A new corridor

Geopolitics and next-generation trade explain the case for IMEC

One of the most noticeable headlines emerging from the recent summit of the G20 nations in New Delhi was the signing of a memorandum of understanding (MoU) on an India-Middle East-Europe Economic Corridor (IMEC). This MoU was signed by Saudi Arabia, the European Union, India, the United Arab Emirates (UAE), France, Italy, Germany, and the United States. The IMEC will consist of two linked corridors along which the infrastructure will be upgraded. One, a sea route will link India’s west coast with the Gulf states; and another, consisting of both rail and sea, will connect the Persian Gulf with the European continent. Much of the detail is still unclear, but certainly among what is proposed is a new rail line that will connect the Gulf ports with those in the Levant. A silent partner in this proposal, therefore, is Israel, whose port at Haifa may be the terminus for the new railway line. Thereafter, goods will travel by sea to Italian ports or to the port of Piraeus in Greece. It is worth noting in this context that Prime Minister Narendra Modi just completed a successful visit to Greece.

At the Indian end, there will certainly be efforts to upgrade the port infrastructure on the western coast. Some investment to that end was no doubt the sweetener offered to India for its participation. This might be a mix of public funds from the European Union’s multi-billion euro Global Gateway Infrastructure Fund and private investment from firms like UAE-based DP World, formerly Dubai Ports International. DP World already has considerable investment in the logistics sector in India, particularly along the western coast, and has just announced a new $510 million plan for a container port at Kandla, Gujarat. In July, the Union railways ministry approved a plan for a rail corridor from Farrukhnagar, Gurugram, to Loharu to connect with existing railway lines down to four ports in Gujarat.

Any new investment in infrastructure, particularly with funds available at easier rates, is welcome. Yet questions can surely be asked about the economic viability of the rest of the scheme. While long-distance rail can be faster than going by sea, there is no question that for bulk cargo, seaborne travel is much cheaper. Thus, a new Middle Eastern railway line for trade with Europe may save four or five days over the Suez Canal route, but it is far from clear whether that in itself creates a sensible business case for the investment. Even the time advantage might be reduced, given the delays involved in transhipment at at least two ports. The IMEC may, therefore, be more comprehensible as a geopolitical rather than an economic statement. For one, it hardwires the new political compact between the Gulf monarchies and Israel, which was brought into being after the signing of the Abraham Accords. In addition, it demonstrates that a secured zone can be created for trade in the area, which will allow for forward-looking investment in digital and other connectivity. In fact, the MoU specifically mentions the “laying of cable for electricity and digital connectivity, as well as pipe for clean hydrogen export” will be enabled by the IMEC. It is this next-generation trade that might be the real IMEC play, and not traditional merchandise trade.