The South Caucasus region is coming together to leverage its geographic position and once again become the land bridge it was during the days of the ancient Silk Road — the link between the booming markets of East Asia and the booming markets of Europe.
The new Baku-Tbilisi-Kars (BTK) rail line is emerging to become the central nervous system of this reestablished trade corridor, allowing goods to be seamlessly transported by rail from one side of Eurasia to the other in just 15 days — completely bypassing Russia and their reactionary embargo.
The 826 kilometer long BTK rail line will extend from the bank of the Caspian Sea in Azerbaijan to the capital city of Georgia and then cut south to the east of Turkey before feeding into the broader Turkish rail system and Europe beyond. This rail line is designed to become a key part of the southern route of the emerging New Silk Road network of trade and transport corridors that are coming together between China and Europe.
The idea to build the BTK rail line was first proposed in Ankara in 1993 after Turkey closed down the railway from its eastern city of Kars to Gumru, in Armenia, due to the Nagorno-Karabagh conflict. The proposal lingered on through the years, then in 2007 the leaders of Azerbaijan, Georgia, and Turkey came together in Tbilisi and signed an agreement to start construction on the rail line that would not only link together their countries but proverbial east and west as well.
The South Caucasus region sits right at center of an array of diverse and vibrant markets which extend out from it in all directions. Central Asia and China are to the east, Turkey and Europe are to the west, Russia is to the north, and Iran and the Middle East are to the south. The BTK rail line physically connects together the central portions of Eurasia, the singular landmass which stretches from the east coast of China to the west coast of Europe, containing 70% of the world’s population, 75% of energy resources, and 70% of GDP.
The overland journey between China and Europe via the BTK rail line will take around 15 days, which is more than twice as fast as sea at less than half the price of air. Trains can depart from a variety of cities in China, cross into Kazakhstan at Khorgos Gateway, be easily transported across the Caspian Sea by ferry to the New Port of Baku, and then be loaded directly onto the BTK and head on to Europe — and vice versa in the opposite direction.
Trans-Eurasian rail cargo is on the rise. As manufacturers, freight forwarders, and end buyers become more aware of its benefits and the service improves, more businesses are jumping in as the network is enhanced with new routes and new logistics hubs. The type of cargo that is shipped across this expanse by rail generally consists of high-value goods, such as electronics, car parts, B2B machinery, agricultural products, meat, wine, and high-fashion items, which need to be delivered as fast as possible.
One of the biggest drivers of demand for a southern rail route between China and Europe arose due to the reactionary Russian food embargo. After the US and EU delivered sanctions against Russia in March of 2014 because of the Crimea and Ukraine situations, Russia responded by not only banning certain American citizens like John Boehner, John McCain, and two of Obama’s advisers but also the import or transit of food from EU countries who support the sanctions. So no French cheese, Dutch veal, or Polish apples are permitted to pass through Russian terrain.
The kicker here is that the food items that are banned by Russia are precisely the types of goods that the EU would otherwise use the emerging rail routes of the New Silk Road to ship to China. In other words, the need for a southern rail route to link Europe with Asia and bypass Russia was needed more than ever, and the BTK line intends to fill this void.
Extending down the emerging Trans-Caucasus transport corridor, which the BTK rail line cuts through the heart of, are a series of new manufacturing centers designed to leverage the region’s newfound logistical connectivity into increased manufacturing capacity. Azerbaijan’s 20 square kilometer New Port of Baku is surrounded by a free trade zone which aims to use the country’s supply of petrochemicals in plastics production as well as other manufacturing endeavors. Georgia has a network of free industrial zonesextending across the country. While Turkey has a pair of industrial zones in proximity to their new logistics center in Kars.
“Diversification is always good and one should not rely only on Chinese exports, as in that case you can rise when China rises and decline when China does,” said Mahir Humbatov, an Azerbaijani researcher who has co-authored two books on the BTK rail line.
Besides stimulating local manufacturing operations, the BTK line will also provide the countries it passes through with additional sources of new revenue, such as transit fees. Humbatov claims that preliminary studies have pegged the yearly earning potential of this rail line in excess of $170 million per year for Azerbaijan alone.
While the demand for a new rail line extending across the South Caucasus has been evident for an extended amount of time, the financing for it hasn’t always been as forthcoming. According to Humbatov, the USA, World Bank, Asian Development Bank, European Union, and the European Bank for Reconstruction and Development initially refused to support the BTK project. The EU, in particular, denied financing based on the grounds that they preferred reestablishing the old rail route that went from Turkey through Armenia.
This meant that the three countries involved in construction of the BTK would need to finance it themselves. Azerbaijan and Turkey were able to fund their portions, but Georgia was unable to follow suit for their 178 kilometer section. This propelled Azerbaijan’s State Oil Fund (SOFAZ) to step in and provide the necessary financing in the form of loans valued at $112 million (1% interest) and $323 million (5% interest) — another example of Azerbaijan using its glut of petrodollars to invest in regional transportation infrastructure.