The Indian Ocean trade route is an ancient nautical route that connected Southeast Asia with Europe via Arabia and East Africa. The route, which dates back to the 3rd century BC, remains active today, supporting the ports sector in the GCC and East Africa.

An agreement signed in May 2002 between India, Iran, and Russia, which established a shorter route under the name North-South Transport Corridor (NSTC), gained momentum after Iranian sanctions were lifted and is expected to become operational in the coming years. With the addition of 11 new countries to the agreement, the route is becoming a palpable reality and could mean trouble for older sea trade routes.    

The NSTC route comprises a sea corridor (India-Oman/Iran) and a land corridor (Iran-Azerbaijan-Russia). Logically, the shortest route between India and Russia is through Pakistan and Afghanistan, but the sensitive relationship between India and Pakistan, and the political instability of Afghanistan meant an alternative route via sea was sought.

The NSTC is expected to cut the cost of shipping from India to St Petersburg considerably, as well reducing the journey time for vessels compared with the old route through the Suez Canal by at least half, to about 20 days instead of 40, on average. This sounds great from a logistical point of view, but it could mean bad news for the GCC and East Africa.

Balance of power

First of all, with Iran having an alternative route to the Strait of Hormuz, the balance of maritime power shifts, especially if Tehran attempts to block vessels entering or leaving the Gulf. This is far from fiction as Iran conducted an exercise last year in which the Islamic Revolutionary Guard Corps simulated manoeuvres needed for closing the Strait, in addition to more than 30 provocations of US vessels stationed in the area.     

Secondly, a shorter route might be preferred by shipping and logistics companies, which could render the port improvements in Qatar and Kuwait, and the Suez Canal expansion in Egypt unprofitable.  

Qatar’s new Hamad Port cost an estimated $7.4bn, and the Mubarak al-Kabeer port due to open in 2020 in Kuwait is estimated to cost $5bn. One of the essential success factors for any project remains the expected rate of return. If and when the NSTC becomes operational, the previously anticipated profit figures for these two schemes may no longer be viable if shippers choose the NTSC route to save costs and avoid the risk that potential Strait of Hormuz disruptions carry.

The Suez Canal, the third-largest contributor to Egypt’s national income, would suffer greatly if Eastern countries, particularly China and India, decide to take the alternative NSTC route. Passing via the canal is not only longer, it also carries a security risk.

Hijacking threat

The Gulf of Aden is currently considered a risk zone, creating high insurance premiums on vessels, due to pirate attacks and hijacking activities that occur in the area. The problem is so great that in the past governments have had to deploy warships to rescue vessels. The most recent such event occurred in April, when an Indian merchant vessel was hijacked and was rescued by a joint Indian, Chinese, and Pakistani operation.

So how should the GCC and Egypt respond to this competitive threat? For the GCC, there is a dire need for a land-based logistics corridor across the member states. As Oman is part of the NSTC, commodities could go in and out without the need for entering the Strait of Hormuz. The UAE, where the Fujairah and Khorfakkan ports are on the same sea route as Oman, should probably look to join the NSTC as well. Both nations could then handle GCC sea imports and exports.

Hamad Port is still an important piece of infrastructure for Qatar considering the 2022 World Cup, but reduced profits have to be anticipated (this is not to mention the inevitable losses caused by the current blockade). As for Egypt, the government should consider diverting the canal funds into ports and airports along with creating a trade agreement with Turkey, an NSTC member. With this, Egypt could become the NSTC import/export hub for Africa.

Russia has been pushing for the NSTC in diplomatic channels since sanctions were imposed on it in 2014, following its annexation of Crimea. The other two key members, India and Iran, have been actively seeking membership of the Shanghai Cooperation Organisation, and the last few remaining political and bureaucratic barriers that are delaying the NSTC will be lifted once this is granted.

Iran is already an observer state, and India and Pakistan are now ascending states. Based on this, one can assume the announcement of a fully operational NSTC is not far off.