Barely a decade ago, the city of Kars had to fight hard to ensure it was connected to a new improved railway line stretching east across Turkey from Ankara. Now it is set to be a transit hub connecting southern Europe to China, via the Caspian.

Given the go-ahead early this year by the governments of Azerbaijan, Georgia and Turkey, after 15 years of hesitations, the $600 million Baku-Tbilisi-Kars railway line is expected to be completed by 2009.

In late September, 14 Turkish companies including construction giants Nurol and Tekfen presented bids for the 70 kilometer section of track due to connect Kars to the Georgian border. Turkey has ear-marked $300 million for the work. Gas-rich Azerbaijan has already given Georgia $40 million of a $200 million loan – to be paid back over 25 years at 1 percent interest – to finance its part of the project.

Kars mayor Naif Alibeyoglu sees the railway as a crucial lifeline for the city, one of Turkey's five poorest. "Not so long ago, people joked about selling Kars off for a handful of lira", he says. "Now we can look to the future with hope."

He also thinks the BTK line confirms Kars' position as a natural bridge between two geographical zones. "Kars is as much Caucasian as it is Anatolian", he says, referring to the city's distinctly un-Turkish cobble-stone boulevards and elegant black stone houses. Kars was in Russian hands between 1878 and 1918, and many of its inhabitants are the grandchildren of Azeris who fled inter-ethnic fighting and Bolsheviks at the end of the First World War.

A media-savvy man, Alibeyoglu is convinced it's his lobbying that has brought the railway project to fruition. In reality, the BTK is just another sign of what Stanislav Belkovsky, director of the Moscow-based Institute for National Strategy, calls "the myth of the unerring dependence of Eurasian states on Russian hydrocarbons."

If the railway has taken so long to get off the drawing board, it is largely because of Georgian hesitation. In part, Tbilisi's problem was simply lack of money. But it also feared a trans-Caucasian railway would undermine the importance of its two major Black Sea ports – Batumi and Poti.

It changed its mind after Moscow cut transport and postal links with Georgia following Tbilisi's arrest of four Russian soldiers in September 2006 on spying charges. [For background see the Eurasia Insight archive].

Not everybody is happy about the new route. Armenia, which has had antagonistic relations with Turkey for most of the last century, stands to be shut out from the benefits of the BTK railway.

The green light for railway construction riles Yerevan for the simple reason that it already has a railway line connecting Turkey to the Caspian. Considerably shorter than projected Baku-Kars route, the Armenian line – which crosses the Turkish border 40 kilometers east of Kars – could be brought back to life for a fraction of the cost of the new project. The chief obstacle to cooperation is a Turkish embargo against Armenia – imposed in 1993 after Armenian forces drove the Azerbaijani military out of the disputed territory of Nagorno-Karabakh, and went on the occupy a substantial portion of Azerbaijani territory. Efforts to negotiate a Karabakh peace settlement remain deadlocked. [For background see the Eurasia Insight archive].

The lack of Turkish-Armenian cooperation helps explain European and American unwillingness to help finance the BTK. It remains to be seen whether the World Bank will respond any differently to an Azeri request for funding made this September 11.

In Akyaka, a Turkish town that sits astride the old trans-Caucasus line just 10 kilometers from the Armenian border, locals seem resigned to their fall into dusty oblivion.

"We used to get a lot of freight through here", railway worker Fuat Erdogdu remembers. "Now we're the end of the line – just one train a day from Kars."

With the BTK project in the works, Akyaka mayor Bulent Ozturk acknowledges, the likelihood of the local track being reopened to international trade is slim. "We'll survive. It's Armenia I feel sorry for: Armenians are poorer than us."

Like almost all locals, he goes on to insist that there is no question of Turkey ending its Armenian blockade unless the Nagorno-Karabakh issue is resolved.

Back in Kars, Naif Alibeyoglu is more candid. Armenian president Robert Kocharian has painted his people into a corner with his hawkishness, he says, but Turkey is to blame too.

"Trade is the best way to improve relations. But Turkey's governments have always preferred to play the populist card – talking about standing up for our Azeri brothers. The result? Stalemate."