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To circumvent Ukraine and bottlenecks, a controversial new trade route emerges: Iran

To circumvent Ukraine and bottlenecks, a controversial new trade route emerges: Iran
Exclusive: Despite US sanctions, transportation industry insiders see the Islamic Republic as key land route for moving goods across Eurasia

Newly emerging trade routes are slashing transport times between Europe, western Asia and the Middle East from upwards of six weeks to as little as six days, saving consumers and exporters shipping expenses, insurance fees, and refrigeration costs.

There is just one catch.

The truck routes, which were first launched last year with lorries travelling from the United Arab Emirates and Pakistan to Turkey, pass through Iran, further integrating Tehran into the global economy, adding to its coffers and increasing its clout despite years of efforts by the United States to isolate it.

“If you allow Iran to become less of a pariah by further integrating it into international trade that reduces the impact of the sanctions measures that are in place,” a former White House official specialising in trade and sanctions said. “There are folks in the US who would not take kindly to that. To the extent that we’re talking about sanctions evasion, there would be a lot of people that would be irked by that.”

Both the UAE and Pakistan transport corridors to Turkey were inaugurated with little fanfare late last year. They come as both the UAE and Saudi Arabia engaged with Turkey and began rapprochement with Iran following an escalation of diplomatic rivalries during the turbulent US presidency of Donald Trump.

With eastern Europe and the Black Sea region in turmoil because of Russia’s invasion and ongoing attack on Ukraine, Iran is also emerging as a tempting bridge between landlocked countries of central Asia and the rest of the world.

“They’ve long been hoping Iran would become a more viable option with the lifting of US secondary sanctions allowing more use of the logistics routes through Iran’s and more investment in Iran’s port infrastructure,” said Esfandyar Batmanghelidj, a fellow at the European Council on foreign relations, who recently returned from a conference in Uzbekistan.

The routes are already in use, although it is unclear how widely.

In October, an Emirati truck carrying a single set of transit papers it obtained for $30, departed from the UAE city of Ras al-Khaimah through Sharjah, where it departed by ferry to the Iranian port city of Bandar Abbas and then continued 2,100 kilometres (1,300 miles) along Iranian highways, and then another 1,100 kilometres (685 miles) along from the Turkish frontier to the Mediterranean port of Iskenderun.

The trip lasted six days, two weeks less than the 21 days it would take to get a shipment from the UAE through the Suez Canal to the Mediterranean. The shortened ground transit time reduces transport fees, refrigeration costs and cuts out the need for insurance against pirates and other mishaps at sea.

Another pair of trucks from Pakistan was also dispatched through Iran across 4,900 kilometres (3,040 miles) of highway to Istanbul, making the trip in about a week instead of up to 40 days via the maritime route from Arabian Sea ports.

Weeks later, Iran’s roads chief Javad Hedayati conferred with Emirati and Turkish counterparts to finalise the route.

One economist told The Independent that the routes are an open secret in the transport industry stricken with post-Covid bottlenecks and a worldwide shortage of sea-freight containers, but have not been widely publicised for fear of irking the Americans. Still, the Iran option is becoming increasingly tempting at a time when sea-freight costs have risen to as high as $25,000 per container.

“You save a lot of money, and you save a lot of time with Iran,” Ermen Ereke, an Istanbul-based executive at the International Road Transport Union, an organisation that represents the global trucking industry. “For many companies and many countries, there’s no issues with Iran. It’s a good country to transport goods.”

Currently international transport officials estimate that about 40,000 trucks a year transit through Iran, and trucking fees of between $400-$800 (£327-£654) per vehicle can offset the impact of sanctions, including sometimes strictly enforced secondary restrictions on seeking to do business with Iran. Among the goods transported are consumer products, appliances, foodstuffs, machinery, spare parts, electronics and heavy equipment.

<p>How the trade route affects timings</p>

How the trade route affects timings

“Considering its geographical location, Iran can play a significant role in the transit of goods in the region and benefit a lot,” said the pro-government Tehran Times newspaper. “To take full advantage of its location for transit, the country has many plans underway and, on the agenda, to boost its transit capacity.”

Transport industry executives say the route has some hassles, including long waits sometimes at customs checks and 200-litre limits on fuel at Iranian petrol stations.

“This is a route that not many people know about and it’s not used very much, but in terms of costs it has its advantage,” said Hasan Guney, fleet director at Ulustrans Logistics, an Istanbul-based firm specialising in international freight transport that has used the route. “Getting from the UAE to Turkey, this is the best route. If they could only clear up the waits at customs it would be even faster.”

Mr Guney said his firm does no trucking business with the US and has little if any exposure to US sanctions.

But with several bottlenecks and escalating sea-freight fees, the costs of moving goods across the Eurasian landmass have gotten so high that firms are absorbing the risks and using Iran despite the fear of US sanctions.

“You need the route to keep the movement of goods going,” said Asli Cakir, of Turkey’s Union of Chambers and Commodity Exchanges, an industry lobby.

She described several bottlenecks that were impeding global trade, leading to supply-chain challenges that were contributing to worldwide price inflation and hampering the global economy’s recovery from the coronavirus pandemic.

“If the US would want to focus on this trade route, that could be a problem,” she said. “But you have to keep the movement of goods going somehow. Opening up Iran is one way.”

The opening of the route is a blow to Egypt, where President Abdel Fattah el-Sisi is spending $8bn (£6.54bn) in public funds in a much derided effort to expand the Suez Canal and draw more traffic. Despite the investment, bottlenecks persist. Last March the cargo ship Ever Given went aground along the waterway, blocking sea traffic for six days.

Transport industry insiders say the UAE has wholly embraced the road route, while Pakistan, despite high interest by businesses, is baulking because its banks are spooked.

“The issue exporters are facing are from secondary sanctions,” said one industry insider. “Pakistani banks are questioning any transaction that involves Iran.”

According to US law, a product merely transiting through Iran may be considered Iranian, and could be subject to restrictions, according to legal experts. The Iranian port at Bandar Abbas is deemed at least in part under the control of the sanctioned Revolutionary Guard, and any dealings with it could trigger sanctions.

<p>The container ship ‘Ever Given’ which blocked blocked the Suez Canal in March 2021</p>

The container ship ‘Ever Given’ which blocked blocked the Suez Canal in March 2021

But there are also nuances.

“If a Turkish company is paying an Iranian port with US dollars, that’s a problem,” said Matt Oresman, a partner at the international law firm Pillsbury. “If an Uzbek trucker is paying some Uzbekistan soʻm to Iranian cargo handlers, that’s probably not a sanctions violation.”

Former US officials who worked on sanctions policy said that Washington was suffering from “shiny ball syndrome”, so focused on helping Ukraine fend off Russia that it likely lacked the bandwidth to zero in on the trade routes, especially at a time when it is hoping to cut a deal with Tehran to restore a faltering 2015 nuclear agreement.

“The nature of sanctions is you’re not going to stop everything, even if you have good enforcement,” one former senior US official said. “Perhaps you’d want to reach out to parties that are involved and speak to them, especially about Bandar Abbas being under sanctions. But in the real world it might not be worth pushing.”