We have addressed virtually all previously outstanding issues, including land registration and obtaining benefits,” Tsivilyov said on the sidelines of an intergovernmental commission. “It is very complex, but we managed to resolve all the implementation issues. We can confidently say that as of April 1, we will begin the implementation phase of this large-scale infrastructure project,” he added.

Iran giving strong support to INSTC

Iranian President Masoud Pezeshkian has committed to removing all obstacles hindering the development of the INSTC by the end of March. “Relations between Iran and Russia are robust, with numerous agreements being signed and actively implemented,” Pezeshkian said. “We aim to eliminate remaining barriers by the end of the (Iranian) year so that the railway route can be completed and become operational,” he added.

Iran’s role does bring challenges.

Iran is important to North South Corridor but there are some concerns its political stance both internationally and domestically is a problem. Led by a hard line Muslim Islamic establishment it has backed many of the rebellions in the Middle East and has incurred the strong disapproval of moderate Muslim states, the West and the United States, who maintains two battleship groups in the Indian Ocean in order to bomb Iran.

Domestically a worsening economy triggered huge demonstrations across the country which were brutally crushed in January leading to widespread concerns about the stability of the regime. “Tensions between Iran and the US, particularly Trump’s policy of reimposing ‘maximum pressure’ on Iran, undoubtedly increase the risks associated with using Iranian transit routes.

Furthermore destabilisation of the domestic political situation could lead to higher insurance costs for cargo transport,” Nargiza Umarova, Head of the Center for Strategic Connectivity at the Institute for Advanced International Studies, University of World Economy and Diplomacy, Uzbekistan told RailFreight.com.

Where is the money going to come from?

One other big problem for the Corridor is finance. Iran whilst it has oil has an economy which is severely sanctioned – the consequence of years of supporting Islamic rebels and attempting to have its own nuclear weapons. “Sanctions and their tightening remain a significant constraint. Last year, for example, Washington took steps to reinstate sanctions against Iran’s only ocean port, Chabahar, which is included in many interregional transport projects. Only India, which is investing in the port’s modernization, was granted a six-month deferral that expires in April 2026,” added Umarova.

Her view is INSTC does not harm Iran’s transit capacity, but rather contributes to its expansion — especially given the increased practical significance of the project for Russia. “Following international sanctions imposed on Russia for its invasion of Ukraine, the country is reorienting its exports of raw materials towards the South Asian market. This trend has breathed new life into the INSTC,” she told RailFreight. “In 2024, for example, the volume of cargo transported along the eastern branch of this corridor, via direct rail links between Kazakhstan, Turkmenistan and Iran, nearly tripled compared to 2023, reaching 2 million tonnes”, Umarova added.

IMEC now more challenged

This is all adding to the difficulties facing IMEC the India-Middle East Corridor which India’s Prime Minister Narendra Modi announced at the September 2023 G20 Summit in New Delhi amidst broad excitement which has now gone. Not only is the IMEC route too close to both the Houthi’s in the Red Sea and the Israel-Arab War but some feel Iran’s Revolutionary Guards – who control much of Iran’s logistic industry – have a vested interest in egging the conflicts on.

“If IMEC became the standard trade route, not only Iran but also the Islamic Revolutionary Guard Corps itself stood to lose. If the Bab el-Mandab (the entrance to the Red Sea and prime Houthi territory) remained too risky or expensive to transit, Iran hoped to profit as an alternative transit route,” said Michael Rubin director of policy analysis at the Middle East Forum and a senior fellow at the American Enterprise Institute in FirstPost.com. On top of this Saudi Arabia, the effective Middle East part of IMEC, is now changing its foreign policy and pivoting towards Pakistan and possibly Turkey in what some have dubbed “the Islamic Nato,” – something that would be difficult for India.

“The parties agreed to sign an agreement on the implementation of the Rasht – Astara railway construction project by the end of March 2025. After that, the Russian side will begin construction work”, said Iran’s ambassador in Moscow.

It has taken the two countries some time to reach this point of agreement. Moscow and Tehran long discussed the question of financing, and more recently, Russia accused Iran of making too slow progress in land surveying.

Financing

Earlier, it was reported in Iranian media that Russia would finance the majority of the line with over a billion euros. Whereas Russian media now are still mentioning the same figure – 1,3 billion euros to be precise – they speak of an intergovernmental loan, rather than direct funding. The total cost of the Rasht – Astara line is estimated at 1,6 billion euros.

The Rasht – Astara railway is the only missing piece of a hypothetical continuous rail line between Russia and Iran along the western coast of the Caspian Sea. If completed, trains from Central Russia could uninterruptedly make their way to the Indian Ocean ports of southern Iran, and vice versa.

Notably, Tehran wants to create various corridors from the vital Astara hub at the Azerbaijan border to the Indian Ocean. When put into practice, such corridors would be a major development for the INSTC and ease traffic along the north – south axis. The ports to be connected include Bandar-Khomeini, Bushehr, Bandar-Abbas and Chabahar.

Delays and unexpected costs

Moreover, Iran wants to build a rail corridor along its eastern border, close to Pakistan and Afghanistan. That line could give the famously landlocked Central Asian countries access to the Indian Ocean – and earn Iran even more transit revenue by offering better connectivity on the eastern branch of the INSTC. A part of this line is already in place.

Iran says it wants to complete these projects in seven to ten years. Whether it will manage to do so remains to be seen, but rail projects are often delayed and met with unexpected costs.

A 2005 agreement, but still not building

For example, the crucial Rasht – Astara railway, the last missing rail piece for an uninterrupted western branch of the INSTC, was supposed to start construction in early 2024. However, construction has not started as of January 2025, even if an agreement to build the route was signed as early as 2005.

Similarly, a railway to the key port of Chabahar was supposed to be finished in 2024, but such a connection seems to be nowhere in sight.

Rail projects often grow significantly in costs as time passes. In Europe, Rail Baltica is a case in point: The project was initially estimated at 5,7 billion euros in 2017, by summer 2023 this number had grown to 25 billion euros.

Quarrelling with Russia

With the lack of progress on Iranian rail projects, costs will inevitably grow too. Quarrels with Russia over the Rasht – Astara railway concerned exactly that issue. Russia wants to move ahead with land surveying and purchasing, arguing that land prices will rise spectacularly if delayed. For unclear reasons, Iran does not exactly seem to be in a hurry, but that might be explained by the fact that Russia is funding the majority of the project.

There clearly are major hindrances to Iran’s rail plans, and that is even without considering the country’s dire geopolitical situation.

Tehran’s nine new rail corridors are supposed to boost Iran’s rail capacity to 60 million tonnes annually, and should cost slightly over 10 billion euros.

Oil and gas

Even without the likely cost inflation, that is no cheap price tag for a country already running a sizable budget deficit at close to 6 per cent of GDP. Unfortunately for Iran, there is no financial easing in sight in the foreseeable future. It is going through a serious economic crisis.

Even though Tehran is famously a large oil and gas exporter, sanctions have hampered the sector’s modernisation. As a result, production is seriously lagging, the country is already rationing energy and risks becoming a net importer of energy with growing domestic prices. In combination with dozens of billions of politically sensitive energy subsidies for the general population, that puts pressure on Iran’s budget – it can’t afford to free up money by making its impoverished and dissatisfied population pay more for energy.

And then there is the international arena. The USA just inaugurated a very hawkish president (at least on the topic of Iran). Experts expect the new American administration to more strictly enforce sanctions against Iran, putting additional pressure on its already troubled economy and budget.

Will the INSTC survive?

Add to that the loss of key ally Bashar al-Assad in Syria, and the door is open for arch nemesis Israel to take further action against Tehran – something that experts note is now a rather likely scenario. Iran is reportedly tripling its military budget in 2025. If accurate, it would amount to over 30 billion dollars. It seems unlikely that rail infrastructure and the associated budget will be at the top of Tehran’s minds with a looming Israeli attack.

Iran’s dire economic and geopolitical situation are likely to put a spanner in the works of its rail plans. They were already questionable before Trump took office, and now seem even more unrealistic. The game changer now is that the entire INSTC might be in trouble: without Iranian infrastructure, there is no INSTC. The question is if Iran will retain the capacity to act as a transit hub for rail freight. If so, are shippers going to be willing to send their goods through an Iran that is seriously destabilised by Washington and Israel?

By introducing sliding wheelsets, there would be no need for reloading terminals in Astara. In other words, this would allow trains to run directly from St. Petersburg, in Russia, to the Iranian port of Bandar Abbas without having to reload the cargo. This project is being developed by the Russian Scientific Research Institute for Rail Transportation.

Rasht-Astara’s final look remains unknown

Despite the various projects being announced, however, the actual construction of the Rasht-Astara railway remains somewhat of a wild card. At the end of 2023, Iranian officials claimed that construction could start in early 2024, but no stone has been laid as of yet. The main prerequisites to be met before construction can start are geodetic, design and survey work. However, it seems that Iran is only willing to allow these processes to be carried out on just 20 per cent of the route, roughly 30 kilometres.

Until these initiatives are carried out across the whole area which will be covered by the new line, no contract can be signed for construction, as a representative of the Russian Ministry of Transport said to Russian media RZD Partner. This means that the specific route that the new line will follow cannot yet be drafted. Russia and Iran recently finalised an agreement concerning the financing for the construction of the Rasht-Astara railway, which envisioned Russia picking up most of the costs.

What remains now is a railway connection from Rasht to Astara on the Iran-Azerbaijan border, so a continuous railway link spanning Russia, Azerbaijan, and Iran will provide access to the Indian market. According to the latest reports, the Rasht-Astara railway is expected to be finalised in 2028, despite being initially expected to enter operations in 2024.

Also read: INSTC takes up role as energy corridor: Russian coal to head to India

Russian deputy minister for transport Dmitry Zverev commented on the state of the Rasht – Astara railway. “We hope that we can embark on survey works already in the month of June. An executive contract will be signed, and construction will start in this year in accordance with the design, in order to launch the line already in 2028”, the deputy minister said. Initially, the Rasht – Astara railway was supposed to be operational by 2024.

Earlier, it was reported that Russia had agreed to finance the projected cost for the rail line at 1,6 billion euros. While the cost of construction remains unchanged, Azerbaijani media now report that Russia and Iran will take out a joint interstate loan at 1,3 billion dollars to finance the Rasht – Astara railway as part of an agreement signed on 17 May.

Azerbaijani Astara terminal

At the same time, Azerbaijan has finished reconstructing a rail terminal in its own Astara region, across the border from Iran. Azerbaijan Railways (ADY) says that the terminal upgrade will enhance the handling capacity and speed of cargo transshipments.

ADY expects the terminal upgrade to bring “substantial economic benefits”. It expects freight transportation along the INSTC to gain a ten to fifteen per cent boost by the end of 2024. The Azerbaijani rail company also built a cargo terminal across the border in Iranian Astara. Since its completion in 2018, freight volumes have grown more than threefold.

Moreover, ADY says that the completion of the Rasht – Astara railway will likely provide a boost to cargo volumes transiting to both of its terminals in Azerbaijani and Iranian Astara. The completion of the last missing rail section along the western INSTC would enable rail-only transport between Russia and the Iranian Persian Gulf ports.

Also read:

• Iran and India overcome key hurdle for Chabahar’s INSTC port operation
• Rail freight volumes between Iran and Azerbaijan grow by 28%
• What spurs the international effort to bridge Afghanistan via rail?

The INSTC links Russia with the Indian Ocean via the western and eastern Caspian sea coasts, as well as via maritime transport across the inland sea. On the western land route, a railway between the Iranian towns of Rasht and Astara is the only missing piece of the logistical puzzle. The envisioned rail-only route along the western side of the INSTC would be the most commercially interesting connection between Russia and Iran’s southern coast.

Financing is a major obstacle

Negotiations over the route started in late 2022 and the commencement of construction works has been announced on various occasions. As recently as December 2023, Russia and Iran announced the start of the rail project for early 2024.

A major hurdle to be overcome was the question of financing. Iran made clear that it could not finance the railway alone. Simultaneously, Russia was also reluctant to pledge large sums of money. The total costs were estimated at 1,6 billion euros. According to Iranian media, Russia will fund that exact amount for the construction of the railway, meaning that it will cover the vast majority, if not all, of the costs.

What do the parties stand to gain?

Amid tough Western sanctions imposed after the invasion of Ukraine, Russia has been trying to find avenues to evade the sanctions. Earlier, a US-based think tank warned that Russia is looking to use the INSTC to that end. The corridor passes through many markets that are not easily monitored by Western governments, including Iran.

In the case of Iran, the completion of INSTC rail infrastructure would allow it to grow its role as a transit country, and to financially profit from that role. Moreover, the Iranian government is banking on the route aligning Iran’s and India’s interests as it would make Iran an increasingly important transit hub for India, according to Iranian media.

Also read:

• Is INSTC’s Rasht-Astara line on track for another setback?
• Rail freight volumes between Iran and Azerbaijan grow by 28%
• Russia, Kazakhstan and Turkmenistan create INSTC joint venture

Iran imported 206,000 tonnes of goods from Azerbaijan via rail during the past 11 months, which is an increase of 58 per cent. The country also exported 167,000 tonnes of goods through the Astara Rail Terminal. Most of all, Iran exported various kinds of fruits, cement, chemicals, tiles and other food products.

On the INSTC route

The border between Azerbaijan and Iran is a critical point along the International North-South Transport Corridor (INSTC). The corridor, which connects Russia to the Indian Ocean via Iran, has its western route leading through Azerbaijan. Currently, a vital section of the route is missing between the cities of Rasht and Astara. Its completion would mean that the western route would be able to serve cargo transport between Russia and Iran solely by rail.

Also read:

• Is INSTC’s Rasht-Astara line on track for another setback?
• Azerbaijan goes ahead with Zangezur Corridor railway construction
• ‘Forget the IMEC, focus on the INSTC,’ says India

The project became all the more relevant since Russia started diversifying its supply chains following the series of Western sanctions in the context of the war in Ukraine. Despite the INSTC seemingly becoming an integral part of Russia’s diversification strategy and Iran’s expectation that Russia would fund the Rasht-Astara line, given the urgency, the project has stagnated.

The project has experienced setbacks and unfulfilled promises, mainly because Russia seemed hesitant to finance it. On the other hand, Iran has made clear that it cannot finance such a project alone and that Russian involvement is the only solution. Since late 2022, the two parties have been negotiating intensely. A draft agreement was expected to be formed between them in late 2022, opening the way for Russian investments and subsequent railway construction. Yet, this agreement was only reached in late 2023.

What is the current status?

The Rasht-Astara railway line is expected to cost 1.6 billion euros, while Russia will allocate 1.3 euros in interstate loans to Iran to kickstart the investment, according to Iran’s Minister of Roads and Urban Development. Under these conditions, the line was supposed to be completed in three to four years. However, the latest update from the Iranian Deputy Minister of Roads and Urban Development, Kheirollah Khademi, said that even if construction begins in early 2024, the railway line will be ready five years from now “if Russian funding remains consistent”.

In addition, Khademi underlined that the Russian and Iranian negotiations on the project’s technical aspects are ongoing. Khademi commented on the Iranian Tasnim news agency that “70 per cent of technical issues have been resolved” between the two sides. This development could signal progress on the project; however, it could also signal that there is still a long way to go before being realistically able to start construction work.

One should also consider the strained situation the Russian economy is experiencing due to the sanctions. The Russian transport sector is on track to face substantial challenges that may as well multiply in the coming months. Taking this into account, it would not be surprising if the Rasht-Astara railway line investment and construction were postponed once again.

Iran and the INSTC

The Rasht-Astara railway will run along Iran’s southwestern coast all the way to the Azerbaijan border. From there, the Azerbaijani network stretches up to Russia via Baku and the Yalama – Tagirkent-Kazmalyar rail border crossing. From Rasht, the line continues to Qazvin and then Teheran. Cooperation between Iran and Azerbaijan recently focussed also on building a terminal in Astara. Concerning the INSTC, Iran is also working on creating a rail connection to the Chabahar Port by building a section to Zahedan, where there is a link to the main network. This line should become operational next year, with some sections already being inaugurated.

Also read:

• How far is the INSTC in reaching its volume targets?
• Iran and Russia want to invest 36 billion euros in the INSTC
• Can there be an India-Middle East-Europe corridor without Turkey?