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Iran, Russia ink $1.6 billion rail deal to rival Suez Canal

Iran and Russia agreed to build a railway between two Iranian cities as they continue to develop their trade relations despite US sanctions.
Russian President Vladimir Putin and Iran's President Ebrahim Raisi hold a meeting in Tehran on July 19, 2022. - Iran's president will host his Russian and Turkish counterparts for talks on the Syrian war in a three-way summit overshadowed by fallout from the Russian invasion of Ukraine. (Photo by Sergei SAVOSTYANOV / SPUTNIK / AFP) (Photo by SERGEI SAVOSTYANOV/SPUTNIK/AFP via Getty Images)

Iran and Russia signed a major railway agreement on Wednesday. The deal is part of the International North–South Transport Corridor the two countries are developing with India to rival the Suez Canal.

The $1.6 billion agreement is to build a 162-kilometer (100-mile) railway between the Iranian city of Rasht on the Caspian Sea and the Iranian city of Astara on the border with Azerbaijan. Iranian Roads Minister Mehrdad Bazrpash signed the deal with his Russian counterpart, Vitaly Savelyev, during a video conference, the official Islamic Republic News Agency reported.

"This is indeed a great event for the region, for the entire world transport infrastructure, for our countries," said Russian President Vladimir Putin during the conference, Russia’s official TASS news agency reported.

Iran and Russia will jointly supply the development of the project, according to TASS.

Background: The International North–South Transport Corridor is a rail, road and ship network linking Russia to India. The purpose of the network is to increase trade between the involved countries. Russia, Kazakhstan, Turkmenistan, Azerbaijan, Iran and India are part of the corridor. The route is overland between Russia and Iran, after which it turns into a sea route to India.

Iranian state media has repeatedly framed the corridor as an alternative to the Suez Canal. 

Shipments along the corridor between Russia and India by way of Kazakhstan, Turkmenistan and Iran began last year, according to reports.

The Rasht-Astara railway will link pre-existing overland sections of the corridor and take an estimated four years to complete, according to TASS.

Why it matters: Iran and Russia have been working to boost trade, including via the International North–South Transport Corridor, for years. More recently, the two countries have been working to circumvent US sanctions in their efforts to promote bilateral trade.

The following is a list of notable Iran-Russia trade developments in the past year:

  • June 2022: Iran and Russia signed a memorandum to establish mutual trade centers in Tehran and St. Petersburg.
  • August 2022: Iran announced it began using its own currency, the rial, and the Russian ruble for bilateral trade. The move is part of an effort to reduce dependence on the US dollar for trade.
  • January 2023: Iran and Russia signed a financial messaging agreement between their respective banks. This came in response to the international financial messaging system SWIFT banning banks from both countries due to US and Western sanctions. 
  • May 2023: Belarus and Russia signed a $497 million deal to import vehicles from Iranian carmaker SAIPA.

The International North-South Transport Corridor could rival the Suez Canal if more entities begin to use it, though this will be an uphill battle. The Suez Canal currently accounts for about 12% of global trade.

Know more: Iran-Russia relations have also been strengthening in the military domain. Russian navy commander Adm. Nikolai Yevmenov visited Iran to discuss cooperation with his Iranian counterpart, Shahram Irani. This followed Iranian Foreign Minister Hossein Amir-Abdollahian's visit to Moscow in March to discuss military cooperation.

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