Shifting global dynamics through new trade corridor – IMEC

This article is authored by Tara Kartha, distinguished fellow, Institute of Peace and Conflict Studies.

The G20 has been a splendid tick-boxing exercise for Delhi, as its marked off successes one after another. That included the entry of the African Union, now seen as an effort of New Delhi entirely, given that dramatic announcement on the very first day, the surprising Joint Declaration that was as unexpected as it was mild on Ukraine, and on top of all that, seemingly the cherry on top, an economic corridor rail and shipping corridor between Saudi Arabia, India, the United States (US) and the European Union. The ‘corridor’ is likely to become the talk of the town for the near future, even as its somewhat puzzling in terms of how its going to take off on the ground.

As of now this is only a MoU (Memorandum of Understanding) between a rather large group of countries, which is its main draw. Those include Saudi Arabia, the European Union, India, the United Arab Emirates (UAE), France, Germany, Italy, and the US. Take a look at the map. That’s a huge area, for the India – Middle East – Europe Economic Corridor (IMEC) as it is called. The project is divided into two corridors. One connects India to the Arabian Gulf and a corridor to the north connecting the Arabian Gulf to Europe. The key project is a railway for a reliable and cost-effective cross-border ship-to-rail transit network to add on to existing routes to enable goods and services transit to countries. The political quandary is not in transit between India, the UAE, Saudi Arabia, Jordan, but will also involve Israel, and then on to Europe. And the cherry on top. All this is to be decided with specific time tables in 60 days. Impossible? Not really. Much of this was already discussed and is part of the I2U2 Joint Statement last year. That included mobilising private sector capital and expertise for infrastructure, and “advance physical connectivity between countries in the Middle East region” not to mention clean energy and agricultural innovation. It also involved UAE (which houses the International Renewable Energy Agency) to develop ‘food parks’ in India using climate friendly technologies, also with Israel involved in providing just that, as well as a hybrid renewable energy project in Gujarat . All of this encourages private investment. As does the IMEC. That gives one a clue of what the US role is. This is US companies looking for big investments, that can give the Belt and Road Initiative a run for its money.

The problem of course is the Saudi-Israel link. The IMEC therefore is another push by the Biden administration to get Israel and Saudi Arabia together, with this effort energised ever since China pulled off the coup of the century in bringing Iran and Saudi Arabia together. The effect of such a coming together on the upcoming US elections, would have a big bang effect. True, Saudis and Israel have been making propitiating noises lately, with Israel allowed to overfly the Kingdom, and a recent incident of Israelis (including some sensitive security personnel) on an Air Seychelles flight, force landing in Jeddah, and being warmly welcomed was a page-turner. There is much ground to cover for a complete peace, including Saudi demands for a civil nuclear deal and security guarantees, an IMEC would definitely hasten that whole process. And don’t forget Israel was part of the whole plan from Day one. The second point is the clarity of Prince Mohammad Bin Sultan (MBS) as enunciated in Vision 2030 that the Kingdom has to diversify from dependence on oil. Don’t forget, a large part of the push for some rapprochement with Iran, came from Riyadh, amid the turbulence of the collapse of the nuclear deal. Washinton would definitely have been concerned by Riyadh’s becoming big investment destination for China. A recent conference in June saw the announcement of deals worth $10 billion for the region, heavily slanted towards Riyadh with manufacturing deals for electric vehicles, copper mining and iron among others. Saudi petro-giant Aramco completed its purchase of a 10% stake in China’s Rongsheng Petrochemical company for about $3.6 billion. The deal adds to already massive investments. The fact that oil trade was being ‘considered’ in yuan would have spooked Washington further. The IMEC is meant to arrest this trend. If it goes through, it will be enough for the Saudis to rethink more investments with China, provided its other interests are also met. Much of the same applies to the UAE, which has pursued reform energetically positioning itself as an investment hub. China the third largest investor, with value of non-oil trade between the two more than US$72 billion in 2022, growing 18% over 2021. FDI also rose steeply to $9.3 billion. The US was however still the top dog with some $17.2 billion in 2019, but a dip over the previous year. As to who else is there, its Ukrainian and Russian investors.

Sceptics look at the possible map of the IMEC and wonder at how such a connectivity will work. In some respects, the first corridor, is already there on the ground. Consider the sheer breadth and sophistication of Etihad Rail, a 1,200km railway project that runs from the Saudi border all the way across the UAE to Fujairah on the Indian Ocean coast. It is part of the $100 billion Gulf Cooperation Council (GCC) rail programme to connect the UAE with Saudi Arabia, Qatar, Kuwait, Bahrain, and Oman and is expected to serve approximately 16 million passengers and 50 million tonnes of freight once it reaches its optimum in mid 2024. Saudi Rail in its turn has a sophisticated network, including one of the world’s longest Freight trains, with a capacity of 16,000 Tons. The two rail systems signed a strategic agreement for cooperation including in exchange of services, including on locomotives and wagons lease arrangements. That’s rather more than a fruitful base to start from. Meanwhile logistics operators are upbeat as trade surges between India and UAE for instance, up 23% from last year, and worth some $85 billion in two-way trade. Logistics giant Maersk’s dedicated India-Gulf feeder service, Shaheen Express claimed significant logistics benefits for FMCG (fast-moving consumer goods), such as electronics, perishables, textiles and chemicals. DP World is another player who is already ramping up its logistics ecosystems, expanding its Indian terminal footprint with a concession to build and operate a box facility at Deendayal Port (Kandla) on the Gujarat coast. The company already operates five box terminals across four Indian ports. The ‘corridor’ to the north is similarly well placed, but depends critically on Israel. Since Tel Aviv was part of the original idea, the assumption is that this will go through using the Adani-dominated Haifa port. The next transhipment point would probably be a port in Italy. It is unclear from where maps emerged showing a connection to Piraeus operated by massive Chinese major COSCO. Reports certainly noted Adani eying ports like Kavala in northern Greece and Volos, which lies 330km from Athens, or yet another third port, Alexandroupoli. But that’s in the future.

Finally, the key factor is going to be costs. Shipping freight costs which soared in the pandemic and Ukraine wars, have now dropped though this could rise again. The huge tonnage that a ship carries – between 45-60,00 tonnes – is one reason why 80 per cent of the worlds trade goes by sea, and is always cheaper than a land route. Its worth remembering that India went in for the INSTC (International North South Transport Corridor) in part due to it being assessed as 30% cheaper and 40% shorter (as assessed by the Freight Forwarders Association in India) than the current traditional route through the Suez. Recently, a Russian freight train reached Jeddah through Iran using the INSTC. That route will not be abandoned. And consider the Belt and Road Initiative land route. That is primarily about political influence, and Beijing buying up infrastructure on the way. The IMEC is also looking at cable for electricity and digital connectivity, as well as pipes for clean hydrogen export.

The government is already ready to announce a project map on the project, indicating that the discussions have reached an advanced stage. Meanwhile all this is to the good with Delhi finally getting a trade corridor that by passes the Pakistani vortex. And in the final analysis, it’s a route planned to pin down political stability in West Asia, which would then see a regional rapprochement. Meanwhile, everything depends on the men with the big money. Clear the political decks, and the dollars and riyals will flow.

This article is authored by Tara Kartha, distinguished fellow, Institute of Peace and Conflict Studies.