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Dr. James Coyle on "New Silk Road" | Int'l Policy Digest

Southern Leg of New Silk Road Launched with Opening of New Rail Route'

November 25, 2017 | James Coyle | International Policy Digest

The world became smaller last week, as a new transportation link shortened shipping times between China and Europe. On October 30th the Baku-Tbilisi-Kars railroad was inaugurated in Azerbaijan, as part of the much touted New Silk Road. The crucial rail link connects the Caspian Sea to the Turkish railroad network, allowing Chinese cargo shipped by boat from Kazakhstan to reach European markets in 15 days. This is more than twice as fast as shipping by sea and costs less than half the price of flying. Prices are competitive because Kazakhstan, Azerbaijan, Georgia and Turkey agreed in 2016 to a series of preferential tariffs for cargo traffic.

The railroad is the missing link in the Trans-Caspian International Transport Route. It consists of 513 miles of track, including 65 miles newly installed. The railroad was originally scheduled to open in 2010 at a cost of $400 million. The final cost is estimated to be $1 billion, but delays and cost overruns were not the major obstacle that needed to be overcome.

The iron highway almost died on the drawing board. The sponsors originally applied to the Export-Import Bank of the United States to obtain funding, but in December 2006 under the influence from the Armenian lobby Congress passed a law that forbid the bank from participating in the project. Congress believed the Tbilisi-Gyumri-Kars railway, dormant for over 20 years after Turkey closed its border with Armenia, was a better line. Instead, the Azerbaijan State Oil Fund (SOFAZ) loaned the Georgian government $775 million to complete the project. There were two loans, one for $200 million at 1% interest, and the second for $575 million at 5% interest. Turkey and Azerbaijan paid for the rail sections in their own countries.

The big winner is China, with a land route connecting the Middle Kingdom with Europe. According to Georgian President Giorgi Kvirikashvili, “This line will both tie economies and people together. Today, a new Eurasian bridge is being put into operation.” Turkish President Recep Tayyip Erodgan called the railroad “the most important leg of the Middle Corridor Project” to unite Europe and Asia.

The line will carry both freight and passengers, with an estimated capacity of one million passengers and 6.5 million tons of freight. The capacity is expected to rise to 3 million passengers and 17 million tons of freight by 2034.

The European Union, despite opposing the line originally, seems poised to utilize the new route. “The opening of the Baku-Tbilisi-Kars railway is a major step in transport interconnections linking the European Union, Turkey, Georgia, Azerbaijan, and Central Asia…along the ancient Silk Road,” the EU said in a statement. Azerbaijan’s President, Ilham Aliyev, confirmed the new European support. “Several European countries have expressed an interest in this project and Azerbaijan is in talks with them,” he said.

The rail link is the third route completed for the New Silk Road, with a significant advantage for the Europeans. Europe can ship agricultural goods to China on the new line without violating EU sanctions that would prohibit similar cargo on more northern routes.

Ukraine also stands to benefit from the new rail line. The first cargo train to test the east bound route began its journey in Illichivsk on January 15, 2016. The railroad opens the Chinese market for Ukrainian agricultural goods. Ukraine has also signed an agreement with Kazakhstan and Azerbaijan for discounted tariffs on cargo using the route.

Two countries are the losers because the railroad bypasses them: Russia and Armenia. Russia is under international sanctions for their invasion of Ukraine and annexation of the Crimea; Turkey and Azerbaijan closed their borders with Armenia because of Armenian support for separatists in Nagorno-Karabakh.

The opening of the new rail line does not affect the United States directly. The most efficient shipping route for China-American trade remains the Pacific Ocean. The new rail link, however, supports many US foreign policy goals. It supports the international sanctions regime, fosters European economic growth, gives new options to the struggling Ukrainian economy, and promises to strengthen the economies of two major non-NATO allies, Georgia and Azerbaijan. The railroad also offers an additional way to ship US military equipment to and from Afghanistan, reducing Washington’s reliance on Pakistan. America should join the EU in welcoming this new development.