The Baku-Tbilisi-Kars railway demonstrates the power of small countries to challenge the economic order through shared infrastructure projects.

The iconic Flame Towers in Baku, Azerbaijan. Niyaz Bakılı/Flickr CC BY 2.0

By Rick Twelves | November 1, 2017

Two decades ago, James Bond foiled a conspiracy to disrupt oil pipelines in Central Asia and the Caucasus with the assistance of highly improbable gadgets. The spy thriller was loosely based around the Baku-Tbilisi-Ceyhan pipeline, then under construction, but the film inadvertently highlighted a key theme for modern economic development: The power of small countries to challenge the economic order through shared infrastructure projects.

Connecting the Caspian Sea to the Mediterranean via Azerbaijan, Georgia, and Turkey, the Baku-Tbilisi-Ceyhan pipeline ended a Russian monopoly on Central Asian hydrocarbon exports and shortened the transit time required to reach European markets when it was completed in 2006. The project’s investors were an unsurprising assembly of Western oil giants hailing from the UK, the US, France, Italy, and Norway, plus Japan and Azerbaijan. While the pipeline carries a little more than 1% of global oil flows today, the effort helped bring economic and political opportunities to a region severely lacking in them.

Eleven years and four James Bond films later, the South Caucasus region reached another connectivity milestone this week with the completion of the Baku-Tbilisi-Kars (BTK) railway. Now, the Caspian Sea is connected by train directly to mainland Europe, bypassing Russia. With all eyes focused on China’s ambitious Belt and Road Initiative (BRI), which aims to connect much of the global economy to China by rail and sea, the BTK rail project demonstrates how connected infrastructure projects solidify newly formed geopolitical alliances.

Political deja vu

The pipeline and railway were originally conceived in the early 1990s as the Soviet Union was falling apart. The plan was to revive an aging Soviet route that crossed Azerbaijan, Georgia, and Armenia before arriving in Turkey and onto Europe. Turkey was particularly enthusiastic about the plan, as it fit nicely with Ankara’s desire to become a strategic transit hub for everything from oil to airline passengers.

The infrastructure proposals came to a screeching halt, however, when war escalated between Azerbaijan and Armenia in 1993-94 over the small mountain region of Nagorno-Karabakh. Turkey was stuck between a rock and a hard place: It wanted to repair relations with Armenia given its fraught history, but it was also courting Azerbaijan and its plentiful hydrocarbon resources.

Turkey ultimately sided with Azerbaijan and closed the border with Armenia, a policy still enforced today. This made any trilateral development across the three countries impossible. Instead, Turkey and Azerbaijan struck a team with Georgia and settled on an expensive serpentine route to the Mediterranean. European powers protested the intentional isolation of Armenia, but eventually went with it and funded the pipeline. Concerned for its overland monopoly between China and Europe, Russia insisted that such a pipeline and railroad would never be profitable.

Fast forward to 2017, and each of these issues are more relevant than ever. The unresolved Nagorno-Karabakh war has perpetuated Armenia’s economic exile and pushed it firmly into Russia’s geo-economic orbit. Thus, when revisiting the railway, European and US donors again insisted on routing through Armenia instead of Georgia, and this time completely denied financial help when the remaining parties refused. Western financiers were motivated by a desire to limit Russia’s regional influence; the US was also reportedly nudged by Armenian lobbies in Washington. Additionally, the imposition of sanctions on Russia after its annexation of Crimea in 2014 made the transportation of some goods across Eurasia much more expensive. Put simply, the region was ready for another shake-up from Cold War era tensions.

New economic territory

Left with no foreign funding options, Azerbaijan, Georgia, and Turkey paid for the entire project themselves, which was the primary reason behind seven years of delays. Ultimately, Turkey and Azerbaijan completed their sections independently, but Georgia needed some $750m in loans from its neighbors.

The BTK railway breaks Russia’s overland monopoly and allows for sanctions-free travel between Asia and Europe, reducing future transportation costs. Furthermore, the railway was finished during the first stage of China’s monumental BRI; the middle crossroad on the ancient Silk Road is once again a coveted destination. The development of this project demonstrates how these countries are taking seriously the need to create lasting economic and political partnerships that are cemented by infrastructure projects. With China’s BRI looming in the minds of many government planners, the BTK route is a significant step towards economic independence in the region.

The railway will begin by shuttling 1m passengers per year and 5m tonnes of cargo. If momentum holds, it has the capacity to transport 3m passengers and 17m tonnes per year  by 2030. The path from Beijing to London will carry goods first to Kazakhstan, then to the Caspian Sea, onward along the BTK, and, finally, to Europe. The entire trip will take a mere 15 days at half the cost of air transport and twice the speed of sea transport. In tandem, Kazakhstan has been investing heavily in its own railroad system, thanks to funding from China.

There are still many uncertainties ahead for the BTK railway. Russia could shake off sanctions and become a close competitor. China could avoid transiting so close to war-torn territories and divert goods destined for Europe through the Suez Canal. But the fact the railway is entering service at such a fortuitous time for the BRI bodes well for its success.

Twenty-five years ago, nobody involved in planning the railway or pipeline could have predicted China’s rising dominance, the re-emergence of the non-West, or ‘85 world’, or the political centrality of the Caucasus – except for James Bond, perhaps. The BTK railway demonstrates how unlikely alliances solidified by infrastructure projects between small countries can create new economic realities that challenge the dominance of larger economies. As the 85 world continues to grow, such alliances and projects will come to define our new global economic landscape.

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