Maintaining Flexibility in Commercial Relations: Azerbaijan's Strategy

Hopping on the Trade Express

Azerbaijan's prime location and increasing energy exports make it a vital link in the expanding East-West trade corridor. However, Baku isn't stopping there—it's also aggressively courting North-South trade, evident in the substantial surge in exports to Russia.

According to Azerbaijan's State Customs Committee, Russia-bound exports skyrocketed by a whopping 23% in 2023, reaching a staggering $1.2 billion. Simultaneously, imports from Russia jumped 16%, reaching a whopping $3.2 billion. Surprisingly, non-energy-related goods made up the bulk of Azeri exports to Russia.

Since the Soviet Union's dissolution, Russia has maintained a steady trade relationship with Azerbaijan. However, the recent increase in commerce suggests shifting geopolitical dynamics in the Caucasus region following Azerbaijan's reclamation of Nagorno-Karabakh. Concurrently, Russia's ties with Armenia have grown increasingly frayed.

Toghrul Valiyev, an economist based in Baku, attributes the change in trade patterns to the Ukraine war. Before the war, European imports flowed into Azerbaijan through Russia. Now, those goods are more expensive, which leads to increased reliance on cheaper Russian alternatives, according to Valiyev.

The catalyst for this expanded Azerbaijani-Russian trade exchange was a strategic cooperation agreement signed in 2022, just days before the Kremlin embarked on its misguided assault on Ukraine. The deal included provisions for ensuring the "sustainable full-scale operation of the North-South International Transport Corridor." Azerbaijani President Ilham Aliyev hailed the development as a testament to the "friendly feelings, mutual interests, and aspirations for the future" shared by the two nations.

The North-South corridor envisions a network of roads, railways, and shipping routes spanning nearly 4,500 miles from Mumbai to Moscow, passing through Iran and the Caucasus. For Russia, these routes appear to serve as the safest means of evading sanctions, according to Nikita Smagin, an Iran expert. He notes that sanctioned Iran has little to lose by collaborating with Russia.

Azerbaijan's strategic position makes it a key player in this emerging trade web. Since Azerbaijan restored control of Nagorno-Karabakh, authorities in Baku have turned their attention towards various North-South road and rail projects. For instance, Aliyev presided over the opening of a toll highway linking Baku and the Russian border last October.

Russia and Azerbaijan signed an economic cooperation blueprint spanning 2024-26 in January. The agreement encompassed provisions on energy, agriculture, and transport infrastructure initiatives. Moreover, discussions were held regarding Russia's investment in the liberated territories of Azerbaijan, although the specifics remain unclear.

Rail freight between Iran and Azerbaijan grew by a staggering 28% between March 2023 and February 2024. Currently, several rail routes linking Azerbaijan and Iran are under consideration. The most promising of these, known as the Aras corridor, would connect Azerbaijan proper to Turkey via the Nakhchivan exclave, weaving through Iranian territory while bypassing Armenia. If completed, this route could supercharge North-South trade, linking Azerbaijan to the Black Sea and Persian Gulf.

Constructing approximately 140 kilometers of new track is anticipated to finish the Aras route. Financing for the project remains a lingering question.

In 2023, Russia's First Deputy Prime Minister, Andrei Belousov, forecasted that North-South trade capacity could triple by 2030. Officials in Baku express optimism but are not entirely convinced a target like that is achievable, given Russia's strained economy and potential obstacles in Baku-Tehran relations.

"How can Russia help us if Russia has its own problems in this sector?" queried Samir Aliyev, an economics expert from the Baku Research Institute, alluding to each country's non-fossil fuel economy.

Boosting Perspectives

The North-South Trade Corridor (NSTC) aims to connect Russia with India via Iran, Azerbaijan, and potentially Turkey, improving trade between these regions. The Aras corridor, a vital component of the NSTC, involves a network of roads and railways linking Azerbaijan, Iran, and Russia. This corridor could significantly impact trade by shortening transit times and reducing costs.
In recent military exercises, Iran and Azerbaijan demonstrated a strengthening of their strategic partnership, which could lead to further economic cooperation beyond the military realm.
Azerbaijan has made significant investments in streamlining its airport infrastructure, which could contribute to increased trade and tourism.
The completion of the Aras corridor could lead to significant trade expansion and enhanced economic cooperation between Azerbaijan, Russia, Iran, and Turkey.
Challenges such as economic sanctions and geopolitical tensions may influence the corridor's development, but the project's strategic importance could inspire greater cooperation among the participating nations.
Turkey's trade with Central Asia typically depends on routes passing through Russia and Iran. The Aras corridor could provide an alternative or complementary route, potentially growing Turkey's trade with these regions.

News articles might discuss the potential for the North-South Trade Corridor (NSTC) to revolutionize culture, technology, sports, and other non-energy-related trade between Azerbaijan, Iran, Russia, and Turkey. For instance, increased commerce could lead to greater cultural exchange as artists, athletes, and musicians from each nation collaborate and engage in cross-border events.

Technology sector growth is anticipated as goods such as electronics, machinery, and software can be more easily transported and traded along the NSTC route, fostering innovation and regional economic development. Additionally, the corridor's development could pave the way for improved technological infrastructure, such as faster internet connectivity and upgraded telecommunications systems, encouraging further technology-related trade and investment.