global trading center. Especially if the current talks result in a resumption of sanctions relief under the reconstituted Iran nuclear deal, investment and business interests are likely to expand significantly. Crucially, Russia has also expressed its desire to use the INSTC to contact Pakistan. This has important implications for the Belt and Road Initiative project.

While talk of “Asia” resonates in China and is mentioned frequently in Chinese government statements, the most important regions in the BRI were the major sub-regions of the overseas close to China: Central Asia, South Asia, and Southeast Asia. In the academic literature, BRI projects in these areas are often spoken of separately and on their own terms. But Chinese officials, who see great economic potential and trade integration between their economic investments and their regions in South and Central Asia, seem increasingly interested in the relations between the two countries. This interest has been underlined by China’s recent efforts to build a trade route through Afghanistan, which is unlikely to be viable due to security and economic governance issues. Currently, these two regions are connected by a long, arduous road through western China.

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This presents a particular problem given that China’s investment in Pakistan is largely located in the western Pakistani province of Balochistan and the port of Gwadar, which is a stone’s throw from the Iranian border, while most of Central Asia’s population and economic potential are in Uzbekistan and Kazakhstan. which borders the Caspian Sea.

There is a much more reasonable transit route through eastern Iran. This track is now in a position to gain more attention due to Russia’s interest in linking the INSTC with Pakistan. Somewhat ironically, Iran’s transportation infrastructure is also a major focus for IndiaAnd the Which sees that connecting to the port of Chabahar in southeastern Iran is the best trade route for it to Afghanistan and Central Asia. Indian participation in the Chabahar port project has been largely suspended since the United States abandoned the Iran nuclear deal in 2018, but it could be revived if a new deal is reached.

Significant obstacles remain for Iran to achieve its goal of becoming a major trading hub, the most important of which is the resumption of sanctions relief under the JCPOA. But Iran also requires more strategic planning and a strategy to turn trade routes into economic corridors that can benefit its citizens. If Tehran can meet the challenge, it will have a major role to play in the development of trade between Asia and East and West.

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