Azerbaijan to exploit trade crossroads potential as Iran sanctions ease
GlobalMarkets, is part of the Delinian Group, DELINIAN (GLOBALCAPITAL) LIMITED, 4 Bouverie Street, London, EC4Y 8AX, Registered in England & Wales, Company number 15236213
Copyright © DELINIAN (GLOBALCAPITAL) LIMITED and its affiliated companies 2024

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement
Emerging Markets

Azerbaijan to exploit trade crossroads potential as Iran sanctions ease

azerbaijan2-250.jpg

In the wake of the lifting of Iranian sanctions, Azerbaijan is determined to exploit its key location at the crossroads of the East-West silk road from China to Europe and the North-South axis from Iran to Russia

Azerbaijan is working to unlock its dual strategic potential as a trading hub not only from east to west, but vertically from Russia to Iran after the lifting of Iranian sanctions in January.

The country has an historically important geographical location along the Silk Road which it plans to reinvigorate as a channel between some of the world’s most powerful nations.

“We have always had the logistical infrastructure like ports and railways to play a big part in multi-regional trades between China and the rest of Asia and Europe,” said Turkhan Makhmudov, an advisor to the board of Pasha Bank. “But now with the opening up of sanctions in Iran there is also a vertical opportunity for us to increase trade between Russia and Iran.”

Makhmudov said that it was up to the country’s politicians to unlock that potential. Relations between Iran and Azerbaijan have been improving with several memoranda of understanding (MoU) signed between the two countries, according to state media service Azertag.

The Azerbaijan Investment Company signed two MoUs with Iranian-based companies in late April as part of Iranian minister Mahmoud Vaezi’s visit to Azerbaijan. A further two were signed on the same visit with the focus on the pharma and automobile industries.

There is scope for incr-easing trade between the two nations. Azerbaijan’s exports to Iran were $434.7m in 2007, compared to $33.3m in 2015 with non-oil exports accounting for the most of them, according to Alim Hasanov, economist at Galt & Taggart in Tiblisi.

“Iran is our neighbour, there are more than 20m Azerbaijanis living there and we’ve always had good relations with them,” said Talel Kazimov, CEO of Pasha Bank. “The cancelling of sanctions will create great business opportunities for us.”

PRUDENT FINANCING

Two specific projects are already nearing completion. One is part of a railway that runs from Russia, through Azerbaijan and then on to Iran and through to the Persian Gulf, and which is key component of the International North-South Transport Corridor (INSTC).

A new link is under discussion and the route will pass from Rashat on Iran’s Caspian coast to Astara in Azerbaijan. The link, known as the Qazvin-Rasht-Astara railway, is expected to be launched this year.

The second development is the Baku International Sea Trade Port which is able to handle substantial sea freight and is linked to a railway. Both projects have already been financed.

Makhmudov suggested that the developments were also evidence of the prudent manner in which Iran’s oil money has been managed.

“Azerbaijan has already paid for these projects using oil money,” said Makhmudov. “What doesn’t get reported is how well the oil wealth has been managed. The sovereign wealth fund is one of the best managed. Despite all the oil price weakness, the government has had the political will not to use the sovereign fund resources for short term gains.”

The strength of Azerbaijan’s State Oil Fund, its sovereign wealth fund, is helping to prop up the country despite its oil-related woes. While its foreign currency assets declined 9.5% from 2014, they still remain at $33.6bn.

Moody’s says that fund largely offsets the country’s underlying fiscal vulnerabilities which have stemmed from the government’s reliance on oil.

Azerbaijan is not the only country looking to make the most of its strategic geographical location. Pakistan is positioning itself as integral to the new silk road.


Gift this article