Afghan Authorities Accelerate Push for Road and Rail Projects

As the Taliban government pursues an assertive policy to enhance Afghanistan’s logistical infrastructure, interest in the country’s role as a southern transit hub is gaining momentum across West Asia, facilitating the joint implementation of a wide range of new road and rail projects. Leading the charge is Uzbekistan, which has revived its ambitions through the Termez–Mazar-i-Sharif–Kabul–Peshawar railway—better known as the Kabul Corridor—positioning itself at the forefront of regional integration.

Meanwhile, Turkmenistan, backed by Kazakhstan, is advancing a parallel railway initiative through western Afghanistan to secure more direct access to Pakistan’s seaports. In a symbolic move, the foundation for the 22-kilometre Torghundi-Sanobar railway line was laid in September 2024, making a significant step towards reshaping regional connectivity.

The growing engagement between the Central Asian republics and Kabul in the development of transport infrastructure reflects a shared ambition to diversify foreign trade routes and establish more efficient supply chains to access the vast South Asian market. Alongside ongoing projects involving Uzbekistan, Turkmenistan, and Kazakhstan, Afghan authorities have announced plans to construct the Mazar-i-Sharif–Herat–Kandahar railway. This line has the potential to become the shortest trade route between India and Russia, enabling New Delhi to build transport links with Afghanistan and Central Asia while bypassing Pakistan.

Even Iran, which remains the primary conduit linking Central Asia to the warm waters of the Indian Ocean, and, by extension, to global trade, is seeking stronger transport links with Afghanistan. Tehran is planning to launch two railway connections to Afghanistan simultaneously: the Khaf–Herat line in the north and the Zahedan–Zaranj line in the south-west. The railway from Khaf to Herat is nearly complete, and the Taliban intend to extend it to Mazar-i-Sharif, a key Afghan trade hub already connected to the Uzbek-built Hairatan–Mazar-i-Sharif railway (launched in 2011) and the planned Kabul Corridor. Integrating these routes could eventually allow Iran to reach the Wakhan Valley in Afghanistan’s Badakhshan province, which is the narrow strip of land separating Afghanistan from China.

Notably, during a Taliban delegation’s two-day visit to Tashkent in February 2025, Uzbek and Afghan authorities agreed to jointly implement the Mazar-i-Sharif-Herat railway route. According to the Afghan Deputy Prime Minister for Economic Affairs, Mullah Abdul Ghani Baradar Akhund, this project would expand Tashkent’s trade with South Asia, Iran, and China, reinforcing the idea that Tehran could utilise the Kabul Corridor to reach the borders of China’s Xinjiang region. Another potential route could see the Zahedan-Zaranj railway extended to Kandahar and Kabul with its subsequent link to the Wakhan Corridor.

In 2020, Iran began constructing the Chabahar–Zahedan railway line, with plans to extend it to Zaranj in Afghanistan’s border province of Nimroz and further onward to Dilaram and Kandahar. Engineering surveys have already been conducted on the Afghan side for the Zaranj–Kandahar railway, which could offer Tehran an alternative access route to Afghanistan beyond the Herat Road—bringing it one step closer to creating a new overland trade route to China.

Nevertheless, the prospect of reviving the Wakhan Corridor— an outcome eagerly anticipated by Tehran—remains uncertain. In 2024, Afghanistan’s Ministry of Rural Rehabilitation and Development announced the completion of gravel laying on a 50-kilometre stretch of the road. However, substantial investments are needed to turn the ancient route into a viable commercial transit point. The Taliban are striving for help from China, although Beijing has so far adopted a cautious, wait-and-see approach and is in no rush to open its arms to Afghanistan.

Despite this limited progress, Tehran appears unlikely to back down, particularly as it pursues other ambitious projects. One of these is the proposed Iran–Afghanistan–Tajikistan–Kyrgyzstan–China railway corridor, also known as the Five Nation Road.

Its initial section will be the Khaf-Herat railway, scheduled to begin full operations later this year. The route would continue through Sheberghan, Mazar-i-Sharif, Khulm, and Kunduz, ultimately reaching the Tajik border at the Sherkhan Bandar crossing. It would then stretch eastwards across Central Asia to Kashgar in western China, spanning an estimated 2,000 kilometres. In this context, the Taliban’s proposed Mazar-i-Sharif–Herat railway becomes a strategic segment of a broader transit route from Iran to China.

The creation of a Five Nation Transit Corridor could also benefit Turkmenistan, which has long pursued a railway link to Tajikistan via Afghanistan through the TAT project. This initiative emerged in 2013 amid rising tensions between Tashkent and Dushanbe over transit routes and the desire to bypass Uzbekistan.

Turkmenistan completed the first stage of the TAT railway in 2016, spanning from Atamurat (Kerki) through Ymamnazar to Akina. The Akina–Andkhoy segment followed in early 2021. However, the Taliban’s return to power in summer 2021 brought work to a halt, as regional actors reassessed the group’s stance on cross-border infrastructure and foreign engagement. Yet contrary to initial concerns, the new Afghan leadership has shown a pragmatic approach to regional connectivity.

In February 2025, Afghanistan and Turkmenistan agreed to carry out survey and design work for the 55-kilometre Andkhoy–Sheberghan railway line, a project first announced by the Taliban in 2024. Meanwhile, in July 2024, Tajikistan’s Ministry of Transport and the Korea International Cooperation Agency signed a protocol to develop a feasibility study for a 51-kilometre Jaloliddini-Balkhi–Panji Poyon railway, linking Tajikistan to the Afghan border. Both developments indicate a resumption of the TAT project, which could raise concerns in Uzbekistan, given its longstanding role as a key transit country for several of its neighbours’ access to global markets.

The development of trans-Afghan logistics infrastructure is also of growing interest to Russia, which sees the new corridors as a means of extending its flagship International North–South Transport Corridor (INSTC) to Pakistan.

A clear indication of this was the visit of a Russian delegation led by Security Council Secretary Sergei Shoigu to Kabul on 25 November 2024, during which the construction of the Trans-Afghan Railway was discussed. Following talks with the Taliban, Russian Deputy Prime Minister Alexei Overchuk stated that the Russian Federation considers this project as an integral component of the INSTC.

The Russian Ministry of Transport later announced that it would collaborate with Uzbekistan to prepare a feasibility study for a railway through Afghanistan, based on two agreed routes: Mazar-i-Sharif–Herat–Dilaram–Kandahar–Chaman and Termez–Naibabad–Logar–Kharlachi. But this announcement was not confirmed by Uzbekistan Railways.

Russian involvement in constructing both the western and eastern Afghan railway routes—starting from the borders with Turkmenistan and Uzbekistan, respectively—would allow Ashgabat and Tashkent to secure a share of cargo flows between Northern Eurasia to South Asia. Increased competition along these routes is likely to drive down the cost of transit transport over time.

The opening of new trade routes through Afghanistan presents significant opportunities for realising Central Asia’s economic and transport-transit potential. Several key factors should be considered when assessing further developments in this area.

One consideration is the potential reorientation of Uzbekistan towards the western Trans-Afghan railway route. The relative cost-effectiveness of the Kandahar Corridor, compared to the railway via Kabul, could serve as a catalyst for such a shift. Although the Mazar-i-Sharif-Herat-Kandahar-Chaman route (1,468 km) is longer than the Kabul Corridor (647 km), it offers advantages in terms of terrain and security. Additionally, the route can branch towards Iran through the border province of Nimroz in south-western Afghanistan, providing a valuable strategic link for future transport corridors.

Another important factor is the growing security risks in Pakistan, coupled with increasing tensions in Afghan-Pakistani relations. These dynamics may prompt Tashkent and its external partners to reconsider their preferences on the trans-Afghan track, favouring the Kandahar Corridor instead. In this context, prioritising a transit route that connects to the southern regions of Pakistan—those closest to the ocean—would be more appropriate.

Given the growing significance of Afghan transit in transregional logistics, Central Asian countries will need to balance the interests of all stakeholders to prevent the emergence of intensified geopolitical rivalries along these evolving trade corridors. Harmonisation of the trans-Afghan routes currently under development appears to be both the most likely and most favourable scenario for the future. In such a case, the key stakeholders, particularly Uzbekistan, Turkmenistan and Kazakhstan, could pool their resources to establish a unified transregional railway corridor through Afghanistan.

This collaborative approach would enhance the prospects for attracting external investment and accelerating project implementation. Moreover, a consolidated approach is vital for strengthening the region's role in shaping the emerging architecture of trans-Afghan connectivity. If done successfully, Afghanistan could gain a genuine opportunity to position itself as a new transit hub at the heart of Eurasia.

Photo: Asian Development Bank

Kazakhstan’s Path to Carbon Neutrality Could Run Through the Gulf

The Gulf states hold a unique position among Kazakhstan's international partners, as demonstrated by Kazakhstan's involvement in the 2023 Central Asia-Gulf Cooperation Council (GCC) Summit. Addressing the summit in Jeddah, Kazakh President Kassym-Jomart Tokayev highlighted the potential for synergy between Central Asia’s resources and the Gulf states’ economic innovation. He emphasised the vast opportunities in this relationship and their collective capacity to elevate their multifaceted partnership.

At the summit, discussions centred around expanding energy collaboration, with a focus on advancements in green energy and the modernisation of power generation infrastructure. President Tokayev reaffirmed Kazakhstan's willingness to engage in close partnerships with Persian Gulf energy companies.

Decarbonisation policy is an emerging development priority for Kazakhstan, reflecting global trends in sustainability and climate action. The transition to a low-carbon economy presents a significant challenge, requiring comprehensive measures for the technological modernisation of the national economy, especially in the extractive industries.

At the Climate Ambition Summit in December 2020, Kazakhstan announced its goal of achieving carbon neutrality by 2060. This commitment was formalised in February 2023 with the adoption of the Strategy for Achieving Carbon Neutrality by 2060.The strategy seeks to balance carbon dioxide emissions with removals from the atmosphere, with an interim target to decrease greenhouse gas emissions by 15 percent by 2030 compared to 1990 levels. This reduction could be increased to 25 percent, provided international assistance is secured for the decarbonisation efforts. 

Transitioning to a decarbonised future requires a fundamental shift away from Kazakhstan’s coal-dependent energy system. The strategy estimates a total investment of $610 billion, with over half of this funding reallocated from conventional industries to more sustainable sectors. The remaining portion will be sourced from newly established investment channels.

Prominent financial organisations, including the European Bank for Reconstruction and Development (EBRD), remain committed to backing decarbonisation projects. Simultaneously, Kazakhstan is actively enacting reforms to encourage private sector investment in renewable energy sources.

Recognising the financial and technological commitments needed for decarbonisation, Kazakhstan is diligently fostering international partnerships. This approach is yielding support from key partners such as the EU, China, the World Bank, and the EBRD, thereby attracting further investment and the adoption of cutting-edge technologies. But additional sources of climate financing are needed—the Gulf is stepping up its commitments.

In December 2023, the sixth session of the Kazakh-Saudi intergovernmental commission convened in Riyadh to explore new opportunities for collaboration. During the meeting, ACWA Power, a Saudi company, announced plans to invest approximately $10 billion in Kazakhstan's green energy sector. This investment would support the growth of wind and hydrogen energy, thereby aiding Kazakhstan's broader decarbonisation efforts.

In March 2024, Kazakhstan and Saudi Arabia formalised this partnership for the ACWA Power project through an intergovernmental agreement, outlining their commitment to build wind power plants with a combined capacity of 1 GW, equipped with an integrated energy storage system. The project's initial investment is expected to exceed $1.8 billion. Additionally, both nations have partnered to establish a shared innovation hub in Riyadh, designed to promote Kazakhstan's IT solutions and burgeoning startups in the Middle Eastern market.

Kazakhstan is also working on its collaborations with the UAE on solar and wind initiatives. A significant milestone in this partnership was the signing of an investment deal with Masdar in 2022, aimed at building a 1 GW wind farm in the Zhambyl region. This project incorporates advanced energy storage solutions, enhancing the reliability and stability of Kazakhstan's power grid while increasing the share of renewables in the nation's energy mix and reducing carbon emissions.

Kazakhstan's regional prominence stems from its position as Central Asia’s largest economy and a leading hydrocarbon exporter, attracting roughly 60 percent of FDI inflows into Central Asia. Recognising its responsibility to curb greenhouse gas emissions, the country has pioneered the region’s first carbon trading system, creating economic incentives for businesses to decrease their emissions.

With an estimated renewable energy capacity of 1 trillion kilowatt-hours, Kazakhstan also shares its expertise with neighbouring countries, contributing to broader regional environmental improvements.

Kazakhstan is also strengthening green cooperation with Central Asian neighbors through initiatives like the International Fund for Saving the Aral Sea, which addresses environmental degradation, and the Central Asian Regional Environmental Center, which supports cross-border water and biodiversity projects. In 2024, The Presidents of Kazakhstan, Azerbaijan and Uzbekistan signed a strategic agreement on the intersystem integration of the energy systems of the three countries. Collaborative efforts are also emerging through the Central Asian Regional Environmental Center (CAREC), facilitating cross-border projects focused on water resource management and safeguarding biodiversity.

Concurrently, Gulf countries are also deepening green partnerships in the region. Masdar of the United Arab Emirates is leading major projects in Uzbekistan, including the 100-megawatt Nur Navoi solar power plant. Masdar has also signed an agreement with the Kyrgyz Republic’s Ministry of Energy to develop a pipeline of renewable projects in the Central Asian nation, with a capacity of up to 1 gigawatt, starting with a 200-megawatt solar photovoltaic plant. Tajikistan is partnering with the Abu Dhabi Development Fund and is being considered as a potential investor in the Rogun project. These collaborations drive regional energy transformation and deepen links between Central Asia and the Gulf through sustainable development and shared climate objectives.

In correspondence with the shift towards climate action worldwide, Kazakhstan is not only aligning with global sustainability trends but is also crafting its own unique model for a green economy, setting a precedent for the entire region. Through a combination of national strategies and active regional partnerships, Kazakhstan is positioning itself as a hub for clean energy innovation and sustainable development in Central Asia.

Photo: Eni

How Trump Can Strike Gold for America in Iran

There is a curious line in the Omani statement issued following the latest round of nuclear negotiations between the United States and Iran in Rome, which concluded on Saturday. The statement declares that Iran’s foreign minister, Abbas Araghchi, and Trump’s special envoy, Steve Witkoff aim to “seal a fair, enduring and binding deal which will ensure Iran [is] completely free of nuclear weapons and sanctions.” The sentence is striking because it implies that the US is considering lifting primary as well as secondary sanctions, something that goes beyond the sanctions relief provided under the Joint Comprehensive Plan of Action (JCPOA).

Is this just a case of sloppy drafting by the usually diligent Omani mediators? Well, the Wall Street Journal has reported that Iran has offered Trump a high-level meeting in Washington if a deal can be reached, something that would be difficult to imagine if Iran were to remain under an effective US embargo after the deal’s implementation.

Iranian officials have certainly been touting the possible economic benefits of a renewed nuclear deal for the US. When Araghchi described Iran as a “trillion-dollar opportunity” in a recent op-ed, he had one investor in mind—Donald Trump. As the US and Iran take further steps in the nuclear negotiations, Iranian officials have been eager to make clear that agreeing a new nuclear deal, which would at a minimum require the US to lift secondary sanctions on Iran, could prove a boon not just for the Iranian economy but also for the American economy. To emphasize the point, Iranian President Masoud Pezeshkian even announced that Iran’s Supreme Leader, Ali Khamenei, has “no objection” to American investment in Iran—an attempt to conjure a positive atmosphere ahead of the first round of indirect talks between Araghchi and Witkoff in Muscat.

It remains unclear whether the Trump administration will be able to achieve a viable deal with Iran. The administration’s position on key issues, such as Iran’s ability to maintain uranium enrichment, remains ambiguous, and there is significant distrust on both sides. If the negotiations are to succeed, they will need to find a win-win formula—hence the Iranian insistence on portraying any new agreement as not just a nuclear deal, but also a business deal. Iranian leaders have been watching Trump’s recent moves—his aggressive use of tariffs, his imposition of a critical mineral deal on Ukraine—and they have smartly concluded that Trump cares more about American enrichment than Iranian enrichment.

Is Iran really open for American businesses? The answer is yes, especially if Iranian and American policymakers make the restoration of their bilateral economic relationship a priority alongside restoration of a nuclear deal. Lifting primary sanctions would have a dramatic impact on US-Iran economic relations. But even if those sanctions remain in place, there are ways in which the US and Iran can structure their bilateral economic relations, opening new channels for trade and investment.

The heyday of US-Iran economic relations dates to the 1960s and 1970s. American firms like General Electric, General Motors, and DuPont played a central role in Iran’s industrialization, helping the country’s oil and manufacturing sectors achieve global prominence. Consumer brands like Gillette, Colgate, and Coca‐Cola were beloved by Iranian households.

The 1979 Islamic Revolution brought an end to diplomatic relations between the United States and Iran. That year, the US imposed sanctions targeting the Iranian economy for the first time. The New York Times reported on the exodus of American firms from Iran with a report titled, “Iranian Festival Is Over For American Business.”

But the change in Iran’s geopolitical and ideological orientation did not change a basic economic reality—the 1990s were an era of unipolarity and it was prudent to do business with the world’s largest economy. Iranian President Hashemi Rafsanjani tried to rekindle economic relations with the United States, believing that higher levels of trade and investment would help restore relations between the two countries. He offered the Islamic Republic’s first post-revolution oil field development contract to ConocoPhillips, maneuvering around domestic opposition to the deal. But the deal was blocked by the Clinton administration, which subsequently tightened US sanctions on Iran. The episode served as an early warning that the hardliners most capable of thwarting diplomacy were those in Washington, not Tehran.

American firms maintained a small presence in Iran in the early 2000s while European firms emerged as Iran’s preferred partners. The Europeans established joint ventures and wholly owned subsidiaries in the country and did brisk business. French oil giant Total took over the deal first offered to Conoco-Philips. French and German automakers retooled the Iranian automotive industry, making it one of the largest in the world. European brands flew off supermarket shelves as Iranian household purchasing power recovered on the back of 16 consecutive years of economic growth.

Iran’s economy hit a stumbling block in 2012 as the international community tightened international sanctions—with the measures hinging on President Obama’s unprecedented package of financial sanctions imposed at the start of that year. Subsequent nuclear negotiations focused on restoring Iran’s trade and investment ties with Europe, but the Obama administration did understand that enabling more trade between the US and Iran could create broader constituencies in Washington who backed the JCPOA, which was implemented in January 2016.

While primary sanctions remained in place after implementation of the deal, the JCPOA opened three pathways for US business that wished to pursue opportunities in Iran. First, certain US companies were able to apply for specific licenses from the Office of Foreign Asset Control (OFAC), part of the Treasury Department, permitting deals that would otherwise be blocked by primary or secondary sanctions. Among the contracts licensed in this way were the roughly $20 billion in deals Boeing negotiated for the sale of commercial aircraft to Iranian airlines, contracts that became symbolic of the nuclear agreement’s broader potential.

Many American companies took advantage of General License H, which stipulated that non-US subsidiaries of US companies could broadly engage with the Iranian economy. For example, Procter & Gamble, which ran its Iran operation out of its Swiss subsidiary, rapidly re-entered the Iranian market, where it could reliably generate over $100 million in annual revenue. American technology companies took advantage of a similar license called General License D-1 to export digital services to Iranian users.

Finally, American companies were even able to export to directly Iran without relying on a licensing regime if their sales were consistent with longstanding exemptions for humanitarian trade. Medical device companies like GE Healthcare and Baxter enjoyed bumper sales to Iranian hospitals. Pharmaceutical giants like Eli Lilly and Pfizer also increased sales, taking advantage of an opening in financial and logistics channels. American commodities giants like Cargill and Bunge sold wheat, sugar, and soybeans to Iranian buyers, including crops grown on American farms.

In short, American companies were making inroads in Iran as recently as eight years ago. It was President Trump’s unilateral decision to exit the Iran nuclear deal and reimpose secondary sanctions that brought an end to these renewed economic relations, leading to the cancellation of billions of dollars of contracts.

Immediately after Trump’s election, Boeing began to lobby the administration not to withdraw from the JCPOA—something Trump had promised to do on the campaign trail. The planemaker argued that the huge Iran contracts supported “tens of thousands of US jobs” and tried to appeal to Trump’s interest in reviving American industry. The appeals did not work. But it is easy to imagine Trump grasping benefits of a massive Boeing deal at this juncture, given the how darling of American industry has lost its shine. Demand for aircraft in Iran could also help compensate for the impact of Trump’s new China trade war on Boeing. Earlier this week, China banned the purchased of American aircraft, putting hundreds of Boeing orders in doubt.

The JCPOA experience makes clear that there was no prohibition in Iran against doing business with US companies. In fact, relations with the US nosedived after Trump’s abrogation of the nuclear deal, but some direct economic links persisted. Iran offered a lifeline for many American soybean farmers who were hammered during Trump’s first trade war with China. When China retaliated by ending the import of American soybeans, crashing the price, Bunge stepped in, delivering multiple cargoes of American-grown soybeans to Iran, even as Trump brought secondary sanctions back in force.

Clearly, a new nuclear deal could rekindle US-Iran economic relations. But the rebound in trade and investment will likely be modest unless there is a concerted effort by both the American and Iranian governments to make deeper economic relations a cornerstone of a new deal—especially if primary sanctions remain in force. Most American firms will be wary about entering the Iranian market given the inherent concerns that any deal between the two countries could break down, leading Trump to reimpose sanctions once again. Companies are also increasingly risk averse in the face of a volatile global economy. Leaving it to the private sector to singlehandedly realize the economic opportunities of the nuclear deal, the strategy taken back in 2016, is unlikely to work. Bilateral trade may rise from its low base, but investment will not materialize given risk perceptions, meaning there will be little in the way of shared incentives to bind the US and Iran together. A more structured plan for cooperation is needed.

Iranian negotiators are seeking structured cooperation, although their vision remains somewhat ill-defined. Reprising a demand from the talks that were undertaken with the Biden administration, Iranian negotiators continue to target some form of “guarantees” that would ensure the US cannot easily and costlessly withdraw from the nuclear deal while Iran remains in compliance with its obligations. Political and legal guarantees will have little weight. But deeper US-Iran economic cooperation can act as a kind of “technical guarantee” that serves to increase the credibility of the long-term commitments enshrined in any new nuclear deal.

Trump’s turn towards a decidedly “America First” economic policy might actually help Iran as it tries to find a win-win formula for economic cooperation that goes beyond increased purchases of American consumer goods, pharmaceutical products, and agricultural commodities. As economist Djavad Salehi-Isfahani has recently detailed in a review of investment data, Iran desperately needs to renew its capital stock and reverse a decade of technological regression. Meanwhile, the US is trying to rekindle domestic manufacturing of capital goods. The interests align nicely.

The economic commitments related to any new US-Iran nuclear deal should be structured to enable Iranian industrial giants to make major purchases of American-made capital goods—machinery, equipment, aircraft, and vehicles.

Iran’s capital stock is primarily European and was installed around 20 years ago, when European firms were making major investments in the country. But a significant portion of this machinery remains American in origin or design—a reflection of the fact that large parts of Iran’s industrial sectors have not been updated since the 1970s. Many turbines spinning in Iranian power plants and diesel locomotives chugging on Iranian rails are based on GE designs. Many drill heads used to bore oil wells are derivatives of Schlumberger designs—the Texas company’s former Iran subsidiary lives on. Another former American subsidiary, Iran Combine Manufacturing Company, was once called “Iran John Deere.” The company continues to produce trademark green and yellow tractors and combine harvesters—using American designs from 50 years ago. American engineers will find familiar technologies in use at Iranian industrial plants. Renovating and upgrading these facilities will be straightforward, especially given the incredible acumen of Iranian industrial engineers and technicians who will be eager partners.

Importantly, a surprisingly small portion of Iran’s capital stock is Chinese. Chinese exports of capital goods to Iran totaled $6 billion in 2023. But this is the same level as achieved in 2017, the last year that Iran enjoyed sanctions relief. Meanwhile, Chinese investment in Iran has languished under sanctions, plateauing since 2014. There are no major Chinese manufacturing investments in the country and Iran has not been able to substitute the loss of its European industrial partners with Chinese partners. That leaves a uniquely large and open market for American exporters—perhaps the last major economy in the world where the US could reasonably overtake China as an industrial partner.

Given the aligned interests of their respective industrial policies, the US and Iran should think ambitiously about the scope of their economic relations. Iranian firms will be eager customers for new machinery and equipment. Crucially, this kind of trade does not make Iran dependent on the US. Rather, it restores the strength and resilience of the Iranian industrial sector. Once capital goods are installed, they can last for decades—a kind of guarantee that the benefits of a US-Iran deal will last.

Finally, Iranian purchases of American equipment must be financed by American banks. This will make it more likely that the financial logjams associated with JCPOA sanctions relief will be solved. If US banks do business with Iran on Trump’s instructions, global banks will follow. Notably, Trump’s efforts to revitalize the Export-Import Bank could give American exporters access to crucial export credit, insurance, and guarantees.

Trump loves gold. If he remains pragmatic and focused when it comes to Iran, he could strike gold in several ways. He could forge the kind of nuclear deal Thomas Pickering once called the “gold standard for non-proliferation agreements,” once again subjecting Iran to the strictest IAEA verification regime ever devised. He could earn billions in export revenue for the US—and given the US is unlikely to import much Iranian oil—generate a rare trade surplus with a country that is poised to return to its position as one of the twenty largest economies in the world. Finally, if Trump is ambitious and if Iran’s leaders are courageous, he could finally earn the gold medal he has always wanted—a Nobel Prize.

Photo: The White House

Iraq Begins to Adjust to Syria’s Post-Assad Reality

On Friday, Iraqi Prime Minister Mohammed Shia al-Sudani met with Syrian President Ahmad al-Sharaa in Qatar—their first encounter. The meeting placed regional security at its core. Talks focused on border control and counterterrorism and shared concerns over instability along the Iraqi-Syrian frontier. 

The collapse of Bashar al-Assad's regime in Syria in early December 2024 ushered in a new geopolitical reality for the Middle East. Syria’s neighbours, such as Iraq, have been prompted to reassess their approach to Damascus. While Baghdad had no deep affinity Assad, the Assad regime at least provided a degree of predictability while also maintaining close ties with Iraq's strategic partner, Iran.

In this new era, the rise of Syria's interim President, Ahmad al-Sharaa—a former al-Qaeda militant in Iraq—has sparked some alarm among Iraq’s security establishment. Iraq's stance on Syria is shaped by its own civil war experience, when cross-border militancy exacerbated sectarian tensions and fueled years of conflict.

Today, Iraqi officials fear that renewed instability in Syria could provide fertile ground for an Islamic State (IS) resurgence, jeopardising Iraq's already fragile security situation. Securing Iraq’s 600-kilometer border with Syria remains the top priority in the midst of ongoing challenges such as cross-border smuggling, extremist infiltration, and refugee flows. At the same time, Baghdad must assess if Syria’s new leadership can be reliable partners and whether deeper political and economic cooperation can be pursued.

In the immediate aftermath of Assad’s departure, Iraq’s leadership adopted an approach of measured pragmatism. Rather than rushing into full diplomatic engagement like several other Arab states, policymakers in Iraq opted for a security-first strategy. This entailed dispatching intelligence officials to Damascus and extending a cautious invitation to Syria’s new foreign minister for talks in Baghdad. Prime Minister al-Sudani reaffirmed Iraq’s commitment to Syria’s sovereignty while swiftly moving to reinforce border security.

The hesitation among Iraq’s leadership reflects both uncertainty over the stability of Syria’s new government as well as internal political debates over normalising diplomatic relations. Al-Sharaa’s past ties to jihadist networks in Iraq has prompted unease. His record is especially sensitive in Baghdad, given the Al Qaeda’s role in orchestrating sectarian atrocities during the 2006-2007 civil conflict.

Having endured a grueling counterinsurgency campaign against IS from 2014 to 2017, and still facing monthly attacks by IS sleeper cells, Iraq remains deeply wary of any potential spillover that could revive insurgent networks within its borders. The continued porousness of the Iraq-Syria border remains a primary vector for IS mobilisation, heightening Baghdad’s concerns.

In the lead-up to the meeting between Sudani and al-Sharaa, Iraq’s initial steps towards engagement with Syria focused on security coordination. In late December 2024, Baghdad repatriated 1,905 Assad-era soldiers who had fled across the border. Around the same time, Iraq’s National Intelligence Director, Hamid al-Shatri, was dispatched to Damascus for talks with Syria’s transitional government, focusing on counterterrorism and intelligence-sharing.

A central issue on the agenda was the al-Hol detention camp, which holds over 40,000 IS-associated detainees—many of them Iraqi nationals—amid deteriorating security conditions. The continued instability in northeastern Syria, where IS remnants remain active, coupled with the uncertain future of the US-backed Syrian Democratic Forces (SDF), pose an immediate risk that Baghdad cannot afford to ignore.

The 10 March 2025 agreement between Damascus and the SDF, which outlines a framework for the eventual integration of Kurdish forces into Syria’s national security apparatus, represents another critical variable in Iraq’s evolving defence calculus. Baghdad is closely monitoring how the deal unfolds, particularly its implications for Kurdish armed groups operating along the Iraq-Syria border. While security officials in Iraq see the agreement as a potential step toward stabilising the area, they remain wary that unresolved tensions between the SDF and Turkish-backed factions could trigger further conflict, with possible spillovers into Iraqi territory.

Damascus has responded with public commitments to closer coordination and has agreed to expand joint counterterrorism efforts. This message was reinforced during Syrian Foreign Minister Asaad al-Shaibani’s first official visit to Iraq in mid-March 2025. During the visit, Shaibani called for the restoration of formal border operations and described enhanced bilateral trade as a priority. 

He also underlined Syria’s readiness to cooperate with Iraq against remnants of IS, framing national safety as a “shared responsibility.” Baghdad, for its part, expressed respect for the Syrian people’s political choices while urging Damascus to ensure the safety of Syrians residing in Iraq. This was motivated by rising tensions following acts of violence targeting Syria’s Alawite minority. Syria’s new leadership has also signalled interest in rejoining regional forums and hinted at deeper future engagement. Nonetheless, it is likely to prioritise security coordination and economic lifelines as initial steps in its post-Assad foreign policy.

Discussions reportedly included the potential reopening of formal border crossings to bolster trade and economic ties, though no official confirmation has been issued. Prime Minister Sudani also extended an invitation to al-Sharaa to attend the upcoming Arab League Summit in Baghdad on 17 May 2025, which would mark Syria’s first participation since Assad’s fall. The encounter underscores both countries’ interest in renewing coordination while also highlighting Qatar’s expanding role as a facilitator of regional dialogue.

Though no formal security pact exists between the two states, the Iraq government has taken proactive steps to fortify its defences. Additional units from the Popular Mobilisation Forces (PMF) have been deployed to reinforce Iraqi Armed Forces positions along the border, aiming to prevent militant infiltration. Iraq has also stepped up its border control operations, targeting smuggling networks and intensifying surveillance of cross-border movements—measures deemed crucial for curbing terrorist activities and illegal trade.

A further issue shaping Iraq’s relationship with Syria is the illicit narcotics trade, particularly the trafficking of Captagon pills, which has long been a highly lucrative industry linked to Syria. Iraqi authorities have escalated anti-smuggling efforts, resulting in several major drug seizures in recent months. These efforts reflect not only Baghdad’s commitment to combating organised crime but also its broader apprehension over how Syria’s new government will handle such networks.

While Iraq’s security forces have intensified enforcement measures, it remains unclear whether Syria’s transitional leadership will actively cooperate in dismantling the entrenched drug trade that flourished under the previous regime. For decision-makers in Iraq, tackling the Captagon crisis is not merely a matter of law enforcement; it serves as a litmus test for the credibility of Syria’s new leadership in managing governance and perimeter control.

Beyond defence issues, Iraq is also entangled in Syria’s unfolding humanitarian crisis. With over 270,000 Syrian refugees residing in Iraq, the government has initiated discussions with Damascus on the possibility of voluntary repatriation. Yet, given Syria’s fragile political transition, the feasibility of such efforts remains highly uncertain. 

Iraq has also expanded its humanitarian aid to Deir ez-Zor and other northeastern Syrian regions, recognising that stabilising these areas is not only a moral imperative but also a strategic necessity to prevent them from becoming breeding grounds for renewed insurgency. Still, the extent of Baghdad's direct involvement in Syria's reconstruction remains ambiguous as the Iraqi government carefully weighs the financial and political risks of committing to more substantial interaction with its fragile neighbour.

While security and political apprehension dominate the immediate landscape, Iraq’s long-term interests in Syria extend to broader economic and infrastructural considerations. The reopening of trade corridors, enhancement of cross-border infrastructure, and development of joint energy projects remain possibilities, but these initiatives all hinge on the stabilisation of Syria’s internal situation. The Iraqi government is closely monitoring whether Damascus can establish a functional administrative and legal framework capable of supporting such cooperation.

Despite deep historical and economic ties between the two countries, reviving meaningful economic connectivity remains a long-term goal rather than an immediate priority. Some Iraqi officials have floated the idea of restoring the long-defunct Kirkuk-Baniyas oil pipeline, which could provide the country with a valuable Mediterranean export route. However, the project remains highly speculative due to political uncertainties and infrastructural constraints. The mutability of post-Assad Syria, combined with an unclear regulatory environment, makes any large-scale economic venture premature at best.

Similarly, Iraq has historically been a key trading partner for Syria, particularly in sectors such as agriculture, pharmaceuticals, and textiles. Yet current trade volumes remain limited, constrained by logistical hurdles, sanctions-related restrictions, and widespread uncertainty regarding Syria’s economic trajectory under its new leadership. Until greater political and security clarity emerges, Baghdad is unlikely to pursue major cross-border infrastructure projects or economic initiatives with Damascus.

Dialogue between Iraq and Syria does not occur in a vacuum. It is heavily influenced by broader regional dynamics, particularly the actions of Iran, Turkey, and the United States. Tehran, which has long been reliant on both Iraq and Syria as strategic buffers and conduits to the Mediterranean, is recalibrating its approach following Assad’s fall. Iran-aligned factions within Iraq’s Popular Mobilisation Forces (PMF), some of which fought alongside Assad’s forces, are navigating a complex transition. While some have cautiously opened channels with Syria's new leadership, others remain sceptical, wary of the new rulers’ Sunni Islamist orientation.

Turkey’s growing presence in northern Syria adds further complexity to Iraq’s calculations. Ankara’s confrontations with the SDF, its broader regional ambitions, and its evolving posture in Kurdish affairs should all factor into the Iraqi government’s strategic planning. 

Recent peace overtures between Turkey and the Kurdistan Workers’ Party (PKK) have also raised questions about Kurdish dynamics across the Iraq-Syria border. Iraqi-Kurdish factions are monitoring these developments closely, as any shifts in Turkey’s Syria policy could directly impact their own force readiness and political leverage.

Meanwhile, the uncertain future of US policy in Syria also weighs heavily on decision-makers in Iraq. While American forces continue counterterrorism operations in northeastern Syria, primarily in coordination with the SDF, the long-term sustainability of this presence remains in doubt. A potential US drawdown—currently projected for September 2025—could have significant repercussions for Iraq. Should Washington scale back its commitment, a resulting security vacuum could embolden IS remnants, compelling Iraq to step up its border control efforts to prevent the instability from spilling over. 

For now, Iraqi officials are expected to continue pursuing a phased, security-first approach when it comes to relations with Syria. As regional actors, including Turkey, Iran, and the United States, readjust their positions on Syria, Iraq must carefully navigate its own path, ensuring that its national security remains the cornerstone of its Syria policy.

The trajectory of Iraq-Syria relations in the coming months will hinge on whether Syria’s new leadership can establish stability, contain security threats, and lay the groundwork for meaningful regional cooperation. Until then, Iraq’s engagement is expected to remain cautious, pragmatic, and primarily focused on safeguarding its own frontiers.

Photo: Getty Images

Prospects for Syrian Civil Society Remain Dim While Sanctions Linger

Last month, Syrian civil society actors, sanctons experts, and European officials gathered in The Hague to assess the role of sanctions in Syria’s political and economic transition following the fall of Damascus to Hayat Tahrir al-Sham (HTS). During a one-day workshop co-hosted by the Bourse & Bazaar Foundation and the Clingendael Institute, participants discussed how Western sanctions policy should be adjusted to alleviate Syria’s desperate economic situation. The gathering focused on ensuring meaningful support to local institutions and civil society, with the ambition of preventing the country from spiraling into renewed conflict. 

Syria remains under multiple overlapping sanctions regimes led by the United States, the European Union, and the United Nations. These measures—originally designed to pressure the Assad regime—now inhibit economic recovery, reconstruction, and institutional reform, even though the political landscape has shifted.

The US regime, shaped by the Caesar Act and counterterrorism designations of HTS, is the most comprehensive and extraterritorial. General License 24, set to expire in July 2025, provides narrow exemptions focused on essential services but does not allow for new investment or broader engagement. The EU has taken steps to suspend sanctions on key sectors, including energy and transport, yet the extraterritorial effect of US sanctions limits the impact of EU moves. The UN still lists HTS under its 1267 regime, restricting international financial and diplomatic engagement.

While the legal frameworks differ, the overall effect is similar: financial institutions, aid agencies, and the private sector are reluctant to engage in Syria, fearing compliance risks and political fallout.

Participants described the Syrian economy as being in a state of accelerating collapse, with deteriorating civil services, soaring unemployment, and households struggling without purchasing power. The destruction of infrastructure, ongoing currency depreciation, and the withdrawal of Russian and Iranian economic support have compounded the crisis. Streets in Damascus are flooded with cheap Turkish imports that Syrians cannot afford. Even in now stable areas of the country, public utilities and services—electricity, water, telecommunications, education—are barely functional.

Against this backdrop, humanitarian needs are escalating, yet aid pledges remain grossly inadequate. According to estimates, Syria’s reconstruction needs range between $250 and $400 billion, while the March 2025 Brussels donor conference resulted in pledges amounting to just $6.5 billion. Even early recovery and resilience programming—technically permissible under many sanctions frameworks—remains underfunded and politically delayed.

Despite the continued implementation of sanctions, participants noted that the international donor community is not entirely constrained from engaging with Syria. Under existing exemptions and mandates, there are already pathways for supporting essential services, infrastructure rehabilitation, and early recovery efforts—particularly when these activities are framed as humanitarian or development aid. According to one workshop participant, the World Bank has confirmed that it can support infrastructure and basic services in Syria under its post-conflict operational framework. However, meaningful engagement still depends on greater clarity and political alignment from member states. If expanded and adequately resourced, the Bank’s early recovery programs could offer a critical lifeline to communities even in the absence of full-scale sanctions relief.

Failure to lift or ease sanctions will prevent private sector and institutional investment that is essential for rebuilding the Syrian economy. But failure to increase aid, even under the current legal frameworks, ensures continued suffering, deepens instability, and risks the re-emergence of violence, organised crime, and extremism.

A central theme in the discussions was the counterproductive reliance on political benchmarks—such as inclusivity, constitutional reform, and governance transformation—as preconditions for sanctions relief. While these conditions seem sensible, they have triggered a rushed and top-down political process in Syria that many civil society organisations (CSOs) described as inorganic and externally driven.

For example, the national dialogue conference was announced to many of its intended participants with less than 24 hours’ notice. Consultations were limited in scope and representation, with key civic figures and regions underrepresented. Similarly, the interim constitution was drafted in just weeks, concentrating power in the executive, offering minimal separation of powers, and making vague commitments to pluralism.

HTS has made symbolic gestures to show its commitment to inclusive governance, such as appointing technocrats and making deals with Druze, southern militias, and Kurdish factions. Civil society actors view these many of these moves as superficial and tailored to meet donor expectations rather than domestic realities. Many warned that the political process risks collapsing without parallel efforts to restore economic viability and institutional functionality.

Moreover, the current sanctions framework often fails to distinguish between political conditionality and humanitarian necessity. As one participant remarked, “you cannot expect people to fight for democracy when fighting for food.”

Syrian civil society actors at the workshop identified several priorities for supporting an inclusive and grounded transition. Chief among them was the need for clearer guidance on sanctions and access to channels for clarification from relevant authorities. Many CSOs, especially those returning from abroad, are eager to establish offices in Damascus but face significant challenges due to legal uncertainties and the degraded infrastructure. Establishing local operations is constrained by the lack of electricity and internet access in particular, two utilities affected by sanctions.

Participants also emphasised the importance of providing training and technical support to ensure compliance with evolving sanctions frameworks, especially around financial procedures and institutional engagement. Access to dedicated funding with simplified disbursement processes, along with protections against bank over-compliance, was also flagged as essential.

In addition, CSOs called for increased support for local governance and service delivery, including civil servant salaries and early recovery programmes. They urged international actors to move away from a narrow focus on minority protection and instead promote a shared civic rights agenda. Finally, participants highlighted the need for more unified CSO advocacy efforts to engage international partners with a coherent voice representing diaspora and in-country actors.

Without these resources, CSOs will struggle to play a meaningful role in Syria’s constitutional reform, local governance, or transitional justice efforts. The current imbalance between international expectations and the limited capabilities of civil society risks undermining its legitimacy—not only in the eyes of donors, but also among ordinary Syrians. When CSOs are unable to address pressing socioeconomic needs like livelihoods, essential services, and infrastructure, they can appear ineffective or disconnected from the reality on the ground. As one participant noted, if civil society is perceived as focused solely on political processes while daily conditions worsen, public trust and relevance may quickly erode.

In response to these concerns, participants proposed a set of actionable steps for international actors to align sanctions policy with Syria’s evolving circumstances. For the United States, the immediate priority is to make General License 24 permanent and broaden its scope to include investment and infrastructure-related activities. Participants also urged Washington to remove HTS’ designation as a Foreign Terrorist Organisation (FTO) while maintaining its listing as a Specially Designated Global Terrorist (SDGT), at least for now. This modest move would reduce the legal risks associated with engagement while preserving necessary safeguards for the population. Alongside these steps, it was suggested the US should issue more explicit guidance on permissible engagements in Syria—such as FAQs or advisory notes tailored to humanitarian and development actors—to reduce uncertainty and risk aversion.

While the European Union has gone further than the US in suspending sanctions, it still plays a key role. Participants noted that the EU’s suspension of sectoral sanctions, enacted in February, is effectively permanent, but called for an outline of a transparent roadmap towards full sanctions removal. Additionally, they recommended launching an EU-led reconstruction trust fund that is both insulated from US financial jurisdiction as well as open to co-financing from Gulf states and multilateral actors. Restoring a diplomatic and technical presence on the ground would also assist the EU in monitoring developments in Syria, ultimately supporting a more credible political and economic transition. 

Crucially, the EU must actively encourage the United States to take bolder and more decisive steps. Without parallel US action, the efficacy of EU measures remains limited, especially given the extraterritorial scope of American sanctions.

Recommendations for the UN mainly focused on unlocking key legal and diplomatic barriers. Participants called for a review of HTS’s designation under the 1267 regime, taking into account its public disavowal of ties to al-Qaeda and ongoing coordination against the Islamic State. The UN Special Envoy should be mandated to engage the new Syrian authorities to negotiate specific steps toward delisting or, at a minimum, time-bound exemptions aligned with transitional goals. Furthermore, the implementation of UNSCR 2664—which establishes humanitarian carve-outs across all UN sanctions regimes—should be actively promoted and incorporated into member state legislation to improve operational clarity and access for aid providers.

The workshop underscored the sobering reality that Syria’s future depends on concrete steps from the international community to ensure a successful political transition, economic recovery, and reconstruction. Maintaining rigid conditionality while under-delivering on aid and sanctions relief will neither foster inclusive governance nor prevent future conflict. Policymakers must realign their tools with the current realities—pairing cautious diplomacy with tangible economic support and giving civil society the space and resources to lead. As one participant put it, “sanctions might have been a tool to shape Syria’s future. Today, they are part of what’s preventing it.”

Photo: Ahmed Akacha

As Corporate America Makes Green Retreat, GCC Firms Should Hold the Line

Corporate America is undergoing a “great green retreat,” undermining the momentum that climate finance has built in recent years. Concurrently, President Donald Trump’s administration had dealt a final blow to America’s global climate finance ambitions. The dismantling of public US entities, such as USAID—which collaborates with private American firms on global climate initiatives—has further dampened private sector interest in the field. As a result, several American multinational enterprises have begun deprioritising their climate goals, including scaling back on ESG commitments and other climate-related initiatives. 

In contrast, climate finance has been gaining traction in the Gulf region, with the United Arab Emirates (UAE), Saudi Arabia, and Qatar emerging as regional leaders. They have been investing in climate finance not just domestically but also internationally, particularly in the Global South. Consequently, US firms have been among the main drivers and partners in GCC climate initiatives until now.

The GCC states have long maintained longstanding relationships with American entities, including in areas such as renewable energy and climate-smart agriculture—an approach that boosts agriculture while considering climate adaptation and mitigation. US-GCC collaboration in the climate sphere is consistently developing, with the US being recognised as a key supporter. This partnership has not only helped GCC states meet their climate goals but has also opened markets for US-based firms. However, shifts in US policy will potentially offset the GCC’s plans and ambitions in the field.

Additionally, GCC countries have issued various green bonds, which are essentially fixed-income financial instruments that raise funds for climate-beneficial projects. The green bond market has experienced a recent boom, increasing from $600 million in 2021 to $8.5 billion in 2022. This surge highlights the sudden rise in interest and demand for sustainable finance in the Gulf.

With the US retreat, there will be a gap in climate financing which will need to be filled, ideally by those countries whose interests are most threatened by this prospect. In this context, the GCC states should prioritise diversifying their climate finance partnerships, especially in emerging markets, to expand their presence, and influence in the global climate finance landscape. The GCC countries, particularly the Gulf 3—UAE, Saudi Arabia, and Qatar—must also look inward, focusing on their own climate finance policies, and implementing new approaches to attract private ESG investors. By doing this, they should ultimately make the climate finance atmosphere in the region more resilient and impactful in the long-term. 

In recent years, GCC countries have demonstrated their strength in fostering partnerships with countries around the world across various sectors. Now, as one partner retreats, another steps forward. Other global powers may see the American withdrawal as an opportunity to capitalise on and establish themselves as more prominent leaders in the industry. For instance, China, which is not far behind the US in terms of climate finance, has already been actively forming partnerships with GCC countries in this space.

Examples include ACWA Power’s collaboration with Chinese manufacturers to supply wind turbines for the Bash and Dzhankeldy projects in Uzbekistan. Additionally, UAE-based Mensha Ventures has partnered with Chinese companies to invest $1 billion in clean technologies in Asia. This trend indicates the growing opportunities for cooperation between the GCC and China in the realm of upcoming climate finance plans.

At the same time, the GCC is also expanding its partnerships with the European Union. While the EU is also very focused on climate initiatives, it has been more limited compared to the US. Despite the EU’s ongoing collaborations with the GCC, the depth of their relationships are not equal. With climate change being less politicised in the EU than in the US, increased EU-GCC partnerships could provide more stable and reliable avenues of investment and growth. 

In November 2024, during the first EU-GCC Summit in Brussels, there were calls from leaders on both sides for stronger collaboration in climate finance and investments, identifying many potential areas for knowledge sharing and collaboration. GCC countries stand to benefit from the expertise of institutions such as the European Bank for Reconstruction and Development in financing renewable energy projects. Furthermore, the EU is well-positioned in carbon market cooperation, as a global leader in this field, to pave the way for the GCC who is also interested in mobilising funds for climate finance in emerging economies.

Presently, the GCC has invested in climate finance initiatives and projects globally, from Bangladesh to Central Asia, from North to Sub-Saharan Africa, and beyond. However, it could be argued that the GCC could better leverage its platform for economic integration to better support climate finance. For instance, Saudi Arabia has invested over $25.6 billion in Sub-Saharan Africa alone over the past decade, building a strong foundation to incentivise expansion in climate finance in the region. Additionally, the UAE has invested over $3 billion in India during the 2023-2024 fiscal year, making it the largest Middle Eastern investor in South Asia. GCC investments in Asia also extend to ASEAN countries, with $13.4 billion invested between 2016 and 2021, and recent discussions on an ASEAN-GCC trade agreement further cementing GCC investment in the region. 

Although these investments may not explicitly fall within the realm of climate finance, they can serve as a stepping stone. If ongoing GCC economic investments and partnerships are redirected toward climate-related initiatives, they could make impactful contributions to the industry. Economic cooperation through strategic partnerships and financial mechanisms can mobilise great resources for climate action. For the GCC, this foundation is already in place, as discussions have consistently highlighted that financial policies aligned with climate goals can foster sustainable economic growth alongside climate resilience. To address the gap left by the United States, GCC states must align their collaborations across the Global South with clear climate objectives. 

GCC climate investments across the Global South create a win-win situation for both parties. They present an opportunity for GCC countries to support their economic diversification efforts as climate related projects in emerging markets can result in monetary gains, such as through investments in renewable energy and the energy transition. These investments can also help GCC states fulfil their own climate goals, such as their investment in Africa’s agricultural sector, which supports the GCC’s own climate resilience and food security objectives. 

In tandem to external action, GCC countries must leverage to their domestic resources to compensate for the loss of American green investments and foster regional climate finance initiatives. Across the Gulf, there is a need for more private green investments. While sovereign wealth funds have been successful in attracting investment for climate finance and accelerating climate action, reliance on a primarily state-driven approach acts as a limitation. Integrating private investment in the field attracts capital with proven cash flow potential and innovations, resulting in a synergistic approach that leverages the strengths of both private and public sectors to contribute to the field. 

A key way for governments to attract more green private investment is by establishing clear regulations. This clarity, in turn, increases investor confidence and attracts further investment. Although various ESG frameworks have been implemented, issues such as regulatory uncertainty persist. Organisations in Saudi Arabia, the UAE, and Qatar lack harmonised, standardised reporting frameworks, which has hindered the attraction of more private green investment. For the GCC, this means that the development of a GCC-wide framework focused on climate finance, incorporating a unified and comprehensive set of guidelines, standards, and best practices would be paramount. 

For GCC climate finance, the US withdrawal can be seen as a setback due to America’s prominent influence in the field. However, both inward and outward strategies present an opportunity for the GCC to capitalise on this moment. GCC states must create more accommodating conditions for climate related initiatives, and leverage their economic and political influence in the Global South to expand their climate finance reach. Such measures in the industry present a critical opportunity for the GCC states—the actions they take now will determine their future standing in global climate finance.

Photo: ACWA Power

To Avoid a Currency Crunch, Iranian Automakers Are Trading Nuts for Bolts

In a typical year, 10 out of every 100 dollars that Iran spends on Chinese goods goes towards car parts. While the China-Iran trade relationship has languished under sanctions, China has remained a critical supplier for the Iranian automotive industry, which continues to produce over one million automobiles annually.

But over the last year, Iranian automakers have struggled to keep the parts flowing. Parts imports from China totalled $653 million in 2024, a precipitous 43 percent decline when compared to the previous year.

The fall in imports has led to a shortage of car parts in Iran, with consumers facing long wait times and soaring prices. The impact has been most acute for Iran’s private sector automakers, who mainly assemble cars using complete knock-down kits imported from China. Whilst Iran’s state-owned automakers are supported by a large ecosystem of domestic parts manufacturers, private-sector automakers remain heavily dependent on Chinese imports to keep their customers’ cars on the road.

The main cause for declining imports has been a lack of access to foreign currency, a consequence of US secondary sanctions restricting Iran’s banking relations with China. Even though Iranian oil exports to China have rebounded in recent years, they have not alleviated Iran’s foreign exchange crisis. Iranian companies seeking to import goods from China have struggled to receive timely allocations of renminbi through the Central Bank of Iran’s foreign exchange market.

As the currency bottleneck grew tighter over the course of 2024, imports continued to fall, and by the summer, the situation was being described as a “crisis.” In September, imports of car parts from China hit a nadir, with just $26 million worth of parts departing for Iran that month—a 65 percent year-on-year drop.

The outlook for the Iranian automotive industry looked dire until Iranian automakers stumbled upon an unexpected solution. In need of a new source of renminbi, many Iranian automotive firms turned to the pistachio business. Like oil, pistachios are a valuable commodity in which Iran is a world-leading producer. Unlike oil, pistachios are exempt from secondary sanctions.

Iranian automotive companies began purchasing pistachios from growers and leveraging their logistics networks to ship them to China. As a result, Iranian pistachio exports to China quickly surged to historic highs, enabling a modest recovery in car parts imports. In the last six months of 2024, Iran exported $195 million worth of in-shell pistachios to China—more than 2.5 times the volume achieved in the same period in 2023.

Pistachio growers and wholesalers, however, were not happy. Many Iranian pistachio wholesalers had given up on exports—leaving the Chinese market open to new entrants. The requirement to repatriate export earnings through the centralised foreign exchange market made margins unattractive for many agricultural firms. But for automotive companies, profit from pistachio sales was never the primary objective. Selling nuts provided a quick way for them to earn the foreign currency they needed to import car parts, which could then be resold in Iran at much higher margins. By October, industry leaders were complaining of “chaos in Iran's pistachio trade” as automakers turned into “inefficient competitors of Iran's real pistachio exporters.”

Pistachio exporters are reportedly seeking an understanding with the automakers who edged onto their turf. They plan to sell their foreign currency to automakers at a rate agreed with the supervision of the Central Bank of Iran, ensuring sufficient margins to incentivise them to prioritise exports once again.

Sanctions have not crushed the Iranian economy, but they have made pistachios more valuable than oil, forced importers to become exporters, and pushed automakers into competition with farmers. In adapting to sanctions pressure, the solution to one crisis can beget another, leaving a country trading nuts for bolts.

Photo: IRNA

Uzbekistan’s President Hopes a Decree Will Spur Green Economic Growth

In November last year, during the parliamentary meeting of the Oliy Majlis, Uzbekistan’s legislature, Uzbek President Shavkat Mirziyoyev proposed that 2025 would be the “Year of Environmental Protection and the Green Economy.” He emphasised that the strategic goal of “New Uzbekistan” is to achieve environmental sustainability and economic growth by transitioning to a resource-efficient, green development model.

Each year since gaining independence, the Uzbek president has issued a decree on the eve of Constitution Day, observed on 8 December, setting the strategic priority for his administration for the coming year. These decrees generally reflect development priorities, as reflected in the Year of Support for Youth and Business (2024), Year of Development of Science, Education and the Digital Economy (2020), Year of Active Investments and Social Development (2019), and so on. While not all goals are fully achieved within a given year, these decrees provide a foundation for advancing the country’s socioeconomic development by setting out a framework for further legislation and policy formation at various levels of government.

As the most populous country in Central Asia with 37 million inhabitants, Uzbekistan faces pressing environmental challenges, including water shortages, soil erosion, desertification, and air pollution. The ongoing Aral Sea crisis, for instance, remains the country’s most significant ecological disaster, affecting not only Uzbekistan but also its neighbouring countries. While Uzbekistan has made strides in economic modernisation in recent years, environmental policy has often lagged behind. 

Declaring 2025 as the Year of Environmental Protection and the Green Economy signals a shift toward making sustainability a central development priority. A successful implementation of this year's decree will determine whether the country can transition to a low-carbon economy, improve resource efficiency, and enhance climate resilience—aligning with global commitments such as the UN Sustainable Development Goals and the Paris Agreement.

The 2025 programme aims to improve the country's environmental situation by focusing on several areas of intervention. The main objectives of the decree are community-level initiatives, such as creating green spaces, encouraging technical assistance to reduce emissions, and attracting financing for large projects. 

In terms of community-level initiatives, the decree emphasizes public engagement by linking health and lifestyle improvements to its environmental vision. For example, the programme promotes a national movement for “green families,” encouraging environmental stewardship alongside healthy eating, daily physical activity, and the use of eco-friendly transportation. This holistic approach aims to cultivate an eco-conscious culture, ensuring that residents actively participate in and benefit from the country’s environmental transformation efforts.

Equally important is technical assistance to reduce emissions, which is critical given Uzbekistan’s current reliance on fossil fuels and outdated industrial practices; these factors exacerbate air and water pollution, undermine public health and economic productivity.

Complementing these efforts, securing funding for large-scale projects is essential for modernising infrastructure and expanding renewable energy technologies. This, in turn, supports sustainable economic growth, generates new job opportunities, and reduces vulnerability to environmental shocks. Together, these initiatives form a comprehensive strategy that balances immediate community-level improvements with the broader systemic changes necessary for a resilient and sustainable future.

Small projects have also been underway, spurring forward the goals outlined in the state programme. This has included a tree-planting campaign organised by the Ministry of Ecology, Environmental Protection, and Climate Change in cooperation with the Zamin International Public Foundation, held on 19 March 2025. The Oxygen Park Project was developed as part of the national Yashil Makon ("Green Space") initiative to enhance Tashkent’s greenery, create a favourable environmental setting, and improve recreational spaces for residents and visitors. Projects like this one demonstrate how the decree seeks to mobilise support for grassroots projects while also securing investment for wide-reaching impacts, such as advancements in renewable energy.

If administered successfully, the initiative will not only continue to expand urban green spaces but also enhance the overall ecological aesthetic of neighbourhoods through improved street landscaping and the development of “shaded walking streets” where trees and greenery are strategically planted. These measures aim to provide residents with accessible recreational areas, reduce urban heat, and improve air quality.

In recent years, Uzbekistan has already been actively working to reduce its carbon footprint by developing green energy and implementing energy-saving technologies in cooperation with companies such as Masdar and ACWA Power. As part of the state programme, the share of renewable energy sources out of total electricity generated is set to increase significantly to 26 percent. To achieve this, 16 new green power plants with a total capacity of 3.5 GW will be launched, alongside the construction of hydroelectric power stations with a combined capacity of 160 MW.

Additionally, the programme plans to install small solar panels in 35,000 households and 27,000 private and social facilities. By the end of 2026, 3,000 small hydropower plants with a combined capacity of 164 MW are set to be constructed. A key step in advancing the ‘green’ economy will be the introduction of special tariffs for electricity generated from solar and wind power, as well as waste utilisation, starting from 1 April 2025.

To support these efforts, significant investments are expected, with the state programme explaining how the government plans to take measures from 2025 to attract concessional loans and grant funds to support green and low-carbon development projects from international financial institutions and investment banks. Up to EUR 200 million will be gradually attracted from the European Bank for Reconstruction and Development, while the World Bank will provide USD 10 million to help reduce methane emissions in the energy sector. Additionally, the Korea International Cooperation Agency, through the Global Green Growth Institute, will contribute USD 6.5 million in technical assistance to enhance green cooperation between Uzbekistan and Korea. Under the World Bank’s iCRAFT project, USD 7.5 million will be secured to support the reduction of 500,000 tons of greenhouse gas emissions. Furthermore, the German Society for International Cooperation will invest EUR 20 million to promote industrial greening and reduce harmful gas emissions from nitric acid production facilities.

Beyond the year-long government scheme, Uzbekistan is already taking noteworthy steps to position Central Asia as a key hub for the development of a green economy and clean energy, particularly in solar and wind power. Each year, Uzbekistan commissions about 2 GW of new solar and wind generation capacity, contributing to the region’s efforts to develop sustainable energy infrastructure. Though, additionally, one major initiative is the revival of the Great Silk Road through regional energy interconnectivity, linking Central Asia, the Caucasus, and Europe via a unified energy corridor. A recently signed multilateral agreement with Kazakhstan and Azerbaijan at COP29 will enable the export of renewable electricity through the Middle Corridor, with Azerbaijan constructing an undersea cable along the Black Sea to connect to Europe. This initiative will establish reliable transmission routes for environmentally friendly energy, further strengthening Uzbekistan’s role in the global energy transition. 

Another major initiative is a large-scale environmental restoration project designed to mitigate the effects of climate change. This includes establishing 100,000 hectares of green zones on the dried seabed of the Aral Sea and expanding forested areas in the Aral region to 2.1 million hectares. Given the profound environmental and socio-economic impacts of the Aral Sea crisis on its littoral states, this initiative is a crucial step towards regional ecological recovery and long-term sustainability.

Yet, for a country rich in natural resources, significant challenges remain. This includes resistance from traditional energy sectors reliant on fossil fuels and concerns over the financial burden of large-scale green investments. Uzbekistan ranks 11th globally in natural gas production and 14th in reserves, making it crucial to balance fossil fuel export interests with energy transition efforts. The challenge lies in balancing the energy transition and green economy measures with its interests in the fossil fuel trade, where a strategic approach is needed to leverage existing energy assets while investing in renewable alternatives 

Promisingly, previous decrees, such as the Year of Active Investments and Social Development, which took place in 2019, appear to have delivered tangible results. That year, the value of foreign direct investment reached  $4.2 billion, more than tripling the previous year’s total. The share of investment in GDP rose to 37 percent, also reflecting substantial growth. Additionally, Uzbekistan secured its first international credit rating and successfully placed $1 billion in bonds on the global market. While the decree may not have been solely responsible for these economic outcomes, it nonetheless helped direct the focus of relevant government ministries and agencies.

Translating the 2025 ambitions into tangible results will require sustained political will and transparency, particularly from government agencies responsible for policy execution. President Mirziyoyev has been a key advocate for the green transition, backed by institutions such as the Ministry of Ecology, Environmental Protection, and Climate Change. 

In this regard, the declaration of 2025 as the Year of Environmental Protection and the Green Economy may build a foundation for energy transition and sustainable development. By institutionalising environmental priorities, the government is signalling its intent to balance economic growth with sustainable development.

Photo: Uzbekistan Presidential Administration

Gulf States Offer Development Assistance in Central Asia as Western Donors Step Back

Recently, bilateral and multilateral relations have intensified between the five Central Asian republics and the six member states of the Gulf Cooperation Council (GCC). In addition to a surge in diplomatic visits and meetings at the state level, there are also signs of increasing GCC investment plans in Central Asia. This is accompanied by growing people-to-people and business  contacts; operators report a rise in travel between the two regions, while experts highlight the GCC as a potential labour migration destination for Central Asian workers. 

Against the backdrop of a seemingly encouraging overall picture, it is also important to consider development assistance. In Central Asia, Kazakhstan, and Turkmenistan are upper middle-income countries, with Kyrgyzstan, Tajikistan and Uzbekistan being lower middle-income countries. The latter three Central Asian republics receive development assistance to a larger extent, while Kazakhstan has started developing its own development agency. Nonetheless, all five countries remain assistance recipients. 

Traditional development assistance providers are based in the Global North, particularly among Western states. As such, many of the world’s leading development actors, such as the United Kingdom and France, are also former colonial powers. This often raises debates on how to approach aid and ensure historical injustices are addressed. So-called ‘new development assistance’ includes recently emerged major economic powers, who have received development aid themselves in the past, including China, India, and Brazil, among others. 

The GCC states thus represent an emerging wave of development assistance providers, having only recently begun to establish their profiles as global development donors. Central Asia, on the other hand, offers opportunities to engage in development aid in a politically safe and transparent manner. Having long been a recipient of development assistance, Central Asia still requires external support but has also accumulated sufficient knowledge and experience to engage with donors efficiently and transparently. 

The United Nations recommends developed nations to allocate 0.7 percent of their gross national income (GNI) to development assistance. The leading development assistance providers in the GCC—Saudi Arabia, Kuwait, Qatar and the United Arab Emirates—collectively contributed $9.2 billion in development aid in 2022 alone, concretising the region’s role in global development. Moreover, these states have established formal aid agencies and report significant outbound assistance

At the regional level, the GCC states have contributed to multilateral organisations such as the Islamic Development Bank, where they are major stakeholders. These efforts are often announced at GCC summits or ministerial meetings, with funding decisions aligning their collective strategic priorities. According to a 2023 report by the Center for International Policy Research, in 2021, the UAE provided $47.2 million in development aid to Central Asia, while Qatar allocated $5.2 million. Saudi Arabia contributed $43.6 million, and Kuwait distributed $33.3 million in further development assistance to the region. 

Inter-regional multilateral relations are becoming increasingly substantial and regular. The inaugural GCC-Central Asia Summit took place in the Saudi city of Jeddah on July 19, 2023. The next summit is scheduled to be held in May 2025 in the Uzbek city of Samarkand. In between these two milestone meetings, there have been a series of ministerial meetings, where cooperation in trade, economic, investment, transport and communications, cultural, humanitarian, environmental, and tourism sectors were discussed.

However, there remains a gap in the regional landscape in climate finance in Central Asia that must be addressed. The Trump administration’s recent suspension of all foreign aid sent shockwaves across the global development sector, sparking confusion and panic. While the full impact of this decision is yet to be realised and analysed, it is clear that at least some areas of economic development and welfare worldwide—including Central Asia—will require additional support. 

In addition, the GCC states, alongside other development donors, have a unique opportunity to carry out a conceptual overhaul of the global development aid approach. Conventional development assistance has faced significant criticism, ranging from neocolonial allegations to concerns about inefficiency. The GCC has both the resources and the strategic positioning to create something new, innovative, and more effective. Entering Central Asia as a relatively neutral actor, the GCC is unburdened by a complicated shared past, unlike Russia, or politically motivated aid, as seen with the EU or the US. This neutrality could help facilitate a mutually beneficial and more equitable partnership between the two regions. 

Engaging in development assistance in Central Asia provides the GCC with an opportunity to boost its soft power in the region. There are numerous avenues for bilateral and multilateral cooperation to choose from, including, but not limited to, public healthcare, education, tourism, and poverty alleviation. 

However, two key challenges may impede smooth development cooperation between the GCC and Central Asia. First, the GCC lacks a designated agency focused on multilateral development cooperation and the pooling available funds to support developing countries. In contrast to certain nations and other international entities that have separate organisations—such as USAID or EU AID—there is no specific GCC development assistance agency with a distinct name and brand. Branding is crucial in international development, particularly for visibility and public support on the ground. Development assistance serves various objectives, one of which is to build a positive image of the donor, thereby strengthening its soft power on both global and local levels. 

The closest equivalent to a dedicated development agency within the GCC is the coordinated effort under the GCC Secretariat General, often linked to initiatives like the Gulf Programme for Development (AGFUND). However, the execution of these efforts is largely delegated to national entities like the Saudi Fund for Development or Kuwait Fund for Arab Economic Development. National institutions within the GCC's member states occasionally collaborate in distributing development assistance and work with regional mechanisms or funds set up under the GCC's guidance.

Second, there is a clear lack of in-depth knowledge and understanding of the local and regional context in Central Asia, as well as the specific needs on the ground. It is no secret that, until recently, the GCC-CA interaction has been fairly limited; both regions have prioritised closer partnerships elsewhere in the world. However, the high-level GCC-C5 Summit in 2023 and the upcoming Summit in Samarkand this year signal a growing commitment from both sides to deepen ties. 

Policymakers in the GCC might consider streamlining regional development assistance, channelling it through intra-regional cooperation paths. This approach will help donor coordination, on one hand, and increase the visibility and impact of development assistance on the other. Meanwhile, policymakers in Central Asia could prepare and pitch ready-made proposals on how external national donors might contribute to the region’s economic development and welfare. Clear and transparent requests would make it easier for willing donors to justify their contributions domestically and internationally, creating the space for growth within this delicate dynamic.

While there is limited recent history of deep and meaningful interaction between the GCC nations and the Central Asian republics, the future of inter-regional cooperation appears cautiously bright. As the conventional development partners, such as the US and the EU, either withdraw completely from the international development sector or turn their focus to regions like Ukraine, the GCC countries are emerging as the new key actors in development assistance. 

At this stage, Central Asia has accumulated notable experience and expertise in engaging with development cooperation. Countries like Kazakhstan are on the verge of a transition from being recipients of development assistance to becoming providers themselves. But the majority of the region still requires external support, especially in the areas of economic development and transition to renewable energy. In light of this, the GCC could become a much more powerful player in this field.

Photo: Presidential Administration of Uzbekistan

Facing New Alignments, Iran and Tajikistan Relaunch Partnership

Earlier this month, Mahmoud Khosravi Vafa, the head of Iran’s National Olympic Committee, met with Shamsullo Sohibov, Vice-President of Tajikistan’s National Olympic Committee, to discuss improving sports cooperation. The meeting was more than just a consultation between two bureaucrats, it marked the latest step in the recent rekindling of the relationship between Iran and Tajikistan, two countries with deep linguistic and cultural ties.

Once described as “one spirit in two bodies" by the ex-president of Iran, Mahmoud Ahmadinejad, the relationship between Iran and Tajikistan underwent an unexpected breakdown in the mid-2010s. Now, as Iran continues to struggle under Western sanctions, contend with a new hostile US administration, and adapt to its weakened position in the Middle East, it is again turning east. For its part, Tajikistan is pursuing a multi-vector foreign policy, diversifying relations with as many international partners as possible to secure economic and political assistance.

After the collapse of the Soviet Union, Iran was the first country to recognize Tajikistan’s independence and establish an embassy in the capital, Dushanbe. Tajikistan reciprocated by opening one of its first foreign embassies in Tehran in 1995. Subsequently, during the civil war in Tajikistan between 1992 and 1997, Iran was part of a foreign coalition that helped mediate the conflict. In this period, Tehran also cautiously supported the Islamic opposition to the current regime in Dushanbe.

After Tajikistan’s civil war ended, Iran made lofty pronouncements of friendship but took few concrete steps towards collaboration. But following the September 11 attacks and the deterioration of Western economic and political relations with the Middle East and its surrounding countries, Iran began to reinvigorate foreign policy towards Tajikistan to compete with the growing Western influence in West Asia.

During two terms in office, former Iranian President Mohammed Khatami committed to funding large-scale infrastructure projects in Tajikistan, such as the strategically significant Anzob Tunnel and Sangtuda-2 hydropower plant. Total trade between the countries tripled from $40 million in 2000 to $140 million in 2007. However, the relationship rested primarily on economic diplomacy; politically, Iran was more focused on counterbalancing the US presence in Afghanistan and on deferring to Russian decisions in Central Asia due to Russia’s support for Iran’s nuclear program.

Mahmoud Ahmadinejad’s presidency led to a complete reorientation of Iran’s foreign policy towards its eastern neighbors and against the Western agenda in the region. While in office, Ahmadinejad met annually with Tajik President Emomali Rahmon, whose government remained quietly wary of Iran, given its role in the Tajik civil war, the accelerating nuclear program, and the desire to avoid being dragged into Iran’s conflicts with Israel and the US. Prioritization of economic diplomacy over politics remained the foundation of Dushanbe’s foreign policy, allowing it more flexibility in playing its allies against each other and extracting more concessions. However, at the time, Tajikistan accepted Ahmadinejad’s overtures, lacking better options in the face of minimal Western economic assistance.

Nonetheless, Iran’s investments proved to be problematic. The Anzob Tunnel was shoddily and hastily finished just in time for President Ahmadinejad’s first visit to Tajikistan in 2006, and poorly maintained even a decade after its construction. Moreover, the construction of Sangtuda-2 was finalized only in 2013—significantly behind schedule—and the power plant was shut down briefly over Tehran’s concerns that Dushanbe could not eventually repay the construction loan. Finally, the US government turned its attention to Iran’s use of Tajikistan’s then largely unregulated financial sector to circumvent Western sanctions and to launder money for Iran’s Islamic Revolutionary Guard Corp (IRGC), as exemplified in the case of Iranian businessman Babak Zanjani.

Zanjani, who owned a bank, an airline, a taxi service, and a bus terminal in Tajikistan, was sentenced to death in Iran for allegedly embezzling over $2.7 billion from the country’s state-owned oil industry. His foreign investments were expected to be seized and returned to Iran’s government. But the Tajik authorities denied having any of Zanjani’s assets, angering counterparts in Iran.

In December 2015, Iran, which supported Tajikistan’s moderate Islamic Renaissance Party (IRPT) during the country’s civil war, invited its leader Muhidin Kabiri to an Islamic conference where he was warmly welcomed by the Supreme Leader Ali Khamenei. The government of Tajikistan, which had accused IRPT of an alleged coup attempt just a few months prior, arrested several of its members. Moreover, the Tajik authorities designated the only religious political party in Central Asia a terrorist organization, immediately issuing a note of protest to Iran. The Foreign Affairs Ministry of Tajikistan angrily summoned the Iranian ambassador. The head of the Council of Ulema of Tajikistan described Iran's invitation of Muhidin Kabiri as "abetting terrorism."  

Dushanbe’s reaction echoed not only the tensions of the civil war but also the country’s deep commitment to secular government, a legacy of the Soviet Union. The Tajik government distinguishes between traditional Islam, which it supports as part of Tajik social life and culture, and political Islam, which it views as a potential threat to state power. Dushanbe’s secular stance allows it to play up the threat of religious extremism to crack down on political rights domestically. The avowed opposition to political Islam has also allowed the country to seek Western aid–a strategy that always stood in conflict with theocratic Iran’s politics.

In response to Iran’s reception of Kabiri, Tajikistan halted the imports of Iranian food products, including poultry, cooking oil, and tea, for the alleged poor quality of these products, as well as a lack of compliance with Tajikistan’s language regulations for product labels. In July 2016, the Transportation Ministry of Tajikistan publicly accused Tehran of violating the terms of the contract to build a key regional railway. Later, the authorities suspended the Tajik branch of the Imam Khomeini Relief Committee, a charity organization supported by the government of Iran. 

Arguably, the most significant blow to the countries’ relationship landed in August 2017. In a 45-minute documentary aired on Tajik state television, the Internal Affairs Ministry accused Tehran of fomenting the civil war in Tajikistan, providing financial assistance to the now-pariah IRPT, and training Islamist militants on Iranian soil to then be sent back to Tajikistan to carry out political assassinations—claims the government of Iran vehemently denied. 

At the time, it seemed as though the only pan-Persian alliance in the region was over. Yet the sudden American withdrawal in May 2018 from the Joint Comprehensive Plan of Action under President Trump once again highlighted Iran’s urgent need to continue building relationships with its eastern neighbors. Supreme Leader Ali Khamenei has repeatedly emphasized that Iran must “look to the East” for strategic allies who can help Iran resist Western pressure and overcome the banking and trade issues brought on by Western sanctions.

Thus, in 2019, Tehran and Dushanbe resumed communications. The volume of bilateral trade rose from around $55 million in 2020 to $121 million in the following year. Former Iranian president Hassan Rouhani visited Dushanbe in June 2019. In September 2021, the late Iranian president Ebrahim Raisi made Dushanbe the destination in his first foreign trip.

In May 2022, Iran inaugurated a drone production factory in Tajikistan, the first such facility that Iran has built in a foreign country. The factory builds and exports Ababil-2—a reconnaissance and combat drone that has been widely used by Russia in Ukraine—and represents not only Iran’s resumed security cooperation with Tajikistan but also attempts to counter its regional rivals’ influence in the country. This comes in response to Saudi Arabia taking advantage of the preceding period of ruptured relations between Iran and Tajikistan. During this time, Saudi Arabia invested in several economic and development projects in Tajikistan, pure geopolitical opportunism from Riyadh seeking to deprive Tehran’s position as a key ally and investor in Tajikistan. Iran’s drone factory is also an attempt to outrun both Turkiye, who reportedly sold its Bayraktar TB2 drones to Tajikistan in April 2022 during a brewing border conflict with Kyrgyzstan, and Israel, who regularly attacks Iran’s domestic drone-producing capabilities but will likely avoid doing so outside of Iran’s borders.   

A few months later, in September 2022, Iran signed a memorandum of accession to the Shanghai Cooperation Organization (SCO) at the organization’s summit in Samarkand, Uzbekistan, becoming a full member in July 2023— a development that Russia and China strongly favored. Soon after, President Rahmon and President Raisi held talks on the margins of the 78th session of the United Nations General Assembly, where they discussed further expansion of bilateral cooperation. A flurry of high-level visits and signed agreements followed, including a historic establishment of a visa-free regime between the countries in November 2023.  

The relationship between the two countries reached a new high in January 2025 during President Masoud Pezeshkian’s three-day visit to Dushanbe. Pezeshkian was warmly received as the guest of honor at the Tajikistan-Iran Trade, Economic Investment, and Tourism Forum. The two sides signed two dozen agreements on security, combatting drug trafficking and corruption, simplifying trade and customs, and improving transportation and education links. But while President Pezeshkian spoke of discussions between the sides covering the situation in Afghanistan and the war in Gaza, President Rahmon of Tajikistan emphasized developing cooperation in mining, pharmaceutical, industrial, and agricultural sectors, a reflection of Dushanbe’s continued desire to avoid controversial political topics and stick to economic and cultural collaboration.

Notably, the two presidents reopened the Institute of Tajik-Persian Culture in Dushanbe, which had been shut in the mid-2010s during the nadir in bilateral relations. President Pezeshkian also laid a wreath at the statue of Ismoil Somoni–a significant figure in Persian culture and history–and visited the Avicenna Tajik State Medical University, where he received an honorary professorship. The concluding government statements called on both sides “to find new and profitable ways of cooperation.”

The rekindling of the partnership between Iran and Tajikistan benefits both sides. Iran gains access to a largely untapped, albeit minor, market for its exports and diversifies its trade relations, allowing it more flexibility in the face of Western sanctions on Tehran and Moscow. A presence in Tajikistan brings Iran even closer to Russia and China, the two major geopolitical players in Central Asia, and provides Iranian leaders another avenue for security collaboration on Afghanistan. Finally, a foothold in Tajikistan allows Iran to counter the growing influence of Saudi Arabia and Turkiye in Central Asia after major losses in its political weight in the Middle East since 2024.

For Tajikistan, Iran is another source of foreign direct investment and a minor opportunity to ease its labor migration, trade, and economic assistance dependence on China and Russia, especially as the war in Ukraine and its fallout drag into its fourth year. Access to Iran’s regional transportation links and especially its security capabilities is another important consideration as Tajik authorities prepare for a long-awaited presidential transition. As President Rahmon prepares to transfer power to his son Rustam, his regime is looking for as many allies as possible to ensure stability during the transition.

Rekindling ties with Iran has its benefits. But it will also force Tajikistan into an old dance of balancing Iran’s internal and external politics with its own relationship to political Islam and its desire to stay neutral on the world stage. The two countries may share the same spirit, but they do not yet appear to share the same interests.

Photo: IRNA

Uzbekistan's Energy Transition Depends on Systematic Reforms

In the realm of global and energy security, 2024 was a year of unprecedented uncertainty. With issues ranging from ongoing conflicts in Ukraine and Gaza, tensions around Taiwan, and escalating populism and nationalism in the US and Europe, there were heightened concerns over energy security and the control of supply chains. US President Donald Trump’s first month in office has further fuelled the sense of an impending crisis, particularly with regards to his rhetoric around the conflicts in Ukraine and Gaza, the adoption of tariffs, and the abandonment of green policy.

Any discussion of energy transition trends must therefore be visualised in the form of a triangle, ensuring that the competing and often contradictory goals of energy security, minimising climate impact, and ensuring energy affordability are in tension. Each country, sector, and policy crystallise a set of trade-offs between different points on this triangle.

To achieve net zero by 2050, unprecedented changes in industrial structures and infrastructure are needed. The transmission and storage systems required to support a greater and faster reliance on renewable power generation may not yet exist. While energy efficiency is acceptable politically, it is a complex challenge that requires action in disparate area—not least in consumer behaviour.

Whilst the government of Uzbekistan has adopted ambitious plans to double GDP by 2030, it has underlined its aim to achieve this sustainably, scaling up its commitments to mitigate climate change and reduce the emissions intensity of GDP. In its Nationally Determined Contribution to 2030, Uzbekistan aims to generate at least 40 percent of its electricity from renewable sources and cut greenhouse gas emissions by 30 percent per unit GDP from 2010 levels. The challenge of reforming the energy sector and achieving such goals is inflated, however, by the predominance of outdated infrastructure, the continuation of unsustainable subsidies, and significant fluctuations in energy demand.

It should be noted that the decision as to when to promote what energy source is not binary; the process involves numerous trade-offs and, on occasion, political messaging, in order to achieve energy security. On a practical level, however, these resources cannot be deployed in an expedient and uniform manner that substitutes fossil fuels. In an inflationary cycle combined with facing the prospect of a global recession, the price of energy remains as important as energy security and climate change mitigation. An affordable energy transition is taking precedence and governments are opting towards the natural inclination of regulating prices and softening the price impacts for customers.

Yet with fluctuations in energy demand significant, the ability of a power system to cope with peak demand is crucial. The introduction of pricing that corresponds with demand is an unavoidable element in attracting investment in energy capacity. Power shortages have also triggered sectoral reforms and tariff increases. Electricity tariffs for businesses were increased in October 2023, and tariffs for households increased in May 2024, allowing the government to partially cut subsidies, as well as their plans to establish a unified platform for electricity trading by the end of 2024 and a liberalized wholesale power market by 2026.

That being said, Uzbekistan is making progress toward diversifying its power generation with the use of renewable sources. For example, in terms  of the economy, over 80 percent of total energy use is still generated by gas; as far as power generation goes, its genesis remains equally dominant.

Although significant attention has been given to Saudi Arabia’s ACWA Power securing agreements to invest $15 billion in expanding power generation capacity, and the United Arab Emirates’ Masdar sponsoring both conventional and renewable power plants, Uzbekistan’s reliance on Russian gas continues to grow. Following a dramatic decline in domestic gas production, Uzbekistan started importing Russian natural gas in October 2023, annual gas imports of 2.8 billion cubic metres (bcm) agreed for a period of two years, with a potential increase up to 10bcm per year by 2030. 

The economy’s heavy reliance on natural gas is a risk to the country’s decarbonisation, with gas consumption having to decline by 40 percent in order to achieve net zero in 2060. By minimising reliance on gas imports and pursuing the decarbonization of its economy, Uzbekistan can strengthen its energy security. Uzbekistan’s decarbonization efforts depend on strengthening cross-border energy flows, particularly through enhanced power transmission and a more flexible regional electricity trade. By optimising the use of regional energy resources, Uzbekistan can not only prevent power shortages but also contribute to greater regional stability and security.

It has been estimated that over $200 billion of investment is needed in the Uzbek energy system to achieve net zero by 2060. Given the scale of resources required and limitations within government finances, the private sector must be the primary investor for the green transition. In turn, accelerating the development of the country’s private sector is critical to absorb the costs and take advantage of the opportunities of the transition. The focus on decarbonisation and adaptation to climate change functions as a catalyst for the continuation of economic reforms and further support for investment.

The government has repeatedly expressed its intentions to create a better environment for private investment, using public-private partnerships (PPPs) in the energy and infrastructure sectors. Private capital can be secured to fund projects through the active participation of other stakeholders, including the use of blended finance. The strategic use of public money and development finance reduces the risk for private capital by allocating certain risks to governments or development financial institutions (DFIs). DFIs can play other roles beyond direct funding to incentivise the flow of private capital. They do this by developing new products and mechanisms that extend beyond political risk insurance to cover technology. Moreover, they ramp up risk for new technology, trade and foreign exchange risks, such as insurance products or co-lending mechanisms with the private sector through which a DFI provides subordinated debt.

What is necessary in the context of energy transition, however, goes beyond a project-by-project approach. Instead, a systematic approach and large-scale commitments by governments are required to encourage the development of a stable pipeline of investible and bankable projects, rather than a series of one-off projects in an uncertain regulatory environment. Global experience demonstrates that the key to attracting private capital for energy transition projects is assuring potential investors that political leadership remains committed to net-zero targets and will not change course. It also requires creating strong market demand through policies and regulations that encourage growth and establishing a competitive, stable tax regime that incentivises investment.

In Uzbekistan, structural reforms are needed to encourage foreign direct investment as a capital flow. The government must implement a comprehensive package of reforms, including strengthening market competition, eliminating preferential treatment, increasing energy prices, and removing subsidies. Stronger financial regulations should be adopted, and trade should be facilitated through measures such as accession to the World Trade Organisation. Additionally, climate concerns must be at the core of public investment decisions.

On this foundation, local demand and market signals can be created through incentive programs. These may include standards and tradable certificates, tax credits, and feed-in tariffs or contracts for different structures. As is already the case in Uzbekistan, PPPs can also play a role, with governments supporting market development by acting as quasi-private offtakers or by creating markets for ancillary services.

Crucially, only by reforming state-owned enterprises (SOEs) and subsequently providing attractive investment opportunities can an accelerated privatization process and a decarbonised economy be achieved. Whilst the government has recognised the need to improve energy efficiency and reduce carbon emissions for effective policy adoption, several challenges remain. There is a need for greater transparency and information on the activities and impact of SOEs, which are the largest carbon emitters. Additionally, an inventory of fossil fuel subsidies must be created to establish energy pricing, reduce subsidies, and introduce price incentives.

This remains a significant challenge due to ongoing concerns about the corporate governance and financial reporting of SOEs. Yet, only by addressing these issues can the government begin to implement a policy aligned with the country’s Nationally Determined Contribution and develop a realistic roadmap for the green transition. It will also enable better project prioritisation for climate change mitigation.

The Uzbek government must gain credibility through the implementation of consistent medium-term fiscal policies and by providing the predictability that is a prerequisite for medium-term economic growth. Indeed, the quality of government expenditure is increasingly important, with policy trade-offs required in response to the reduction of the fiscal space available. This also extends to the need to manage the inevitable tensions arising from price increases.

Not only does the unbundling of utilities require consumer prices to rise to offset the cost of their modernization, there also needs to be a demand for the green transition. Goods and services with a higher environmental impact need to be made more expensive. With regards to the social aspect of the green transition, such price increases must be well-conceived and gradual. The raising of energy prices should not lead to the impoverishment of parts of the population: a just transition should be ensured through the protection of vulnerable households.

Finally, policies need to be adopted to promote and support regional connectivity—an important catalyst for regional economic growth in the face of global uncertainty, economic fragmentation, and increased costs. Regional policy dialogue and coordination can provide a foundation for the structural reform in trade, a process realised through the harmonisation of technical regulations and standards and their revision with international green standards and practices.

The development of cross-border connections and regional power trading platforms can facilitate the expansion of renewable energy generation while improving coordination in water resource management to prevent shortages and their consequences. Given the region’s diverse energy mixes, establishing a balanced system for regional trade is essential to ensuring its energy security and economic growth.

Photo: ACWA Power

GCC and Central Asia Want More Trade, But Connectivity Remains a Hurdle

Over the course of the past five years, the six countries of the Gulf Cooperation Council (GCC) and the five republics of Central Asia have taken several important steps to expand their economic and diplomatic relations. In addition to the advancement of bilateral relations among members of these two blocs, efforts have also been made at the regional level involving multiple countries from both sides. This includes several gatherings at the ministerial level, as well as the 2023 GCC-C5 summit that convened the six GCC and five Central Asian countries—Kyrgyzstan, Kazakhstan, Uzbekistan, Tajikistan, and Turkmenistan—in Saudi Arabia. The high-level summit resulted in a joint statement on the framework for economic relations. Preparations are currently underway for a follow-up summit in May 2025 in Samarkand.

The volume of trade between the two blocs is currently small. According to data compiled by the World Bank, the share of GCC countries in total exports of goods by Central Asian countries was only 0.8 percent in 2022. The ratio was even smaller for Central Asia’s largest economy, Kazakhstan, which exported only $462 million to GCC countries. This amounted to 0.55 percent of its $83.5 billion total goods exports in that year.

Trade relations are expected to expand from this low base if the forthcoming summit in Samarkand is fruitful. Not only is the GCC interested in the minerals, metals, and agricultural commodities that Central Asia can offer, but both regions are moving toward economic diversification. This will increase the range of manufactured and semi-processed goods that they can exchange.

While both sides have expressed a strong desire to expand their investment and trade relations in many sectors, transit routes and transportation costs pose important considerations for their respective political leaders and business communities. In their July 2023 summit, the leaders of GCC and Central Asia were already mindful of this issue. Connectivity was addressed in the Article 12 of the Summit’s Joint Statement: “The leaders stressed the importance of developing connected transportation routes between the two regions, building strong logistical and commercial networks, and developing effective systems that contribute to the exchange of products.”

The transport networks between GCC and Central Asia cross through several countries. Three distinct transport routes can potentially provide land connectivity between the regions in the coming years. These are the North-South Transport Corridor (NSTC) that runs mainly through Iran, the Development Road Project (DRP) that runs through Iraq, and the Trans-Afghan Corridor. Each of these multi-modal routes presents its own unique opportunities and challenges.

Firstly, it is important to consider the NSTC route through Iran. Currently the Central Asian countries have access to highway and rail transit through Iran to the Persian Gulf and the Gulf of Oman. With cooperation of Iran, Russia, and several Central Asian countries the rail connectivity has been operational since 2016. The trans-Iranian Railway connects the Sarakhs railway station on Iran-Turkmenistan border to the Bandar Abbas port on the Persian Gulf and this route is already in use by the Central Asian countries. 

Highway transit for cars and trucks is also operational; Iran’s network of roads and highways connects the Iran-Turkmenistan border crossings to several seaports in the Persian Gulf, from which containers can be transported to GCC countries by ship. The railroad transit will expand further with the completion of the Sarakhs-Chabahar railway line. Nearly two thirds of this route is already complete. The only remaining piece is the Chabahar-Zahedan segment which is currently under construction, though progress is slow due to economic sanctions. Iranian government officials expect this project to be completed by late 2025.  

These transit routes through Iran are safe,  offering the shortest and most cost-effective routes for GCC-CA connectivity. However, many GCC economic operators will avoid using this route in compliance with the U.S. economic sanctions against Iran. GCC countries have demonstrated high compliance with the U.S. sanctions against Iran because of their heavy reliance on American security and military protection; this cooperation is likely to continue in the future. 

Another transit route that can be used for trade between the GCC and Central Asia is the proposed north-south Development Road Project, which will, using rail and highway, connect Iraq’s Faw port at the tip of the Persian Gulf to Turkey’s broader transport network. This project is currently in its final planning stage according to Iraq’s Transport Minister, Razzaq Muhibis Al-Saadawi. After the recent improvement of diplomatic relations between Iraq and GCC countries, Qatar and the UAE have expressed an interest in providing additional financial support, assisting Iraq and Turkey in the endeavor. 

The DRP offers a significantly longer transit route compared to the Iran option. Additionally, it requires greater international coordination, as it passes through multiple countries—Iraq, Turkey, Georgia, and Azerbaijan—before requiring sea transport across the Caspian Sea to reach either Turkmenistan or Kazakhstan for connections to Central Asia. The Turkey-Turkmenistan segment, which is part of the Belt and Road Initiative’s middle corridor between Asia and Europe, is already operational. If Azerbaijan and Turkey can convince Armenia to provide them with a transit corridor, this route will become shorter and more cost efficient, yet still less economical than the Iran option. 

The DRP also faces several geopolitical and governance challenges. Kurdish militias that are in war with Turkey operate in the mountainous regions of Northern Iraq, near the Turkish border, posing a security risk to the road both during its construction and after completion. The Iraqi government’s opposition to the participation of the Kurdish Regional Government (KRG) poses another obstacle to the viability of this project as disagreements between Baghdad and KRG can lead to more disruption. 

Another challenge is the many governance issues in Iraq’s fragmented government structure, which has reduced the government’s efficacy and ability to implement long-term plans. Fortunately, Iraq’s political system has become more stable in recent years, contributing to better conditions for the implementation of the DRP. A recent security agreement between Turkey and Iraq might also reduce the security risks in northern Iraq.

A third land transit route between the GCC and Central Asia is the Trans-Afghan option, which will offer rail transit from Uzbekistan to Pakistan’s Karachi and Gwadar seaports on the Arabian Sea through Afghanistan. Cargo would be able to be transported from these ports to various GCC destinations in the Persian Gulf by ship. The Trans-Afghan Corridor has received support from Kazakhstan and Uzbekistan as the primary Central Asian stakeholders. Uzbekistan has also approached Qatar and the UAE for financial investment in this project, which is estimated to cost $7 billion.

Under the previous Afghan government, the Taliban posed a security risk to the Trans-Afghan Corridor. Now, in a turn of events, the Taliban-led government is a strong supporter, engaging in active negotiations with all stakeholders to expedite the project. In 2024, Afghanistan signed an agreement with Uzbekistan and the UAE to launch a feasibility study for the project. Pakistan is also lobbying the Central Asian countries, Qatar, and the UAE for support. 

Another important tailwind behind this project is the support of several other countries, including Russia and Belarus, which are also interested in development of the Afghan route. For Russia, which faces sanctions and security risks along its Baltic and Mediterranean transit routes, the Trans-Afghan Corridor will serve as an additional branch of the already operational NSTC route through Iran. In addition to the Uzbek option, Russia is also advancing an alternative branch of the Trans-Afghan railway via the Turkmenistan-Afghanistan border, further expanding the capacity of transit routes through Afghanistan.

The transit corridor competition that is currently underway between Iraq, Iran, and Afghanistan will increase the land connectivity options among the GCC and Central Asian countries in the coming years, reducing exposure to the risk factors in any single country that lies between the two blocs. While at present the only operational route is via Iran, it is encumbered by sanctions risks. The completion of the DRP and the Trans-Afghan Corridor will provide valuable alternatives despite being lengthier and hence more expensive. Their development will be reassuring to both the GCC countries and the Central Asian countries as they seek to boost trade ties as part of a process of West Asian integration.

Photo: Leonid Andronov

The Job of Iran's Central Bank Governor Just Got Harder

Last Friday, Iran’s Supreme Leader, Ali Khamenei, declared that negotiations with the United States were “not smart, wise, or honourable.” Addressing an audience of Iranian military brass, Khamenei did not explicitly rule out negotiations. But his tone made it clear that Iran was not about to begin talks with the Americans, despite American President Donald Trump stating just two days earlier that he wishes to start working on a nuclear deal with Iran “immediately.”

As is the case in sanctioned economies, when hopes deflate, prices inflate. Within the few days following Khamenei’s speech, the dollar appreciated nearly 7 percent against the Iranian rial, pushing the free-market exchange rate towards the threshold of 1 million rials to the dollar.

The free market accounts for a very small proportion of Iran’s multi-faceted foreign exchange market, generally reflecting the prices available to individuals purchasing physical bills at exchange bureaus. The free market dollar is the dollar that ordinary Iranians use to protect their savings in the face of chronic inflation (dollars stuffed under the mattress, so to speak) or to take their wealth abroad (dollars hidden in a briefcase, so to speak). These limited uses explain why the price of the free market dollar is such an important signal in the Iranian economy: it is the country’s highest-frequency measure of economic sentiments.

In this respect, Khamenei’s speech appears to have gifted Trump the first victory of his renewed “maximum pressure” policy. Despite Trump indicating he was “unhappy” to sign the presidential memo which directed his cabinet to increase pressure on Iran—and despite the limited scope and impact of his only enforcement action so far, the designation of three oil tankers—the rial plummeted against the dollar. Sometimes maximum pressure is self-inflicted. 

Now that Iranian leaders appear to have rejected the opportunity to negotiate with Trump, at least for now, the question becomes whether maximum pressure policies will begin to have more than psychological impacts for Iran’s economy.

This question can be answered by monitoring the indicator that really matters for Iran’s economy— the commercial foreign exchange rate. Until recently, this was called the NIMA rate. The NIMA foreign exchange market was a centralized electronic system established by the Central Bank of Iran in 2018 to streamline the purchase and sale of foreign exchange among Iranian companies. The commercial exchange rate has been notably stable in recent weeks, showing little movement after Trump signed his presidential memo or after Khamenei declared that negotiating with the United States is “not smart.” This is not because Iran’s central bankers have managed to inure the commercial exchange rate to psychological impacts—it is because the impact was preempted in December.

The NIMA rate began to slide in the days after Trump’s election victory on November 4, 2024. This may indicate that, like in the free market, Trump’s victory spurred more demand for hard currency. Iranian companies, anticipating the return of maximum pressure, may have sought to import more goods and build-up inventories in order to mitigate future disruptions in their supply chains. Though, it is also possible that the election outcome led to a change in foreign exchange supply. For example, financial institutions facilitating Iran’s access to hard currency may have grown wary of future sanctions enforcement and could have begun to throttle payments flowing from customers to Iranian exporters. Whatever the reason, the commercial exchange rate was rising at a steady clip.

By mid-December, as rolling blackouts began to hit Tehran, the Central Bank made a dramatic move to devalue the rial. Between December 12 and December 16, the dollar price rose nearly 10 percent—the sharpest such increase since the NIMA rate was established. On December 14, the Central Bank issued an announcement about the new price-level and a plan to restructure the centralized foreign exchange market under the Iran Currency and Gold Exchange Center. Central bank governor Mohammad Reza Farzin, like his predecessors, has instituted new rules and names for Iran’s multi-level foreign exchange market; the aim is for these largely superficial changes to help the central bank manage the largely intractable structural imbalances of the foreign exchange market.

The central bank aims to encourage Iran’s major exporters, such as firms exporting petrochemical products and steel, to sell their foreign exchange earnings through the new Iranian Commercial Foreign Exchange Market. From the outset, Iran’s major exporters have been reluctant to supply the central bank’s foreign exchange market, despite regulations mandating them to repatriate foreign exchange earnings. Managers at these firms who had the political weight to ignore regulations have known that, in an environment where the rial was expected to continually weaken, holding onto dollars was a smart bet.

By allowing a sudden devaluation of the rial in December, the central bank made a major concession to the major exporters. The move may help the bank keep the foreign exchange market supplied with dollars and euros, but it fails to address the fundamental issue which is found on the other side of the ledger—there is no underlying demand for rials given the dim prospects for the Iranian economy.

It is yet to be determined what “maximum pressure” will mean during the second Trump term. Unlike in the first term, there is no Mike Pompeo and Brian Hook to lead the pressure campaign. Plus, little had to be done to restore maximum pressure, as the new presidential memo set out, given that the Biden administration had never rolled back the sanctions imposed during Trump’s first term.

Still, if Trump decides he has been jilted by the Iranians, he could take a more forceful approach to maximum pressure. Any such shift in rhetoric will no doubt push the free-market exchange rate to new highs. The real indicator of whether maximum pressure is hitting Iran’s economy will be the movement of the commercial foreign exchange rate. If the free market rate reflects the mood of Iran’s economy, the commercial rate measures its pulse.

Photo: IRNA

Iranian Architects Are Reshaping Their Country, Visually and Politically

In a busy intersection in Iran’s capital city, Tehran, there is a "deceptively simple" metro station. The structure is meticulously constructed of up to 300,000 traditional bricks—a major collaboration between the station’s architects and local artisans. 

Having secured the commission for the station at a time of significant protests in Iran, KA Architecture Studio wanted to recognise how public spaces “are the place of conflict in the metropolis of Tehran between the government and the people.” Such statements reflect the growing political significance that Iranian architects ascribe to their work, even when working on commissions from the government.

By placing projects like the Jahad Metro Plaza at arterial points of the city, architects in Iran are redefining the way public areas are used and determining points of congregation. In turn, their design choices spark discussion around the social and political significance of architecture beyond mere aesthetics.

Amidst recent years of social and political turmoil in Iran, a blossoming architectural scene is ever-present and defiant. Cropping up across major metropolises like Tehran and Mashhad and smaller cities like Ahvaz and Kelarabad, are new and intriguing structures, including luxury glass apartment buildings, eco-resorts with integrated mazes, colourful domed retreats, and geometric complexes. Through their ambitious designs, the structures being introduced to Iran’s cityscapes and landscapes challenge the view of Iran as a country without prospects.

These new buildings embody a cultural shift, in which features like open facades and glass walls take on a political significance. In a recent op-ed, Tehran-based correspondent Najmeh Bozorgmehr described how windows and balconies were once simply functional elements of homes in Tehran—“used for drying laundry or storing seasonal fruits and vegetables.” But today, the enlargement of open spaces in the home and the adoption of glass facades are indicative of a slow transition away from cloistered private spaces and towards an assertion of transparency and personal freedom.

While Iran’s wave of progressive architecture is growing, the completed projects vary in their accessibility to communities across Iran. Some cater to the ultra-rich, others seek to tie in varying strands of society. What can be said about either type of project is that they both strive to address qualms about Iran’s sociopolitical condition, while also attempting to invigorate a new wave of artistry, celebrate and interpret cultural heritage, and encourage a sense of community.

Historically, architects in Iran had to mask the political implications of their field. In a notable example, Architecture Magazine, long a leading publication for Iranian architects, did not “want to have the slightest conflict with the world of politics," according to one historian. Ambivalence was chosen to ensure the “survival of the architectural profession as an independent practice, on the one hand guaranteed [architects’] livelihood[s] and on the other was of great importance for the government's ‘nation-building’” objectives. But this cautious approach faded in the following decades, given that the architectural profession, like everything else in Iran for that matter, was clearly entangled with the political circumstances of the country. In 2022, during the aftermath of the arrest and death of Mahsa Amini while in the custody of the morality police, many architectural studios halted operations in solidarity and emphasised their commitment to the people.

Notably, many talented Iranian architects choose to remain in Iran despite the limitations politics may pose for their career—a decision that may be difficult to understand given the extent of brain drain plaguing other industries in the country. Mainly driven by political repression and, in turn, isolation from the global economy, young, highly-skilled Iranians are increasingly fleeing for better opportunities elsewhere. Even Iranian President Masoud Pezeshkian has claimed that up to 80 percent of students are contemplating emigration.

In an interview for this article, one young Iranian architect described his decision to stay as a “professional choice.” Architects in Iran can still pursue ambitious projects. For instance, Hooba Design Group has announced plans for a futuristic and eco-friendly residential complex in Kelarabad with a design guided by “regional architecture and local environmental laws.” Composed of stacked volumes of villas, each with their own glass facades and airy interiors, the renderings show a bold vision. Projects like this are encouraging Iranian architects to match the ambition of architects in Europe or the United States, where many had studied or worked before returning to Iran.

The homegrown team behind the Hooba project, like others, speaks to a sentiment articulated by the late Iranian architect, Ali Akbar Saremi. After having spent many years in the US, Saremi returned to Iran. When asked why he returned, he stated, “when I finished university and got my doctorate, there was no reason for me to stay there anymore. We wanted to return and develop our country… After all, our homeland is here and there was no reason to stay there.” His advice to rising architects was to “try to understand what is going on in the world,” as “we are the architects of a social class and we must understand the ins and outs of our society as well as other societies.” Such ideas have proven influential, with many Iranian architects thinking actively about their capacity to use architecture to shape social relations.

The most ambitious architects are further encouraged by opportunities for domestic recognition in the field. Memar Magazine, founded in 1988, is a bimonthly Persian publication on architecture and urban design. The prestigious Memar Award was initiated by the magazine  in 2001 and strives to recognise the most prominent Iranian architects and their projects. The prize promotes a tangible sense of prestige, motivation, and visibility for architects in Iran to establish themselves both domestically and internationally, “paving the way for them to attract more clients who seek progressive designs for their projects.” Putting young designers in the spotlight in this way is a critical aspect of their pursuit of larger projects, drawing in capital to this specific industry.

Iranian architecture has also earned international accolades. The Jahad Metro Plaza, for one, was recognised by the RIBA International Awards for Excellence, as well as the Dezeen Awards. Architect Alireza Taghaboni, upon winning the Royal Academy Dorfman Award, explained how he aimed for his architecture “to have a productive purpose in a country where the context is political,” representing concerns with domestic issues in an international context.

Alongside politics, Iranian architects must also consider the state of the economy. Notable architect Farhad Ahmadi has stated that “if architecture wants to flourish in a society, the culture, knowledge, management, and economy of that country must also flourish.” It may be surprising, therefore, that a country facing significant economic challenges is home to a burgeoning architecture scene. But wealthy Iranians consider real estate to be a safe investment, and thus the field is supported by a steady stream of private commissions—even as sanctions and other economic headwinds continue to affect the construction sector. Hossein Hamdieh, an architectural researcher, noted in an interview that ‘‘avant-garde designs are often created for moneyed minorities who have both the appetite and the means to invest in such lavish, costly projects.”

On the other hand, Iranian architects have long developed projects with specific social objectives, such as improving the welfare of ordinary people or addressing environmental issues. These projects are often delivered in partnership with civil society organisations. For instance, FEA Studio, on the behalf of the NGO Noor-e Mobin, designed an intricate network of classrooms in the desert, near Bastaam, Iran. Opened in 2014, the G2 Primary School, as it is called, is designed in ways that allow children to play freely, featuring open air rooms with balcony-style railings to maintain their safety. FEA Studio commented that “it's a complex in which the children can grow and taste life,” serving the pedagogical goals of the school.

In another social project, ZAV Architects fit adjustable outdoor curtains to the balconies of an girls orphanage in Khansar, Iran. The Habitat for Orphan Girls is a residential centre aiming to protect young women, ages seven to 16, supporting them to flourish in adverse life circumstances. This particular project drew attention in the context of the anti-hijab movement in Iran. The architects aimed to allow the girls a comfortable and protected outdoor space where they can sit without a headscarf or hair covering, but used a striking yellow color to make these liminal spaces visible.

ZAV Architects’ founder, Mohamadreza Ghodousi told Dezeen that the building has the aesthetic appeal of interacting colourfully with the rest of the city, while also reminding its inhabitants that the “hijab is dynamic and you may have the right to wear it or not.” The project won the Memar Award in 2020.

The current sentiment among Iranian architects may be best summarized by one of the best, Leila Araghian. Araghian won the prestigious Aga Khan Prize for her 270-metre long bridge, Pol-e Tabiat, which connects Taleghani Park and Ab-o-Atash Park in northern Tehran. When asked what she finds exciting about contemporary architecture and design, she responded: “the possibility to affect the environment which can affect the human experience of the space seems fascinating to me. It makes me feel powerful.” It is precisely this outlook that promotes architecture as a tool for social renewal, transforming quotidian spaces for Iranians to feel a sense of liberation, agency, and connectedness.

Architecture in Iran today is more than just an artistic or functional endeavor; it is a medium for expression, resistance, and societal transformation. As architects navigate the challenges of working within an increasingly restrictive political environment, they continue to create structures that serve as both aesthetic marvels and meaningful social statements. 

Whether through luxurious glass facades symbolising a desire for transparency, or community-driven projects that foster inclusivity and interaction, contemporary Iranian architecture reflects the country’s shifting landscape. At its core, this architectural movement challenges perceptions of Iran, both domestically and internationally, proving that even in times of hardship, creativity and innovation can flourish. Architects in Iran are shaping more than just skylines—they are reimagining and rebuilding the very structures of public and private life.

Photos: Mohammad Hassan Ettefagh, Soroush Majidi, ZAV Architects

Central Asia Relies on Gulf as it Targets Energy Transition

Since gaining independence in 1991, states in Central Asia and the Caucasus have historically had the strongest energy ties with Russia and China. Yet in the past 5 years, they have significantly expanded their energy cooperation with the member states of the Gulf Cooperation Council (GCC). This cooperation is unidirectional: Gulf companies and institutions are investing substantial capital in energy assets and infrastructure across Central Asia and the Caucasus, but not vice versa.

The GCC and Central Asia have a history of ties in the traditional energy sectors of oil and gas, but the new interregional cooperation prioritizes alternative energy sources—including solar, wind, hydropower, and hydrogen. This shift reflects a change in the GCC’s wider energy diplomacy agenda: to transition from being the world’s leading fossil energy center to being the world’s leading energy center more broadly. Recent Gulf investments in Central Asia and the Caucasus are the active edge in this effort.  

To explain why these new Gulf-Central Asia energy connections are being developed, it is necessary to understand who is involved in bringing them to life. In both regions, the energy sector is defined by blurred lines between private and government-owned companies. The result is that the distinction between private and public interests at stake in strategic energy decisions can also be blurry in both regions. Nonetheless, the new Gulf investments in Central Asia’s energy landscape are typically led by a GCC company or a GCC government, though their specific project is routinely supported by the other.  

Today, the two largest Gulf companies involved in developing new energy assets in Central Asia and the Caucasus include the UAE-based Masdar, and Saudi-based ACWA Power. Masdar, once a wholly-owned subsidiary of the UAE’s Mubadala sovereign wealth fund, is now jointly owned by Mubadala, the Abu Dhabi National Oil Company (ADNOC), and Abu Dhabi National Energy Company (TAQA) since December 2022. ACWA is 44 percent owned by Saudi Arabia’s PIF sovereign wealth fund, alongside a number of wealthy individuals and institutional investors. In both cases, Masdar and ACWA cannot be considered solely private or solely governmental companies. While they are inarguably driven by basic financial motives, they also remain accountable to the political elites in the UAE and Saudi Arabia, who are well represented on their boards and among their shareholders.

If Masdar and ACWA are the largest Gulf companies active in Central Asia and the Caucasus, their projects vary significantly across the region. Masdar currently has the broadest range of projects. In Uzbekistan, this includes five solar parks (ranging from 100-457 MW), two wind projects (one 500 MW project already underway, plus a new 1GW park announced at COP29), as well as plans to explore pumped hydropower. In Azerbaijan, Masdar already operates three solar parks (ranging from 230-445 MW) and one 240 MW onshore wind park. Next door in Armenia, Masdar also has a 200 MW solar park. In Kazakhstan, Masdar does not have any completed projects, but at COP29, the company signed an agreement to develop 1 GW solar park, including 600 MW of battery storage. Likewise, in Kyrgyzstan, Masdar only has a set of agreements,  including a vague promise offered in January 2023 to develop 1 GW of renewables, followed by, in December 2023, a commitment “to explore” 3.6 GW of hydropower and  renewables alongside the British EDF energy provider. Notably missing here are investments in Turkmenistan, Tajikistan, and Georgia. 

ACWA Power’s regional assets currently include a 240 MW wind park in Azerbaijan, and in Uzbekistan, four wind parks (ranging from 100-1500 MW) already completed or soon to be finished. They also have several utility-scale solar parks in Uzbekistan’s Samarkand region, which include large battery energy storage systems (BESS), and a new project underway for a 1500 MW Combined Cycle Gas-Turbine (CCGT) facility in the Sirdarya region. In each of these cases, the National Electric Grid of Uzbekistan is listed as the sole off-taker, and each facility is described on the company’s website as being a “Build, Own, Operate, Transfer” project, in which ACWA Power has claimed it ‘will take the lead in the construction, engineering, operation and maintenance the plant.’ What, when, or how the “transfer” phase will take shape remains unclear, however.

The COP29 United Nations climate talks in Azerbaijan in November 2024 saw a wide range of new energy cooperation agreements between the regions, with Saudi Arabia showing the most ambitious outlook to the developing energy landscape of Central Asia and the Caucasus. At COP, the Saudi Minister of Energy signed an agreement with three of the region’s presidents—Azerbaijan’s Ilham Aliyev, Kazakhstan’s Kassym-Jomart Tokayev, and Uzbekistan’s Shavkat Mirziyoyev—to enhance cooperation in renewable energy development and transmission and to push forward a long-elusive goal of regional power grid interconnection. The Saudi renewable energy champion ACWA was also involved in these agreements, being named as the company responsible for the renewable energy projects in the three countries. 

At COP29, the Saudi Electricity Co. also signed an MoU to develop regional interconnection projects with its counterparts in Azerbaijan, Kazakhstan, and Uzbekistan. COP29 also yielded a new bilateral energy “roadmap” between Saudi Arabia and Azerbaijan, but the larger 4-country agreements that Saudi officials take interest in include extending their bilateral energy diplomacy to regional energy diplomacy. This symbolizes a move beyond the more limited series of bilateral energy agreements they have been signing with the other state’s leaders since 2022.

Another notable development at COP29 was the joint agreement between Masdar, ACWA, and SOCAR Green—a branch of the State Oil Company of Azerbaijan established to implement “renewable energy projects, green hydrogen production, [and] carbon capture, utilization, and storage.” This three-country initiative is focused on exploring a 3.5 GW offshore wind project within Azerbaijan’s Caspian domain, as well as a green hydrogen and water desalination plant. The new energy projects discussed in the MoU are not surprising in and of themselves, but the fact that Masdar and ACWA are working together is notable as GCC actors are often assumed to be in competition. Rather, this project may demonstrate the possibilities for cooperation between the Gulf’s two green energy pioneers– both across the GCC borders, as well as with the Central Asia and Caucasus states hosting their investments. 

By working with SOCAR Green, Masdar and ACWA are well positioned to teach Azerbaijanis about the Gulf model of “greening” oil money by funneling it into the alternative energy sector. Regardless of whether energy watchers deem this model to be good or bad, it is expanding at a rapid pace in the Gulf. As the GCC governments and companies continue to promote non-fossil energy projects abroad, including in Central Asia and the Caucasus, they are laying the groundwork for a cooperation model that puts the GCC at the center of the post-oil energy future. In this role, the Gulf’s political and business leaders aspire to do more than offer capital to undercapitalized regions; they also aim to reap the most profits possible from controlling the vast networks of technology, infrastructure, knowhow, and resources that are needed to realize the transition to alternative energy sources. 

The Gulf’s investments in Central Asia and the Caucasus thus reflect a broader energy diplomacy agenda: to leverage their role as the world’s leading fossil fuel producers in order to remain an energy epicenter, whatever the fuel system. In this respect, the GCC’s interregional cooperation with Central Asia and the Caucasus is already a success. But whether these high-level agreements and large-scale projects will yield the kinds of financial and political returns that their Gulf proponents hope for remains an open question.

Photo: Dunyo

Reconstruction Aid, Not Sanctions Relief, is What Syria Really Needs

Last week, the Biden administration issued General License 24, which removes prohibitions on a range of transactions with Syrian governing institutions, even while sanctions targeting Syrian entities and individuals remain in place. Syria’s newly appointed foreign minister, Asaad Al-Shaibani, welcomed the Biden administration’s move, but insisted that the US must lift all sanctions, which “constitute a barrier and an obstacle to the rapid recovery and development of the Syrian people.” The UN envoy for Syria, Geir Pedersen, has similarly called for “significant further efforts to adjust sanctions.” Meanwhile, German officials are reportedly discussing a plan that would see the EU ease sanctions on Syria so long as Syrian authorities implement political reforms.

These discussions on sanctions relief are important and reflect the urgency of such relief for Syria’s economic recovery. Syria is entangled in a web of US, EU, and UN sanctions. These measures include sanctions targeting the Syrian state and key economic sectors, which were imposed to weaken the Assad regime. Separate sanctions target Hayat Tahrir al-Sham (HTS), a designated terrorist organization that comprises the core of the new Syrian leadership. But while determining a timeline and conditions for sanctions relief is important, Western officials and Syrian authorities are already sliding into a debate over what sanctions relief is warranted and at what stage. Meanwhile, Syrian civil society actors, cognizant of the precarious humanitarian situation in Syria, are being forced to use their political energy to advocate for sanctions relief, when the relief is not what truly matters for the stabilization of Syria. 

The debate over sanctions relief risks becoming a distraction from the far more important aim of securing reconstruction aid. Syria is a country devastated by a brutal civil war. While sanctions exacerbated economic hardships in the country, contributing to currency devaluation, hyperinflation, and soaring budget deficits, the measures were significantly tightened only in 2019, at which point the Syrian economy had already effectively collapsed. In short, sanctions relief will not suffice to restore the Syrian economy.

The inadequacy of sanctions relief as both a political and economic goal becomes especially clear when considering what sanctions relief really entails. Sanctions are nothing more than language contained in laws and regulations. As such, lifting sanctions means nothing more than the creation of new legal language. While the imposition of sanctions does impose legal prohibitions that prevent governments or private sector actors from engaging in certain economic activities, lifting sanctions does not introduce any obligations for those actors to resume economic activities. 

Clearly, sanctions relief cannot be the primary goal of advocacy. Removing legal prohibitions for economic engagement with Syria is very important, but it is a simply a means to an end. The goal of advocacy must be to push Western governments to take action that will really make a difference. What Syria needs is for Western governments to forthrightly commit to providing billions of dollars of reconstruction aid that can help resurrect the Syrian economy.

To this end, it is troubling is that Western governments have so far said little about their commitment to reconstruction in Syria. The recent visit of the German and French foreign ministers to Damascus was followed by headlines declaring that the EU would “will not fund new Islamist structures” rather than headlines committing European financing for reconstruction.

While European governments did provide Syria much-needed humanitarian aid during the long civil war, support for reconstruction will require a far greater political commitment. Not only is the scale of financial assistance required much larger, but the aid must be provided in parallel with what will surely be a complex political transition. The challenge of creating more inclusive political institutions in Syria may explain Western equivocation on the issue of reconstruction aid. But the reluctance to even signal the possibility that substantial aid could be forthcoming reflects a typical cynicism in Western capitals. To ensure that Syria secures both sanctions relief and the billions of dollars in aid, Syrian authorities and Syrian civil society must be unified in their calls for reconstruction support. There are several reasons why effective advocacy requires clear messaging that the paramount goal is reconstruction assistance, and not sanctions relief. 

First, sanctions relief itself will not restore the Syrian economy, even if it is provided quickly. As Karam Shaar and Benjamin Fève have detailed, the economic situation in Syria is dire. The economy has contracted 80 percent since the onset of the civil war. Nine out of ten Syrians live below the poverty line. The damage to cities and infrastructure is extensive. A 2018 study used satellite imagery to identify over 100,000 damaged structures in Syria’s major cities, including thousands of homes destroyed by the Assad regime’s criminal use of barrel bombs on civilian targets. In this context, rebuilding Syria’s economy means replacing the capital stock while also restoring economic institutions and networks. A 2019 estimate on the costs of reconstruction put the figure as high as $400 billion. Given the scale of the devastation, post-conflict recovery in Syria is not something that can be accomplished through the resumption of private sector business activity. A resumption of trade and investment in Syria will certainly help stabilize the economy and improve the welfare of ordinary Syrians. But rebuilding critical infrastructure and restoring public services, actions necessary for Syria’s long term economic development, will require massive investments made by the Syrian state, with funds provided by foreign donors. This is precisely how Western governments have sought to support economic recovery in Ukraine, where the United States and EU have so far provided a combined $67 billion of financial support to the government. A similar commitment must be made for Syria.

Second, if sanctions relief is cast as the main goal of advocacy, Syrian stakeholders risk enabling Western governments to wash their hands of the responsibility to provide reconstruction assistance. We already see signs that Western governments will be content to provide sanctions relief so long as they can foist the responsibilities of reconstruction on other actors—the issuance of the General License 24 was quickly followed by the dispatch of Turkish and Qatari floating power plants to Syria. It was also no surprise that Al-Shaibani made his first overseas visit to Saudi Arabia, another potential reconstruction donor. Western governments should not leave Syrian authorities to seek reconstruction assistance from regional powers alone. Such an arrangement would give regional powers extraordinary influence over the course of the political transition in Syria. Western governments, meanwhile, will have little influence beyond the leverage provided by their remaining sanctions, and will therefore be inclined to keep those sanctions in place. While the US began to ease sanctions on Sudan in 2017, a paltry increase in aid contributed to Sudan’s slide into a deep economic crisis just one year later. The imposition of austerity measures by President Omar al-Bashir in 2018 spurred a new round of unrest, eventually triggering a new civil war. To avoid the same fate, Syria needs reconstruction support from a wide range of donor countries. This will ensure that the issue of reconstruction is not unduly politicized. Western policy must shift from the mindset of economic coercion to one of economic inducements.

Third, the best way to ensure that sanctions relief works is to ensure Western governments are committed to providing reconstruction aid. Providing effective sanctions relief is a complex process. Even if Western authorities issue new licenses or rollback sanctions designations altogether, the implementation of sanctions relief depends on proactive outreach by authorities to provide guidance and encourage economic operators to take advantage of the more permissive environment for trade and investment. Western governments have tended to take a lackadaisical approach to the provision of such guidance unless the lingering sanctions are preventing the implementation of their own policies. A cautionary tale can be seen in the aftermath of the 2016 peace deal between the Colombian government and FARC, a rebel group designated by the US as a foreign terrorist organization (the same designation that applies to HTS). The US supported the peace deal but provided limited aid for its implementation. The US aid program was mainly focused on supporting the Columbian government in implementation of the deal, rather than supporting reintegration of the FARC rebels into civilian life. This is partly why FARC was only removed from the FTO list in 2021, five years after its fighters had demobilized. Had US authorities been required to engage with FARC at an early stage because of their own policy commitments, there would have been greater urgency to remove the legal impediments to such engagement by any and all actors. Ultimately, the delay in providing sanctions relief jeopardized implementation of the peace deal.

Finally, there are certain kinds of aid and technical assistance that only Western governments can provide to Syria. For example, rebuilding Syria's economy will require reform of the banking sector, including through the implementation of anti-money laundering and counter-terrorist financing controls that give international banks and financial institutions confidence they can avail themselves of sanctions relief and transact with Syrian banks. If Western governments lift sanctions, but do not help Syrian banks improve their financial integrity, then the economic recovery will falter, largely due to overcompliance among private sector operators. Here, the cautionary tale is Iran, where the lifting of nuclear sanctions in 2016 led to a modest recovery in trade and investment. However, failure to support Iran's push to comply with critical financial crime regulations left Iranian banks unable to reintegrate with the global financial system. Foreign companies seeking to re-establish operations in Iran faced tremendous barriers as they struggled to conduct even routine banking operations. Unsurprisingly, foreign firms also struggled to secure financing for trade or investment deals. The failure to mobilize more investment into Iran left the nuclear deal vulnerable to domestic and foreign political opponents, and the deal effectively collapsed in 2018 following a unilateral US withdrawal.

If Syrian authorities and civil society demand that Western governments provide reconstruction assistance, they will benefit from sanctions relief. But if they allow the parameters of the debate to focus on sanctions relief alone, whatever relief and reconstruction support materializes will certainly prove insufficient. In this sense, Syrians must not only push Western governments to recognize their direct responsibility to redress the economic consequences of sanctions, but also the expediency of contributing to Syrian reconstruction generously and broadly. The price tag of Syrian reconstruction will be high, but Western governments can afford it. What no one can afford is to squander this historic opportunity to build a more prosperous, equitable, and resilient economy in Syria.

Photo: Ahmed Akacha

New Climate Financing Targets Present Opportunity for the Gulf

Following two weeks of COP29 negotiations, exhibitions, and panel events, delegates representing governments around the world reached a major consensus. Most significantly, they agreed wording on a new climate financing target for developing countries, international carbon market standards, and a support programme for national adaptation plans (NAPs) for the least developed countries.

These three key victories for the climate agenda present great opportunities for the Gulf states, particularly Saudi Arabia, the United Arab Emirates, and Qatar—collectively referred to as the Gulf 3—to play a leading and supportive role in investing in a 1.5C-aligned and resilient future, which was the fundamental aim of the 2015 Paris Agreement.

At the 2009 Copenhagen Climate Summit (COP15), developed countries agreed to mobilise $100 billion of annual climate financing for developing countries by 2020. This target was unfortunately never met, with the deadline extended to 2025 during the Paris Agreement signifying a commitment to updating the target to increase its ambition by the end of the decade. This brings the focus to 2024’s negotiations, which culminated in this target being updated to $300 billion annually by 2035.

This target and metric are highly contested. Developing countries want to increase the target further as their financing needs are much greater than this amount. The Overseas Development Institute has estimated that the need is closer to $1.3 trillion per year by 2035, which is the new cumulative goal. Moreover, much of this financing is currently provided in the form of debt rather than grants, adding to existing debt obligations, which is especially challenging for small and developing nations.

The new agreement requires the 24 developed nations, across Europe, the United States, Japan, Australia, and New Zealand, to deliver on this target. A broader climate financing target of $1.3 trillion has also been set by 2035, and “voluntary” contributions from countries outside the original 24 are allowed to be included in this figure.

Fossil-fuel-dependent states, including the Gulf 3, have faced criticism for their role and influence over the talks, but the opportunity remains for them to contribute further, as part of this new metric for South-South financing.

Documenting and disclosing existing investment flows can build transparency and show the world that the Gulf 3 are serious about contributing to global climate finance flows. Once this reporting infrastructure is in place, the next opportunity for the Gulf 3 would be to demonstrate their leadership and commitment to South-South climate financing by increasing financial flows from the baseline to help meet the $1.3 trillion annual funding target by 2035.  Alongside the likes of China and Korea, this effort will help to further increase South-South climate financing.

According to the World Investment Report released earlier in 2024 by the UN Conference on Trade and Development, foreign direct investment outflows from the Gulf 3 totalled some $38.2 billion in 2023, down from its peak  of $58.2 billion in 2022. While a more detailed breakdown of the share of these investments that can be considered climate financing and the proportion  allocated to other developing countries is not available, this demonstrates the scale of capital available from the Gulf 3 for this opportunity.

A significant chunk of this financing came from Saudi Arabia’s sovereign wealth fund, known as the Public Investment Fund (PIF), with some $620 billion in assets under management. Of the thirteen “vital and strategic" investment sectors PIF has identified for the upcoming five years, seven are crucial to climate financing going forward: food and agriculture, metals and mining, transport and logistics, automotives, real estate, construction and building, utilities and renewables.

A similar sector focus can be seen in the investment portfolios of the UAE and Qatar. The Abu Dhabi Investment Authority (ADIA), Mubadala Investment Company (MIC), Emirates Investment Company (EIC), and Qatar Investment Authority (QIC), which boast a combined portfolio of $1.8 trillion, are responsible for driving investments that can help to fill this global green financing gap. In particular, the Abu Dhabi Fund for Development has a designated mandate for concessional and sustainable financing to local and global emerging economies.

COP29 also led to defined rules for both Article 6.2 and 6.4 in relation to carbon markets. The International Emissions Trading Association estimates this can raise $1 trillion of additional financing for developing countries by 2050, by channelling funding into nature-positive projects, particularly in developing nations. Article 6.2 defines the framework for countries to make bilateral agreements to exchange and trade carbon credits. Article 6.4 creates a centralised international carbon market, supervised by the UN who then validates, issues, and verifies carbon credits.

The defining of Article 6.2 and 6.4 market mechanisms means that legal and regulatory frameworks now exist for the Gulf 3 to partner bilaterally and multilaterally with countries around the world to improve the supply and demand for these carbon credits, working towards a high-quality and high-price carbon credit market.

In Baku last month, Saudi Arabia’s PIF launched a carbon credit exchange called the “Regional Voluntary Carbon Market Company,” with the auctioning of 1 million tons of carbon offset credits. Last year, the UAE Carbon Alliance announced targets to buy USD450m of Africa’s carbon market initiative, with the UAE additionally considering developing its own Emission Trading System. At the same time, Qatari firm Emsurge has announced a public-private partnership to fuel its own carbon market development.

The outcomes of COP29 present a critical opportunity for the Gulf 3 to align their financial resources with global climate goals. By scaling investments through sovereign wealth funds like PIF, ADIA, and QIC, these nations can help close the global climate financing gap and drive South-South cooperation. Transparent documentation and a commitment to increasing flows will showcase their leadership in building a resilient, 1.5C-aligned future.

Photo: WAM

New Agreement Boosts Prospects for Connected Grids in the Gulf

The October 9 agreement to finally connect Iraq to the Gulf Cooperation Council Interconnection Authority (GCCIA) marks a significant step toward greater energy integration in the region. Originally established to link the power grids of the six GCC states—Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE—the GCCIA has been gradually expanding its reach. Iraq’s inclusion in this regional grid highlights the growing importance of cross-border energy cooperation to address the rising electricity demands in the Gulf. Iraq’s existing energy ties with Iran, however, suggest that the region could be on the verge of an even more ambitious project: a Gulf-wide power grid that includes all eight Gulf states. 

Energy demand in the Gulf has surged over the years, driven by rapid population growth, industrialization, and the region’s heavy reliance on energy-intensive processes such as water desalination. Between 2010 and 2023, the Gulf's population grew from 153 million to 194 million, with projections indicating it could exceed 300 million by 2050. This population boom has placed immense pressure on power generation systems, which remain dominated by fossil fuels. In 2022, electricity demand alone accounted for about 15% of the total energy consumed in the region, with per capita electricity consumption growing by 74% between 2000 and 2022. This rise in demand is largely the result of increased industrial and commercial activity, infrastructure development, and economic growth, all of which require significant amounts of electricity.

Moreover, most regions surrounding the Gulf experience extremely high temperatures during the summer months, often reaching 50°C. As a result, space cooling has become essential, further driving up electricity consumption. The scarcity of freshwater in the region also leads to heavy dependence on desalination, which is a highly energy-intensive process. Reverse osmosis, one of the commonly used desalination technologies, is particularly reliant on electricity for mass production. Additionally, Gulf governments have historically subsidized electricity, making it relatively cheap for consumers. While this has helped meet public demand, it has also encouraged inefficient consumption patterns.

As of 2023, the Gulf’s combined installed power capacity stood at 272 gigawatts, with 70.4% of electricity generated from natural gas, 25% from oil products, 2.2% from nuclear, 2.2% from renewables (hydro, solar, and wind), and 0.2% from coal. The residential and commercial sectors are the largest consumers of electricity in the Gulf, accounting for 40% and 30%, respectively. In contrast, the industrial and agriculture sectors make up 22% and 6%. In 2022, the total carbon emissions from electricity generation in the Gulf amounted to about 700 million tons, representing 38% of the region’s total energy-related carbon emissions.

Cross-border electricity trade has also become an important feature of the Gulf’s energy landscape to meet rising demand. Between 2016 and 2022, the accumulated electricity trade in the region amounted to 126.5 terawatt-hours (TWh). Notably, about 55% of this trade involved Iran, which exports electricity mainly to Iraq while importing from countries such as Armenia, Azerbaijan, and Turkmenistan. Iraq accounted for 40% of the region’s electricity trade, all of which was imported from Iran. The GCC countries accounted for the remaining 5%, exporting and importing electricity among themselves through the GCCIA grid.

Iraq, in particular, has struggled with chronic electricity shortages. Despite an installed generation capacity of around 29.4 GW, inefficiencies and under-maintenance have reduced Iraq’s available capacity to just 15.7 GW. In 2022, peak electricity demand reached 30.5 GW, nearly double the available capacity, leading to regular power outages. Iraq has long relied on electricity and natural gas imports from Iran to help meet its energy needs. In 2022, Iran exported 3.5 TWh of electricity to Iraq through four transmission lines, and the two countries signed a five-year agreement in 2023 to import 50 million cubic meters of Iranian gas per day. These imports have been especially crucial during the summer months when electricity demand peaks.

However, Iraq’s reliance on Iranian energy is complicated by US sanctions on Iran. Since the US withdrew from the Joint Comprehensive Plan of Action (JCPOA) in 2018, Iraq has received waivers to continue importing Iranian electricity and gas. Yet, delayed payments and mounting debt—estimated at $11 billion—pose significant challenges. Iraq spends about $4 billion annually on Iranian energy, but US sanctions have delayed the country’s ability to make timely payments, leading to substantial debt accumulation. To settle this debt, Iraq proposed an oil-for-gas barter deal in 2023, allowing it to repay Iran through crude oil. However, opposition from the US Congress and ongoing conflicts in the Middle East continue to hinder the smooth functioning of Iraq-Iran energy cooperation.

Iran itself faces significant domestic energy challenges, including infrastructure problems and environmental factors such as droughts that have reduced its hydroelectric output. In 2021, Iran faced a 12 GW gap between peak summer electricity demand and supply. These domestic issues highlight the potential benefits of integrating Iran into the broader GCCIA grid, which could help stabilize Iran’s power system while benefiting the region as a whole. Iran’s vast land area and renewable energy potential—particularly in solar and wind—could complement the Gulf’s energy needs. By connecting Iran to the GCC grid, the region could also better manage electricity demand across different time zones, as argued by Robin Mills, leveraging the 1.5-hour time difference between eastern Iran and western Saudi Arabia to extend the availability of solar power during peak hours.

The potential for a Gulf-wide energy grid that includes Iran, Iraq, and the six GCC states presents significant opportunities for enhancing energy security, sharing resources, and balancing electricity supply and demand across the region. However, significant challenges remain. 

Expanding the GCCIA grid to include Iran would require substantial investment in infrastructure, including new transmission lines and modern grid management systems. Iran’s aging power infrastructure would need to be upgraded to ensure reliable connectivity with the Gulf states. Additionally, coordinating electricity markets and pricing across such a diverse group of countries would require careful negotiation and planning. Geopolitical tensions as well as US sanctions, pose other major obstacles to integrating Iran into the GCCIA grid. 

Despite these challenges, a Gulf-wide grid could foster greater political and economic cooperation. Energy interdependence could reduce regional tensions and encourage collaboration on other critical issues, such as water security and climate change adaptation. The Gulf is particularly vulnerable to the effects of climate change, including extreme heat, water scarcity, and rising sea levels, all of which could destabilize power grids. Multilateral cooperation on energy could play a key role in mitigating these risks in the Gulf.

The agreement to connect Iraq to the GCCIA represents a turning point in the Gulf’s energy landscape, opening the door to broader regional cooperation. With regional diplomacy expanding between Iran and the Arab states of the Gulf, the possibility of integrating Iran into a Gulf-wide electricity grid becomes an increasingly tantalizing prospect. 

Photo: GCCIA

Can Abbas Araghchi Reshape Iran's Foreign Policy?

On August 21, Iranian lawmakers confirmed veteran diplomat Abbas Araghchi as the country’s new foreign minister. Araghchi secured the support of 247 out of 288 MPs in Iran’s parliament, the Majles. Despite the vote total, Araghchi’s nomination was fiercely contested by hardliners. His confirmation hearing reflected the ongoing struggle between pragmatism and hardline revolutionary ideals that continue to shape the country’s foreign policy, and previewed many pitfalls he will face as foreign minister.

To secure his confirmation, Araghchi, like all of President Masoud Pezeshkian’s cabinet nominees, reaffirmed his unwavering loyalty to revolutionary ideals of the Islamic Republic and the Supreme Leader’s directives. Araghchi was addressing a legislature dominated by hardliners. During the parliamentary elections in March, the Guardian Council, a vetting body, had disqualified many moderate candidates. Voters responded by boycotting the elections and hardliners solidified their hold on the legislature.

While many of Pezeshkian’s nominees faced resistance, Araghchi’s confirmation as foreign minister was especially fraught. The confirmation hearings also took place while Iranian officials await the outcome of the Gaza ceasefire negotiations and continue to warn they will hit back at Israel for the assassination of Hamas political leader Ismail Haniyeh in Tehran on July 30. In Iran’s current political climate, loyalty to the revolution is often measured by one’s stance on foreign policy issues, particularly regarding the U.S., Israel, and Iran’s support for “resistance front” groups such as Hezbollah and Hamas. Any deviation from the hardline position on these issues is characterized as betrayal.

Iran’s Supreme Leader, Ali Khamanei, sets the strategic framework, redlines, and priorities for foreign policy, as underscored during his endorsement of Masoud Pezeshkian’s election on July 28. While the foreign minister and president must operate within these parameters, they still hold a vote in the Supreme National Security Council and can use public statements to put pressure on unelected bodies in Iran. Additionally, their personal ties to other national security figures, such as senior leaders of the Islamic Revolutionary Guard Corps (IRGC), can enable them to influence policy.

Despite these means, the outgoing administration did not seek to actively shape Iran’s foreign policy. Neither President Ebrahim Raisi nor Foreign Minister Hossein Amir-Abdollahian, who were both killed in a helicopter accident in May, sought to advance a foreign policy that conflicted with the Supreme Leader’s redlines, the IRGC’s influence, or the parliament’s lawmaking. By contrast, the Rouhani administration, during which Araghchi was deputy foreign minister, publicly clashed with other power centers. This dynamic explains why Araghchi, like other nominees who served under Rouhani, drew sharp criticism from staunch hardliners.

Critics focused on Araghchi’s past as Iran’s lead nuclear negotiator, a role he held from 2013 to 2021. MPs like Mohammadreza Ahmadi Sangar and Mohammadreza Sabbaghian argued that the Joint Comprehensive Plan of Action (JCPOA), which Araghchi helped craft, was flawed from the start—a misguided deal that left Iran vulnerable to the whims of President Donald Trump, who withdrew from the agreement in 2018. Amirhossein Sabeti, a protégé of Saeid Jalili, who lost the presidential election to Pezeshkian, was perhaps Araghchi’s most vocal opponent. Sabeti argued that in the last months of the Rouhani administration, Araghchi was seeking a new nuclear deal that went beyond Khamanei’s redlines and would have effectively dismantled the resistance front. He also criticized the loss of nuclear capabilities that were key concessions of the JCPOA, including the decommissioning of the Arak reactor.

Iranian legislators have been seeking a greater role in defining Iran’s foreign policy. They want the kind of influence wielded by the U.S. Congress over international negotiations. In 2020, the Majles passed the Strategic Action Law, which effectively bars attempts to revive the JCPOA in its original form. The law, which was pushed by hardliners and endorsed by Khamenei, is as a double-edged sword—it provides leverage but also limits the flexibility needed to strike a deal that would relieve Iran’s economic woes.

For Araghchi, the JCPOA represented a calculated risk that preserved Iran’s position on the global stage, even as the Trump administration tried—and failed—to bury the deal at the United Nations Security Council. It is a legacy he has defended. During his hearing, Araghchi pointed out that the Raisi administration undertook its own nuclear negotiations. Even so, he indicated that he will take a fresh approach to any new talks and “strive to get the best agreement” in light of the Strategic Action Law. During his speech, he vowed to prioritize sanctions neutralization, a priority set forth by the Supreme Leader. But he also highlighted the necessity of lifting sanctions.

Araghchi understands that solving the nuclear issue is the key to addressing many of Iran’s economic challenges. The Pezeshkian administration aims to implement the ambitious 7th Development Plan, which targets an 8 percent annual growth rate—a goal that seems far-fetched given Iran’s economic isolation under sanctions. Iran needs around $60 billion in annual foreign direct investment. According to Hadi Ghavami, an MP who spoke in favor of Araghchi’s nomination, the country currently receives one-thirtieth of that amount.

During his confirmation hearing, Araghchi emphasized that while relations with the U.S. will continue to be defined by antagonism, his goal is to manage the rivalry and avoid escalation. This is part of the “heroic flexibility” needed to return back to the negotiating table. He also called upon Europe to enhance its ties with Tehran and to “return back to the list of areas of priorities for Iran.” The relationship with Europe remains fraught, clouded by the fallout from the JCPOA, the Woman, Life, Freedom protests, and Iran’s support for Russia in its war on Ukraine. Yet Araghchi emphasized that constructive global engagement is essential for any vision for development and managed to get hardliners to vote for him despite this vision.

Iranian officials have heavily invested in the country’s “Eastward turn” in recent years. The push for closer alignments with Russia and China began during the Rouhani administration but reached new heights under Raisi. But the strategy has not paid off. While Iran’s security relationship with Moscow is deeper than ever before, it has also become a liability, isolating Iran further from the international community. In a similar vein, China’s role as a key economic partner for Iran cannot be understated. Yet, there’s growing concern in Tehran that the relationship has become too one-sided, especially as Iran’s neighbors enjoy economic rewards from their trade with China.

At the same time, Tehran has recognized the opportunities presented by a shifting global landscape. Iran is looking to expand its influence into the Global South—Latin America, Africa, and East Asia. Through this understanding, multilateralism is a key factor in Iran’s core foreign policy strategy, reflected in the increasing involvement in platforms like BRICS, the Shanghai Cooperation Organization, and the Eurasian Economic Union. For Tehran, these alliances are more than symbolic; they are part of a broader effort to counterbalance sanctions pressure while positioning Iran as a significant player in a multipolar world. Pezeshkian has been invited to attend the upcoming BRICS summit in Russia in October, soon after he participates at the UN General Assembly in New York for the first time in September.

To secure the trust of the hardliners, Araghchi declared that “resistance diplomacy” is at “the foundation of Iran's foreign policy approach.” In this view, supporting groups like Hezbollah and Hamas is not just policy; it is a core principle of the revolution. Araghchi’s challenge is to convince the international community that Iran’s continued support for the resistance front is not an inherent threat to regional or global security. This is a difficult task when considering the fragility of the growing rapprochement and diplomatic engagements between Iran and the Arab states. There is considerable skepticism amongst Iran’s southern neighbors about the trajectory of the country’s foreign policy and whether deescalation can be sustained.

Ultimately, Araghchi will need to strike a balance when reshaping Iran’s foreign policy. He must find a way to pursue pragmatic diplomacy in a way that coheres with the ideas of resistance that hold sway over Iran’s hardline politicians. A cautionary tale can be seen in the legacy of Foreign Minister Javad Zarif, under whom Araghchi served as deputy foreign minister. Despite securing major concessions for Iran in various high-stakes negotiations, he failed to penetrate the conservative decision-making circles that ultimately dictate Iran’s broader foreign policy.

Araghchi may have more success. MPs appear encouraged by Pezeshkian’s effort to form a “unity cabinet” and seem to appreciate Araghchi’s closer alignment to key power centers. Iran’s new foreign minister has an opportunity to reshape the country’s foreign policy, cutting a creative path through the rigid confines of the political landscape. Whether he succeeds will depend on his ability to recast pragmatism as a tool of resistance.

Photo: IRNA

Iraq and Turkey Seek Cooperation Through Connectivity

Spearheaded by Iraq and Turkey, the Development Road Project (DRP) is an ambitious trade route connecting the Persian Gulf to Europe through rail, road, and port infrastructure. The project intersects with other regional connectivity efforts which aim to transform the Middle East’s from a region beset by insecurity and conflict into a hub of trade and economic opportunity. In essence, the DRP offers a vision for future regional cooperation.

Iraq and Turkey view the project as a foundation for a new partnership based on shared economic interests. Iraqi officials believe that the DRP will have "great impacts on Iraq’s bilateral relationships with its neighbours," allowing Iraq and its neighbours to develop relations "on the basis of common interests." Turkish President Recep Tayyip Erdogan has heralded the project as "the new Silk Road of our region." Both governments have high hopes that the DRP open a new chapter in their bilateral relations, while also elevating their geopolitical stature as a central node connecting Asia and Europe.

Altogether, the DRP consists of three phases, set to be completed by 2028, 2033, and finally 2050. The total investment in the project is expected to be around $24 billion in the next three decades. The United Arab Emirates and Qatar have agreed to contribute financially to the project, alongside investments from the other partner countries. 

The route starts at Grand Al Faw port in Iraq’s Basra, which is only now finishing its first stages of completion as it prepares to enter operation in 2028. It will follow the Euphrates River to Nasiriyah, pass through the holy Shia pilgrimage cities of Najaf and Karbala, continue to the capital Baghdad, and then proceed to Mosul. From there, it will reach the southern Turkish border city of Mersin before finally extending to Europe.

However, the project faces numerous obstacles. For Turkey, the project is contingent Iraq’s support for curtailing the PKK, a Kurdish militant group. For Iraq, the project depends on progress in disputes with Turkey over water rights. Meanwhile, Iran could act as a spoiler for the project if it sees its interests undermined. 

Mutual Benefits

To bring the DRP to fruition, Iraqi and Turkish policymakers will need to learn from the failed connectivity projects of the past. A shared oil pipeline running from Kirkuk in Iraq to Ceyhan in Turkey has been shut for over a decade due to disagreements over how the two countries should share export revenues. But the stakes for cooperation may be higher now than before.

 Turkey is striving for better relations with Baghdad after years of disputes over water-sharing agreements and its military operations in northern Iraq against the PKK actions mostly taken without Baghdad’s go-ahead. This is central to Ankara’s new regional strategy to expand its diplomatic footprint by offering economic and security dividends to its potential partners, in a bid to make diplomatic cooperation more attractive. Additionally, the DRP allows Turkey to position itself as a gateway for Gulf countries to access European markets. Turkey has been vocal about its exclusion from other regional connectivity schemes, especially the India-Middle East-Europe Economic Corridor (IMEC), which will passes through Saudi Arabia and Israel.  

For Baghdad, the DRP represents a golden opportunity to diversify its oil-dependent economy—oil exports currently account for 90 percent of government revenues. Iraqi Prime Minister Mohammed Shia al-Sudani is keen to reshape Baghdad from a site of regional competition to a regional mediation hub—leveraging its 'middle position'. Addressing the United Nations General Assembly last year, Sudani expressed his desire for Iraq to be “part of the solution to any international and regional problem.” Sudani also aims to take advantage of Iraq’s strategic location at the mouth of the Persian Gulf to attract new trade and investment projects. Of course, success in these arenas would also boost his popularity ahead of the national elections to be held  in 2025, should he seek a second term.

The DRP has two main selling points. First, according to one estimate, the rail route will save around two weeks compared to the Red Sea-Suez Canal route to Europe, which takes approximately 26 days from Asia—thereby reducing fuel and freight costs associated with shipping goods. Second, the project will reduce regional dependence on the Suez Canal. Since November 2023, commercial vessels travelling to the canal through the Red Sea have been targeted by Houthis forces, under the pretext of the group’s support for Palestine. Consequently, ships have been forced to take the costly detour around the Cape of Good Hope to reach European customers, adding a staggering up to 10 days to the overall shipping time.

Mismatched Expectations

For Ankara and Baghdad, the deals being negotiated alongside the DRP are arguably more important than the project itself, as they attempt to resolve long-standing disagreements. As a condition of its support for the DRP, Ankara is seeking more concessions from Baghdad regarding the PKK, which Turkey has designated as a terrorist organisation. The PKK has long maintained a presence in Iraq’s northern stronghold, allowing it to operate close to the Turkish border. Curtailing the PKK has a practical purpose as well—the group has repeatedly targeted the Kirkuk-Ceyhan pipeline and could pose a threat to DRP infrastructure.

Following his visit to Iraq on April 4, his first since 2011, Erdogan claimed to have signed a security pact with Sudani against the PKK. Erdogan emphasised that Iraq had finally recognised the PKK as a “terrorist” organisation. However, the Iraqi central government designated the group as a “banned” organisation, stopping short of labelling it a “terrorist” group. It is conceivable that Ankara made these initial claims to pressure Baghdad into adopting a full designation. A source with knowledge of the Turkish position told the author that Ankara understands and does not expect Iraq to combat the PKK in its strongholds or engage in direct confrontation. Instead, Ankara suggested that the Iraqi central government could implement alternative measures to curb the PKK’s operational abilities in Sinjar, such as increasing checkpoints in the areas and prohibiting permits for PKK offices

These more pragmatic requests contrast starkly with the reality on the ground. In April, Erdogan threatened a major offensive to clear the PKK from Iraqi Kurdistan once and for all. Following through on these threats, Ankara launched a new offensive in Iraq in May, which accelerated in June. While the offensive has been more limited than observers expected, the Iraqi Ministerial Council for National Security declared that it “rejects Turkey’s military operations within Iraq.” Although this statement is likely more for public consumption than anything else, it indicates that a prolonged incursion could build public resentment. 

For its part, Iraq has focused its demands surrounding the DRP on services and water management rather than security. Baghdad has long condemned Turkish dams for reducing water levels in Euphrates and Tigris rivers—crucial for Iraqi irrigation. In a positive development, both countries signed a framework agreement to resolve the water issue during Erdogan’s visit. But ongoing meetings between bilateral working groups, formed after Erdogan's visit, have yielded little progress, making it unlikely that Baghdad will receive its fair share of water anytime soon.

Pushback from Iran

In Iraq, the DRP has also faced local opposition from Iran-backed groups who could scuttle the project—Ankara and Baghdad have done little to secure broader buy-in for the project among these groups. The new revenue streams associated with the DRP could stir-up competition among the different groups comprising the Popular Mobilisation Forces (PMF)— an umbrella organisation comprising various military groups in Iraq, many of which are backed by Iran.

The spokesman for the Iran-backed Shia paramilitary group Kata’ib Hezbollah announced that the road “remains a concern” without specifying the reason. Kata’ib Hezbollah has demanded “guarantees” about the project from Iraqi authorities sparking fears that they could hinder the DRP’s progress. Meanwhile, an official from the parliamentary bloc representing the Iran-backed Asa’ib Ahl al-Haq took to social media to state that the project represents a “stain in the history of Iraqi politicians.” However, Asa’ib Ahl al-Haq is unlikely to act as a spoiler given its growing role within the PMF that may increase its chances of receiving substantial revenues from the DRP project.

Ultimately, Iraqi paramilitary groups might be tempted to target the DRP if they are not included or perceive their interests to be at risk. In the past, the PMF have attacked Turkey’s interests, including energy export infrastructure, in response to its military operations in Sinjar– a hotspot of competition between Ankara and Tehran.

Given Iran’s deep ties to Iraq and its significant sway over several armed groups in the country, its stance could make or break the project. The role it chooses will also depend on the fluctuating state of Iran-Turkey relations. Iran has shown wariness about connectivity projects that could rival its own aspirations to become the primary hub for transit routes, particularly with the development of the International North-South Transport Corridor (INSTC). Tehran’s support for the DRP is therefore conditional on its involvement. Specifically, Iran aims to complete its first railway link with Basra soon. If this railway connects to the DRP—a possibility Iran is pursuing—it would enhance trade with both Iraq and Turkey. This point was made clear during a meeting in June between Iranian Acting Foreign Minister Ali Bagheri Kani and Sudani, where Iran expressed its willingness to "contribute" to the project.

Looking Ahead

Importantly, the Iraqi government has yet to conduct a comprehensive feasibility study to assess the mega project's viability. Turkey and Iraq seem comfortable with the delay, viewing it as a confidence-building measure that could eventually lead to greater economic consolidation. However, the real challenge lies ahead: addressing the longstanding issues that have strained Iraq-Turkey relations for years, rather than skirting around them with vague promises that will only resurface later and derail the project. In the absence of security-focused negotiations to address these issues, they risk becoming bigger obstacles to the DRP’s success.

Much of the diplomatic burden unfairly falls on Iraq to rally support among the different armed groups and governorate-level political groups—who may act as spoilers if their interests are not met. Baghdad should engage seriously with groups likely to feel excluded, while both countries should adopt a multi-pronged diplomatic approach to secure regional buy-in.

Before this can happen, both nations urgently need to flesh out the funding details and conduct a feasibility study to align expectations among the many stakeholders. Ultimately, in a region where infrastructure projects too often get caught in the crossfire—and considering the unpredictable nature of the Iraqi political sphere—this venture requires a more proactive approach to succeed. Political will alone is not enough.’

Photo: AK Party