Armenia shelves Iranian railway project as Azerbaijan steams ahead

An Armenian official has announced that the long-discussed railway line connecting the country with neighboring Iran is not an immediate priority. The announcement comes as rival Azerbaijan moves ahead with its own ambitious infrastructure development.

On July 19, Armenian Transport and Communications Minister Ahot Hakobian told RFE/RL’s Armenian service Azatutyun that the project is “not part of [the government’s] short-term plans at the moment,” citing its estimated $3.5 billion construction cost as the main obstacle.

Initial agreements on the railway’s construction were made between Yerevan and Tehran in 2009. Three years later, Armenia granted the Dubai-based Rasia FZE Investment Company a 50-year concession to manage its 305-kilometer section of the railway.

“The idea is good and, depending on the country’s development, if we can afford it in the future we could go for it,” Hakobian said. “But it is not topical now.”

Armenia’s former Prime Minister Karen Karapetyan had acknowledged the project’s financial difficulties in January this year.

Trade between the two countries has been growing but remains modest, reaching just $263 million this year. In December 2017, Armenia launched a free economic zone in Meghri, a city on the Iranian border, in a bid to boost trade and make the railway more economically viable.

But it is Armenia's rival, Azerbaijan, that appears to be gaining ground in the region’s infrastructure development race. In January, Tehran accepted a $500 million loan from Baku to construct a 205-kilometer railway from Rasht to the Azerbaijani border (known as the Rasht-Astara line). The line will form part of the International North-South Transport Corridor.

That project is an ambitious, 7,200-kilometer trade route comprised of shipping routes, highways and rail links moving freight between Indian, Russian and European markets. Tests conducted in 2014 showed that transport costs were reduced by $2,500 per 15 tons of cargo by using the route.

And geopolitical uncertainty – most notably the threat of renewed U.S sanctions on Iran – do not appear to have put the project on hold.

“The work on the International North-South Transport Corridor is proceeding ahead as planned and no changes have been made to the project,” Abbas Nazari, an Iranian transport official told the Azerbaijani news outlet Trend.

“We are even moving ahead of the schedule,” Nazari added confidently, noting that “this is not the first time” Washington has imposed sanctions on Tehran.

U.S. President Donald Trump withdrew from a multinational nuclear deal with Iran in May, with a new round of sanctions scheduled to begin in August, but the full implications for Armenia and Azerbaijan remain unclear.

Baku hopes the project will gain it a strategic advantage in its decades-long conflict with Armenia. Planners are in talks with Turkish and Iranian officials to revive a Soviet-era railway linking Azerbaijani exclave Nakhchivan with both Kars (in Turkey) and Mashad (in Iran), allowing goods to pass through to markets in Pakistan.