Two competing trade visions in the Middle East united by ambition

While US-China competition spurs nearshoring and decoupling, some countries in Asia and the Middle East are still optimistic that globalisation has a future. This is no clearer than two new trade routes designed to cut across the Middle East: Iraq’s Development Road Project (DRP), and the India-Middle-East-Europe Economic Corridor (IMEC). They are competing visions of regional geopolitics and trade dominance – one cemented around Iraq, the other around the Arab Gulf region – but they share the ambition of taking advantage of a more politically and economically fragmented world. But the question remains: are they economically viable?  

Competing visions

The DRP was originally conceived in the 1980s, when it was known as the “Dry Canal” corridor. In its 21st-century variation, the DRP is a proposed USD 17bn Iraqi project supported by Turkey that will encompass a 745-mile (1,200km) network of railways and highways from Iraq’s al-Faw port (Basra province) to Turkey. Since October 2022, the Iraqi government has sought to use it as its flagship project to create a new vision of the country. This vision is built on creating economic prosperity and restoring the country’s role as a key East-West trading hub, rather than as a theatre of conflict. The project also plans to establish logistics hubs and industrial complexes along the route, as well as to potentially integrate oil and gas pipelines. 

Implementation of the DRP is set to occur in three phases, with the first two set for completion by 2028 and 2033, respectively, and the final phase by 2050. Meanwhile, completion of the al-Faw port – set to be the largest in the Middle East with a projected initial annual capacity of 3.5m twenty-foot equivalent units (TEUs) – is also a necessary step for the project and is scheduled by 2025. Government estimates indicate that the DRP will have annual returns of USD 4bn and create 100,000 job opportunities at its outset, with a projected total of 1m jobs upon completion. If realised, the Iraqi government hopes the DRP will elevate Iraq and Turkey’s geopolitical importance as a central junction for the land transport of cargo between Asia and Europe. 

IMEC, meanwhile, was announced on the sidelines of the G20 summit in September 2023 in New Delhi (India), with the US, India, the EU, France, Italy, Germany, Saudi Arabia and the UAE signing a Memorandum of Understanding (MoU) to establish the trans-continental corridor. IMEC seeks to develop rail, road and maritime routes to connect India with the Middle East via the UAE and Saudi Arabia to Europe, ostensibly through Israel and bypassing Iraq and Turkey. Proponents tout that it will enable a faster and more cost-effective movement of goods and services between India, the UAE, Saudi Arabia, Jordan, Israel and Europe.  

With 70% of the 2,920-mile (4,700km) trade corridor comprising sea lanes, IMEC requires less extensive terrestrial infrastructure than the DRP. While details relating to funding of the project and its timeline have not been released, media outlets have estimated the construction of port links and railway systems to reach between USD 8bn and USD 20bn. 

The IMEC and DRP, both in the design phase, aspire to be the primary East-Europe trade corridor, leading to a perceived zero-sum game. In September 2023, Turkish President Recep Tayyip Erdogan criticised Turkey’s exclusion from the IMEC, asserting Ankara’s necessity for the project. In 2024, ports in the UAE will achieve a capacity of 19.69m TEU. Concurrently, Saudi Arabia is planning to expand its annual container throughput from 11.38m TEU in 2023 to 40m TEU by 2030. By 2050, the capacity of Iraq’s al-Faw Port is projected to be 7.5m TEU. This suggests that IMEC will have a superior position over the DRP, with the capability to ship a greater volume of containers to Europe. For Iraq, the situation underscores the risk of the Faw port becoming irrelevant for the East-Europe trade if IMEC achieves its goals first, and it likely explains the uptick in Turkish and Iraqi joint-efforts to promote the DRP following the September 2023 IMEC announcement. 

The DRP: Improving Iraqi-Turkish relations while envisioning a trade route 

Turkey’s exclusion from IMEC has spurred Ankara to promote the DRP, revitalising its relationship and reducing tensions with Baghdad. On the sideline of Erdogan’s visit to Baghdad on 22 April to improve bilateral relations, Iraq and Turkey signed an MoU with Qatar and the UAE to co-operate on the DRP and establish the necessary frameworks to implement the project.  

Turkey has used the project to rebuild its political bridges in Baghdad after years of poor ties caused by longstanding disputes on water-sharing agreements and by Ankara’s military operations in northern Iraq against Kurdish militants executed without Baghdad’s consent. The presence of key regional players Qatar and the UAE will not only boost funding for the project but will also give the DRP greater regional credibility. This is not least because the UAE is also, notably, one of IMEC’s main stakeholders.  

Nevertheless, the UAE appears to intend to benefit from either of the two competing routes. Along with signing the MoU, the UAE is also participating in the development of the al-Faw Port: on 3 April UAE SOE Abu Dhabi Ports Group signed a preliminary agreement with its joint venture partner General Company for Ports of Iraq to develop the al-Faw Port and its economic zone. While this may seem like a potential conflict of interests, it underscores UAE’s flexible strategy to position itself advantageously and reap benefits from a strategic project that will materialise soon. 

IMEC: Crossing continents with new partners 

While India sees IMEC as a counterweight to China’s flagship Belt and Road Initiative (BRI) – which has helped to expand China’s global presence by financing and building infrastructure projects since 2013 – it could also be instrumental in fulfilling New Delhi’s long-standing efforts to bolster its connectivity with Europe. The International North–South Transport Corridor (INSTC), which sought to connect India to eastern Europe through a road network running through Iran and Central Asian nations, has remained in limbo for over two decades due to a fraught geopolitical environment. IMEC offers India an alternate route for connectivity to the vast markets of the Middle East and Europe as it gears towards becoming an export-driven economy and a new global manufacturing hub. 

IMEC also offers the UAE and Saudi Arabia the chance to put themselves at the heart of a new land trade corridor that builds on fledgling ties with Israel by using the UAE’s extensive port network and Saudi Arabia’s expanding transport infrastructure capacity.  

IMEC would minimise the capacity constraint risk from the Suez Canal, which is currently limited to 50-60 transits per day, and also the Red Sea, which is still affected by the ongoing targeting of commercial vessels by the Houthi rebel movement in response to Israel’s military operations in Gaza (Palestinian Territories). IMEC also allows the Arab Gulf neighbours a chance to cooperate, rather than compete, for logistics and manufacturing business – key components of their respective economic diversification plans. 

For India, the IMEC does not demand significant investments: the country’s western coast already has well-established maritime trade routes with the UAE. This explains India’s redoubled diplomatic efforts, such as setting up an inter-governmental framework with the UAE towards the implementation of the project – particularly through agreements signed in February – to quickly operationalise the first stage of the IMEC corridor. 

The view from Beijing: BRI competition? 

The development of both projects is closely tied to geopolitics, and each raises questions as to China’s role in infrastructure development in South Asia and the Middle East. While IMEC is also perceived by the US and the EU as a platform with which to compete with the BRI and counter a growing Chinese economic footprint, the DRP welcomes Chinese participation, if not leadership. Although China has not been invited to IMEC, it has not officially opposed it either, and China’s international trade could actually benefit from the enhanced infrastructure. 

China is expected to have a more active role in the DRP, though this is likely to be limited to promoting its companies’ roles as contractors and investors. The Chinese ambassador to Iraq has referred to the project as “complementary” to the BRI. This fits with China’s efforts in recent years to mitigate risks in the BRI, pursuing smaller-scale projects compared to the early stage of the initiative. It has also reduced the emphasis on traditional infrastructure and privileged high-tech sectors where it leads, such as the digital economy and green energies, which have expanded in Arab Gulf countries. 

Optimistically sceptical 

Even with enthusiastic members and with China’s likely backing for the DRP, both routes will continue to face significant challenges before their inception. 

Although the al-Faw Grand Port is projected to be finished by 2025, the launch of the DRP has already faced several obstacles. The contract for its design and consultancy, awarded in 2021, was terminated by the Iraqi government on 5 May after investors reportedly deemed the designs “unconvincing”. The project is also highly likely to exceed its USD 17bn budget, not least because of the need to build large power stations in some Iraqi regions to meet its energy requirements. Meanwhile, security concerns are likely to deter some investors – the rail line is planned to traverse ten Iraqi provinces – while the project will also face domestic opposition. Kurdish officials have consistently objected to their region’s exclusion from the proposed DRP route. 

The IMEC’s fate is likely to remain at the whim of the diverging interests and contested geography in the Middle East, despite maritime routes between India and UAE – the first link in the chain – being the strongest so far. IMEC’s proposed route passes by the port of Jebel Ali (UAE) and will go through the Strait of Hormuz, which would replace the Bab al-Mandeb as the vital chokepoint – affecting not just oil and gas but also more goods trade. 

Meanwhile, the UAE’s signing of the DRP MoU signals that Abu Dhabi is at least considering potential alternatives to the IMEC trade corridor, which runs through Israel, and which it had backed prior to the outbreak of the Israel-Hamas conflict in October 2023. Although Saudi Arabia may have normalised its diplomatic relationship with Israel by the time the route is fully operational all the way to Europe, it will serve Arab states to hedge their bets for long-term projects given the unexpected and sudden changes that can occur in regional politics. Meanwhile, by 2030 the UAE and Saudi Arabia will have delivered the necessary freight rail system for IMEC. 

Despite decoupling and deglobalisation being all the rage in think tank papers – goods need to move. With the world’s population growing and enriching, the consumption of goods will increase, which will require more transportation pathways as time goes on. 

Both routes’ challenges raise the question as to which is more likely to come to fruition. It’s hard to say. But it’s doubtful that there is a world in which both projects can exist running at their planned full capacity. The most likely scenario right now is that separate components of each project will be delivered. 

While the al-Faw port will likely start operating in 2025, the DRP’s upcoming design stages are likely to introduce changes to the existing model, further delaying its launch. In the next five years, project advancement will be contingent on Iraq’s stability and the government’s ability to curb endemic corruption. Meanwhile, the future of IMEC will be determined by the progression of the normalisation process between Israel and Saudi Arabia, and Jordan’s affirmed accession to the route. 

These challenges are likely to create fragmented Frankenstein trade routes that will nonetheless become central to the expansion of MENA inter-regional trade, as well as East-West trade. 

For businesses, the implementation of the IMEC and DRP will create a demand for infrastructure projects including roads, railroads and ports. Carriers and shippers will have the opportunity to leverage lower costs for moving goods because of the increased port capacity in the Middle East. For both projects, goods will reach Europe faster than via the Suez Canal path, reducing shipping costs, time and fuel usage, while enhancing trade facilitation and efficiency, and securing regional supply chains. However, the increased reliance on multimodal freight by both projects will increase the risk of operational delay and mismanagement, which could end up undermining costs and time saved.