The Middle Corridor Infrastructure Deals and Developments: 2023 in Review
Author: Haley Nelson
Dec 21, 2023
Before Russia’s invasion of Ukraine, the Middle Corridor transit route seemed farfetched. It was rarely discussed by Western leaders, and to many, it was entirely off the radar. However, in 2023 Caspian Region countries were confronted with the realization that Russia can no longer be a reliable partner, and the need to distance themselves from Russian influence grew increasingly apparent. At the same time, consumer markets in Europe faced the devastating consequences of their economic reliance on Russia as the Kremlin weaponized its role as a transit state. It became clear to both the Caspian Region and Europe that their traditional trade partnerships no longer aligned with the shifting geopolitical landscape. And, as cooperation with Russian enterprises weakened, a window of opportunity emerged for trade diversification. With the loss of the Russian partnership, the Middle Corridor gained opportunities to develop.
In the past year, the Middle Corridor, a multimodal transport corridor that moves cargo from Asia to Europe across the Caspian Sea, has been widely discussed in many high-level platforms, such as the China-Central Asia Summit, the 7th Trans-Caspian Forum, XIII Astana International Forum, the 49th G7 Summit, the Caspian Connectivity Conference, the first-ever C5+1 Presidential gathering with U.S. President Joseph Biden in New York, and the World Economic Forum. And with this elevated attention, the Middle Corridor, a route long imagined by foreign onlookers and Caspian littoral states, finally began to take shape.
For the first time, a trial shipment of Kazakh oil was successfully delivered to the Port of Baku from Kazakhstan’s Aktau Caspian seaport on March 20, thereby opening a new route to deliver oil to European markets. It was a historic moment in the realities of the region, and it’s set to play a transformative role in the regional economy moving forward. With the commencement of this route, Western markets can access Central Asia’s vast energy reserves without depending on Russian transit routes.
The cargo delivered through the Middle Corridor reached one million tons at the beginning of 2023, an increase of 64% compared to the same period in 2022. In February, the Kazakh Ministry of Energy predicted an upward trajectory for the project, anticipating 6.5 million tons of cargo in 2023, 7.5 million tons in 2024, and 15 million tons in 2025. Also, the volume of oil transported from Kazakhstan’s Port of Aktau to Azerbaijan’s Port of Baku increased by 60.5 tons, or 75%, in April 2023 when compared to March 2023.
Although this was a major step in the development of the Middle Corridor, the issue of shipping capacity still causes concern for foreign investors. According to the estimates by the European Bank for Reconstruction and Development, the Middle Corridor requires an investment of US$19-21 billion to address bottlenecks and inadequacies.
To address existing weaknesses and challenges, on June 22-23, Azerbaijan, Kazakhstan, and Georgia established a joint logistics company aimed at reducing operational delays, eliminating bottlenecks, and streamlining the tariff process along the Middle Corridor. This company will be responsible for unifying tariffs and cargo regulations along the Middle Corridor, aiming to resolve challenges stemming from inconsistent rules and standards.
However, this new trilateral agreement does not stand alone. Since the beginning of 2023, several project agreements have been signed with the aim of boosting the Middle Corridor’s capacity. Some of the logistical concerns began to ease with a surge in investments from previously unseen partners.
In January 2023, Kazakhstan’s Ministry of Industry and Infrastructural Development signed a Memorandum of Understanding (MoU) with the UAE on the development of a marine fleet and coastal infrastructure in the Caspian Sea.
On February 10, Kazakhstan’s Central Communications Service announced that both the Port of Aktau and the Port of Kuryk will be integrated into the Seaport Aktau Special Economic Zone (SEZ). This move is aimed at upgrading the ports’ logistical capacities and their ability to transport products globally.
In April 2023, as part of the Kuryk Port Development project, Semurg Invest, a Kazakh infrastructure company, announced its plans to build a new oil port terminal, which will increase the port’s export transport capacity to 15mn-20mn tonnes per year (tpy) of oil, or as much as 112mn barrels.
In June 2023, Kazakh Prime Minister Alikhan Smailov announced that Kazakhstan is planning to increase trade volumes across the Caspian to Azerbaijan in over 100 commodity items worth over $300 million, bringing the annual bilateral trade volume to over $1 billion. As part of this planned cargo increase, Kazakhstan has expressed a desire to establish supplies of fruit and vegetables from Azerbaijan to Kazakhstan. With these plans in place, there has already been a significant uptick in Kazakhstan-Azerbaijan trade relations.
In August 2023, AD Ports Group also signed a Heads of Terms (HoT) agreement with SEMURG INVEST LLP (Semurg), the owner and developer of Sarzha Multifunctional Marine Terminal in Kuryk Port, to develop the Kuryk Port’s grain terminal. Under this agreement, the two companies are set to establish a joint venture to invest, develop, and operate the Sarzha terminal into a multipurpose terminal.
With this surge in investments, the route has become a key point of interest for investors looking to get involved in the region. In November 2023, the World Bank released a report, stating that “the cargo flow through the MC via the Caspian Sea could exceed 11 million tonnes by 2030, but only if infrastructure development projects are implemented.” The report made several investment recommendations for the development of this corridor, including investments into a joint venture to consolidate infrastructure investments and share revenues and costs, creating conditions for optimized infrastructure management, and the establishment of a joint task force to integrate the requirements of the Chinese transport industry and shippers.
Limited railway and seaport capacities, the absence of a unified tariff process, and a lag in the digitalization of the ports’ operations have presented a series of hurdles to this route. However, with this surge in interest from foreign investors, the Middle Corridor can now reorient supply lines away from Russia, diversifying import-export partners, reducing transit costs, and increasing the overall capacity of the route. What was once deemed a farfetched idea has emerged as an achievable, reliable, and efficient alternative to Europe’s traditional supply lines in a short period. 2023 saw this route transform into a profitable and realistic economic opportunity for the Caspian region and its partners.