Introduction
Iran’s initial hopes of increasing transit revenue amid Western sanctions on Russia, the Biden administration’s lenient approach towards the Islamic Republic, and India’s intensified efforts to compete with China in global markets are gradually fading.
Iran particularly aspired to play a key role in the East-West transit corridor led by China or the North-South corridor connecting India and Russia via Chabahar Port, but neither materialized.
Despite its strategic position bordering 15 countries and historically serving as a key ancient trade route via land and sea, including the Silk Road, Iran has failed to capitalize on its transit potential.
This failure is particularly striking when compared to neighbouring countries that have leveraged regional projects to significantly boost their logistics and transit capabilities.
In contrast, in terms of the Logistics Performance Index (LPI), the World Bank has ranked Iran among the poorest countries.
The Islamic Republic ranks 123rd out of 139 countries, marking the lowest score among its neighbours, except Afghanistan. Even Iraq outperformed Iran in terms of LPI, ranking 115th globally.
Over a decade has passed since China launched its trillion-dollar “Belt and Road Initiative” (BRI). Yet, Iran remains the only regional country excluded from this massive project. Instead, China has activated the Central Asia-Caucasus-Turkey corridor north of Iran.
For instance, in the last five years, Azerbaijan’s international cargo transit volume has increased 2.5 times, reaching 24.6 million tons in the first nine months of 2024—half of which travelled along the East-West route (China–Central Asia–Caucasus–Turkey–Europe). This figure is double Iran’s total foreign goods transit. With the activation of the Zangezur Corridor through Armenia, East-West transit growth is expected to accelerate further—a project Iran strongly opposes, warning that it could exclude the Islamic Republic from regional transit opportunities.
With the fall of the Bashar al-Assad regime, Iran’s regional influence has suffered significant damage, and regional countries have found greater opportunities to advance transit projects. For instance, Turkey recently announced plans to revive the historic Anatolia-Damascus-Hejaz railway line, first constructed during the reign of Sultan Abdul Hamid II of the Ottoman Empire in 1908.
Challenges on All Fronts
To Iran’s east, China has developed Pakistan’s Gwadar Port and built connectivity routes extending northwards, now linking them to Afghanistan. Beijing has signed agreements worth $65 billion in Pakistan, a significant portion of which is dedicated to transport infrastructure.
To the south, Saudi Arabia and the UAE attracted $5.6 billion and $2 billion, respectively, in 2023 in Chinese investments under the BRI framework, ranking first and fourth among China’s global investment destinations.
In the west, Iraq has initiated the $17 billion Great Faw Port-to-Turkey corridor project. Turkey, meanwhile, unveiled a $20 billion investment package last month to extend this 2,000-kilometer corridor to Europe. International banks, including the World Bank and the European Bank for Reconstruction and Development, have agreed to finance parts of this project, in which Qatar and the UAE are also stakeholders.
Additionally, in February 2024, India, the UAE, and Saudi Arabia signed a deal to develop the massive India-Middle East-Europe transit project. If the deal became finalized, the agreement’s value could reach $20 billion.
These projects not only shorten maritime trade routes between China or India and Europe but also secure stronger footholds for these countries in regional markets.
The attacks by Iran-backed Houthis on ships in the Red Sea—forcing many vessels to circumvent. Africa for cargo transit—clearly demonstrated the critical importance of diversifying transit routes in the region.
Iran’s Declining Status
Despite more than two decades since signing agreements with India and Russia to facilitate trade via Iranian territory, no significant transit operations have been realized. Similarly, over a decade after India’s state-run India Ports Global (IPGL) began developing Iran’s Chabahar Port—located just 80 kilometres from Pakistan’s Gwadar—transit operations remain inactive.
According to Iran’s customs authority, only 13.2 million tons of foreign goods transited through Iran in the first seven months of the current Iranian calendar year (starting March 21, 2024). Chabahar Port did not even rank among Iran’s top 10 transit hubs in this period. In the previous year, Chabahar contributed to transiting only 10,000 tons of foreign goods.
In May 2024, Iran and the IPGL signed a new agreement to further develop Chabahar Port. However, the U.S. sanctions waiver applies only to transiting goods destined for Afghanistan, leaving little hope for broader transit uses.
The U.S. also warned of potential sanctions for any country considering business deals with Iran just hours after India signed a 10-year contract to operate a port with Tehran.
The 50-50 revenue-sharing agreement between IPGL and Iran remains clouded by uncertainty, especially with the return of Donald Trump to the White House and the reinstatement of the “maximum pressure” policy.
Last year, Iran earned $1 billion from transiting 17 million tons of foreign goods—only 10,000 tons of which passed through Chabahar Port. The port is currently used solely for limited bilateral trade between India and Iran.
Strategic Importance of Chabahar
For India, Chabahar’s proximity to Pakistan’s Gwadar offers a strategic advantage in competing with China for exports to Afghanistan and Central Asia. However, U.S. sanctions have hindered progress, and Iran has yet to initiate the long-awaited 750-km Chabahar-Zahedan railway to connect the port to its national rail network.
For Iran, Chabahar is vital as it provides an avenue for international trade without relying on the Strait of Hormuz. About 20% of the world’s oil supply passes through this strait, which Iran has repeatedly threatened to close.
Iran has also developed the Jask oil terminal in the Gulf of Oman to bypass the Hormuz Strait. In October, amidst reports of a potential Israeli attack on Iran’s Kharg Island’s oil terminal in the Persian Gulf, the Islamic Republic used the Jask terminal for a part of oil exports for the first time.
Nevertheless, under normal circumstances, the Jask terminal is economically unfeasible due to the need to transport oil over 1,000 kilometres from production fields. Additionally, the terminal’s infrastructure is not yet capable of handling all of Iran’s oil exports.
Similarly, Chabahar Port remains underutilized, accounting for only 2% of the 180 million tons of Iran’s non-oil foreign trade last year. Iran has invested $2 billion in the Jask terminal and hopes to attract Indian and domestic investments to raise Chabahar’s capacity to 20 million tons in the medium term.
Conclusion
Iran’s challenges are not limited to U.S. sanctions or its weak position in competition; the country also faces significant logistical infrastructure problems. For instance, the Rasht-Astara railway, intended to establish a rail connection to Russia via Azerbaijan, and the Chabahar-Zahedan railway, aimed at linking the Chabahar port to the national rail network, remain incomplete.
In such a situation, there is no clear prospect for Iran to benefit significantly from regional transit projects.