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

India’s Iran Port Plans Languish Despite US Waiver

A year has passed since the US reimposed sanctions on Iran. During this time, the Trump administration exempted India’s investments in the Iranian port of Chabahar from sanctions in order to protect India’s strategic interests. Despite this accommodation, recent government data suggests that no new Indian investments have been made in the port project in the last two years.

Foreign aid expenditure figures released in July by the re-elected Modi government show that India has not spent any of its allocated funds for Chabahar since 2017. There is a conspicuous absence of spending even though roughly USD 20 million (150 crore rupees) was set aside each year. The government has now allocated a significantly lower, and perhaps more realistic, USD 6 million for the current year.

These figures confirm reports that India’s ambitions for Chabahar had hit a stumbling block even before Trump withdrew from the JCPOA nuclear deal. Evidently, the sanctions waiver has not been of much use either.

India’s Chabahar Ambitions

Indian prime minister Narendra Modi, now in his second term, has declared regional connectivity as a primary foreign policy goal and injected momentum into major initiatives to India’s east and west. A part of this was certainly driven by the state’s concerns about China’s own mammoth connectivity drive—the Belt and Road Initiative (BRI)—that runs through its immediate neighborhood and traditional sphere of influence. The project ideas themselves, however, pre-date the BRI.

The main regional connectivity project to India’s west is the Iran-India-Afghanistan transit initiative that hinges on the development of the Chabahar port along with road and rail links connecting it to Afghanistan. With Pakistan denying land access to India, New Delhi intends to use Chabahar to engage with the Afghan market and support Afghanistan’s trade and economic development.

Four years after Modi injected fresh momentum into the project, development at Chabahar has been slow—largely owing to US sanctions against Iran.

As per Iran’s original four-phase development plan, India was to invest USD 85 million to upgrade, equip, and operate two terminals on a ten-year lease. Indian prime minister Narendra Modi and Iranian President Hassan Rouhani oversaw the signing of this contract in May 2016 during the former’s visit to Iran.

Subsequently, Iran upgraded existing port infrastructure as per their agreed first phase of development. This upgraded port was inaugurated in December 2017 with great fanfare. The following year, India took over operations of the port but not much else went according to plan.

Ambitions vs. Reality

When it comes to sanctions, talk is never cheap.

Statements are more than enough to spook companies, heighten risk-aversion, and add further costs to proposed ventures. This was the case for Chabahar as early as Trump’s election campaign, long before the US president violated the nuclear deal.

The Indians first faced an investment chill at home. The Chabahar project calls for a private Indian firm to come on board as a strategic partner to manage, operate and maintain the port for ten years. The government entity created to oversee India’s foreign port projects—India Global Ports Limited (IGPL)—held two bidding rounds since 2016 with no result. It is now rewriting the terms a third time. Given the delay, the Indians signed on an Iranian firm (Kaveh Port and Marine Services) in the interim to take over operations.

A second task was to equip the port. European firms were Iran’s first preference but predictably after Trump’s win, they showed little-to-no interest in equipment bids. This left India with no choice but to work with Chinese firms. Interestingly, a Chinese company that won a bid to supply cranes in 2017 is blacklisted within India. Recent reports in the Indian media now suggest that some of these companies are reluctant to deliver equipment. Again, an environment of fear and uncertainty remains despite the US exemption.

A third aspect is the larger regional project on connectivity between India, Iran, and Afghanistan. As things stand, all parties are working with existing port infrastructure, roadways and operational capacity on this transit project. The route was tested successfully in October 2017 when Indian shipments of wheat arrived at Chabahar from Kandla (Gujarat) and made their way into Afghanistan. There is much left to be done, including the building of a new railway route, but Trump’s sector-specific sanctions pose new complications.

Making Do and Muddling Through

Three years on, Chabahar’s progress does not match India’s original expectations and Trump’s exemption has proven to be inadequate.

This project was touted to be India’s first foreign port development endeavour. For many assessing New Delhi’s record on infrastructure development abroad, the Chabahar project is no longer a useful indicator. It continues to rely heavily on stopgap measures with neither Indian nor foreign companies coming on board. It was a venture that New Delhi could have fought harder to preserve. But the reality is that it chose not to—a decision that merits an entirely separate discussion on the nuances of the India-US partnership and Iran’s reduced place in it.

All signs today point to the stakeholders behind the Chabahar project muddling through with what exists on the ground in Iran. As one Indian official involved with the project since its origins lamented, “This was not what we hoped to achieve. Chabahar is only about photo-ops now, not substance.”

Photo; Logiscm.ir

For Iran Warehouse, ‘Unglamorous’ Logistics Real Estate Offers Resilience and Returns

Coco Ferguson first saw the potential in logistics real estate in East Africa, where as a co-founder of Nairobi-based Maris Limited, she raised USD 60 million to fund the development of Kenya’s first “Grade A” warehouses. Now she wants to replicate that success with Iran Warehouse, a company she founded alongside Nader Sianaki, whose family developed some of Iran’s first modern warehousing seventy-five years ago.

The logistics industry in Iran is burgeoning. International players such as DHL Freight and Kuehne + Nagel are connecting the Iranian market to the world by land, while Maersk Line and MSC create new links by sea, facilitating the significant increase in the variety of foreign goods available in Iran since the lifting of international sanctions in January of 2016. The rise of e-commerce has also led to significantly more demand for timely and reliable logistics and distribution services.

Despite these new entrants, Iran’s logistics real estate remains greatly underdeveloped. The World Bank began ranking global logistics infrastructure in 2007 with the Logistics Performance Index. The index looks at five factors: timeliness, customs, infrastructure, international shipments, competence, and tracking. The world’s top ranked country is Germany. Iran ranks 96. Though infrastructure is one of Iran’s stronger categories, its score of 2.67 is significantly below Germany’s score of 4.44. A lack of warehousing is one major reason for the shortfall.

Ferguson and Sianaki estimate that Tehran alone needs 2-3 million square meters of Grade A warehousing space. Current capacity is just 10 percent of that amount. Iran Warehouse has ambitious plans to fulfill latent demand and change the face of what Ferguson calls an “unglamorous sector.”

The company has raised 80 percent of an initial EUR 10 million funding round from a combination of European investors and Iranian banks in order to develop Iran’s first true Grade A warehouse park—a 60,000 square meter development in West Tehran, located near the junction between the Azadegan Expressway and Fath Highway. The company currently operates a 6,200 square meter facility in Shurabad. Further sites are under planning.

Iran Warehouse is entering a sector characterized by fragmentation and inefficiency. Nearly all warehouses in Iran are owner-occupied, bucking the international norm. Manufacturers and logistics firms around the world typically seek to avoid the cost and hassle of owning their own warehouses, opting instead to lease space from logistics real estate firms. The world-leading logistics real estate company is San Francisco-based Prologis, which oversees a portfolio assets worth USD 79 billion. The Chairman and CEO of Prologis is Iranian-born Hamid Moghadam. One of Europe’s largest logistics real estate companies with 630 properties, Logicor, is also led by an Iranian, Mo Barzegar.

But in Iran itself, commercial enterprises treat real estate assets as a hedge against volatility and risk. Banks have also been historically reluctant to provide loans to enterprises without real estate collateral. The incentives for companies to own their own warehouses are clear.

Owning real estate does not however mean that Iranian logistics companies value it. A 2018 study by researchers at the Iran University of Science and Technology surveyed 119 Iranian logistics providers, who were asked to rank key success factors in their industry from one to five, with five being the most important. Just ten respondents gave “fixed assets” which includes warehousing facilities, the highest score of five, while 47 respondents scored fixed assets at one. It is fair to assume that logistics providers have a limited appreciation of the additional costs and lost efficiencies represented by the current configuration of logistics real estate in Iran.

Even Iran’s largest companies often make do with numerous small warehouses, which requires them to take-on additional staff and equipment for each site. Ferguson believes that companies in Iran are paying a 30 percent premium on overhead because of such configurations. Add to this the additional costs of inventory management and distribution from multiple centers, and overall logistics costs are probably 60 percent higher than would be the case for a company with access to a well-located and professionally-managed warehouse. The additional cost is passed onto the consumer, creating wider economic consequences.

For Iran Warehouse, these high costs present a unique opportunity. Ferguson acknowledges that Iranian companies have ingrained habits, but cites early success in demonstrating to potential clients how upgraded logistics infrastructure and professional third-party management can unlock value.

The company has partnered with Niktak Freight Forwarders and Shipping, the Geodis agent in Iran, to provide distribution services in addition to the operation of its warehouses. Turn-key solutions have seen Iran Warehouse win 5-7 year leases from clients, rather than the one-year leases that have been commonplace in the warehousing market.

A rendering of Iran Warehouse's planned 60,000 square meter facility

For investors, warehouses may not seem like the most appealing assets, but Ferguson thinks those looking at Iran often overthink their strategies. “Iran is seen as a high risk market, and so investors naturally gravitate towards high-risk, high-reward businesses,” she notes. “Investors tend to ignore the very low risk opportunities in an area such as warehousing.” Warehouses, unlike other forms of real estate, can be built in phases as clients are found, limiting the risk to upfront capital.

While Ferguson expects to generate conservative returns of 15-18 percent for her investors, she notes that Iran Warehouse’s revenues are tied to contracts indexed to the Euro, eliminating exposure to volatility in foreign exchange. Given that Iran’s currency has lost over 30 percent of its value over the last year, an insulated 15 percent return is inherently attractive.

Moreover, the Iran Warehouse business model is not dependent on new companies entering the Iranian market. With political uncertainty having limited the number of new multinational companies entering Iran’s consumer markets in the last year, history shows, Ferguson believes, that the global FMCG companies currently active in Iran “are definitely sticking around.”

By focusing on the storage and handling of food and finished goods, rather than industrial products, Iran Warehouse will enjoy consistent demand however the political tides may turn. The anchor tenant for the company's new facility is global food and beverage giant Nestle, which has been operating in Iran through its local subsidiary for 15 years.

Ferguson observes that a lot of the current real estate development in Iran will necessarily require further development in warehousing: “There are 65 shopping malls being built in Tehran,” she says. “But I don’t know of a single major third-party warehousing development to actually hold the goods that are going to go into stores. Without development on the logistics side, distribution costs will remain unreasonable.”

Moreover, as zoning in Tehran is changed to reduce congestion, many smaller warehouses located in what are now centrally-located neighborhoods are being converted to residential or retail developments. Tehran Municipality therefore has an interest in seeing consolidation in logistics real estate. Newly constructed warehouses will often be situated in Tehran’s traditionally blue-collar outskirts, which have seen factories relocate further afield, to places like Qazvin. These new facilities will bring much-needed jobs. Iran Warehouse’s Azadegan site will create 250 jobs when fully developed.

A huge proportion of Iran’s economic potential remains unrealized simply because of the inefficient configuration and use of existing resources. World-class investments in logistics real estate, though unglamorous, could prove one of the most fundamental ways to create economic value. For Ferguson and Sianaki, who look upon Iranian-led Prologis and Logicor as models to emulate, the challenge is to “bring that winning mentality home.”

Photo Credit: Iran Warehouse