Rail and port schemes planned in Iraq could change the shape of regional trade
In 2020, the pre-eminent status of the Suez Canal, the region’s busiest trade route, could be challenged by a series of regional railways linking the Gulf to Europe through ancient trade routes through Iraq and the Levant.
As the security situation improves in Iraq, Baghdad is beginning to put into place its plans for the country’s long-term development, and together with oil and gas, transport is a priority sector for the government.
Baghdad is planning to invest heavily in improving its transport and logistics infrastructure, with rail at the heart of its plans.
It is planning $60bn-worth of railway projects that will connect the Gulf to Europe through Syria and Turkey, in addition to $10bn of port projects linking the country’s shipping and rail systems. Iraq believes it has the potential to become a formidable trade and trans-shipment hub.
“Each country has its own political goal and strategic objective and each is free to do what it wants. [On] which port will dominate depends on the volume coming into the ports and how to get the cargo into Europe. Iraq, due to its geographical position, will become the through point. Nobody has this geographical advantage – only Iraq,” Saleh Aboud, director general of the Iraqi Port Authority tells MEED.
The idea is not a new one – 2,000 years ago Alexander the Great established the Silk Road, a network of trade routes that connected Asia with the Middle East, Mediterranean and Europe. Iraq is now planning to revive part of these traditional routes to provide an overland trade corridor between Europe and Asia.
Cargo coming up through the Gulf will be loaded onto trains at Iraq’s ports at Umm Qasr and on the Al-Faw peninsula, and will then travel through the country to Turkey and onto Europe. This will give shippers an alternative to the traditional but longer route around the Arabian peninsula and up through Egypt’s Suez Canal – a journey that currently takes about 10 days.
If Iraq’s ambitious plans are to be realised, however, it has a lot of building work to do. The country’s existing railway infrastructure desperately needs upgrading, and its port capacity cannot meet trade demand. The country’s six ports – three cargo ports and three liquefied natural gas terminals – can only handle about 60 per cent of current trade in Iraq. The shortfall will only get worse as Iraq starts to rebuild its infrastructure.
Baghdad is progressing with a number of port projects, including the $6bn development of Great Faw port, that when completed will be large enough to challenge Gulf ports such as Jebel Ali port in Dubai, and under construction facilities such as Khalifa port at Taweelah in Abu Dhabi, New Doha port in Qatar, and Bubiyan port in Kuwait.
The Iraq Port Authority is also studying plans to build a dry port at Basra to support activities at Great Faw and is upgrading its only deep-water port of Umm Qasr, which is currently the only major shipping gateway into Iraq. A planned railway line will link Umm Qasr port with Syria’s port of Tartous to enable a wider flow of trade.
But although Iraq’s geography might set it apart from most other countries, its limited coastline and shallow waters could curb its trade ambitions. The waters leading up to Great Faw are effectively marshes and will need to be dredged if Baghdad is to meet its trade aims. To make matters worse, the area is contaminated with mines left after more than 30 years of war, which need to be secured and cleared.
Competition from other ports is another issue. In Kuwait, the government is developing a new port at Bubiyan Island that it hopes will capitalise on its proximity to Iraq.
Nick Edmunds, programme director at Dubai-based Olive Group, says the Kuwait plan requires a political deal with Baghdad to secure permission to transport cargo across the Iraq border. Political issues between the two neighbours remain a significant threat to Kuwait’s plans to link up its railway network with ports in Iraq.
Kuwait still harbours resentment towards Iraq due to unpaid reparations owed from the 1990 Gulf War as well as unpaid loans from the Iran-Iraq war. Politics will be integral in determining which port wins business in the region. “[Ultimately] it will come down to Great Faw versus Bubiyan and this depends on whether Kuwait can forgive the Iraqis,” Edmunds says.
Location of a trans-shipment hub in the north Gulf seems less competitive
Dinesh Sharma, Drewry Shipping Consultants
The plans in Iraq and Kuwait mark a shift in trend from the past two decades when the emphasis was on developing ports in the lower Gulf. As plans progress in the northern Gulf, in the south, Dubai’s Jebel Ali port, is already firmly established as a regional trans-shipment hub and is much closer to the shipping trade lanes. With additional capacity due to come onstream with the developments at Khalifa port in Abu Dhabi and a second port planned for Mussafah, the journey time to ports in the north Gulf would only increase the transit times and costs for shippers.
“Location of a trans-shipment hub in the north Gulf seems less competitive as compared to the south Gulf. It is also unlikely that the rail link between Europe and Iraq would be able to attract traffic volumes to the scale required to make a trans-shipment project viable,” says Dinesh Sharma, a consultant at UK-based Drewry Shipping Consultants.
The lower Gulf could also become a sea and rail trans-shipment hub when the GCC rail network is completed. It would allow ships to unload cargo at Salalah in Oman and then be transported by rail to would avoid the narrow Straits of Hormuz between Iran and the Arabian Peninsula, a volatile area where vessels run the risk of being blocked.
Ships travelling through the Straits are required to pay heavy insurance premiums, a cost that would be avoided by docking in the Gulf of Oman.
However, the volume of trade currently passing through the Suez Canal is too large for a regional rail network alone to handle. “This large volume will need feeder ships to carry the containers as the entire volume cannot be catered to by the rail alone,” says Sharma.
Ultimately transporting cargo by a regional rail network should be looked at as a complement to sea trade rather than a replacement. The volume of goods currently transiting the Suez Canal is very large – about 17,228 vessels carried a total of 559 million tonnes of cargo in 2009. And the development of a rail link does not necessarily suggest that operations at the canal would cease altogether.
A shipment from the Far East to Jebel Ali would involve large volumes to be feedered to the other ports. This large volume would only be accommodated by feeder ships not a rail network alone. As an example, to transfer the cargo carried on one container ship that can hold 10,000 twenty-foot equivalent units (TEUs) onto a railway would require 100 trains, says Shireen Hassan, head of Egypt’s maritime transport sector and former chairman of the Port Said Authority.
“It is very hard to replace maritime transportation with air or rail. For bulk goods such as cement, ore, general cargo and crude oil, it is always better to use ships. But for smaller items, maybe diamonds and precious stones then yes, rail and trucks are very good,” Hassan says.
While rail may be faster, sea transport is cheaper on a per tonne-mile basis, and the region’s seaports are likely to be built long before the railways are completed.
Once the rail network is complete, Iraq will play a leading role in the ship-rail trade route from the Far East to Europe, but it will be many years before it can replace the Suez Canal for bulk trade.