'The New Silk Road of our Region': Iraq's Rival to the Suez Canal
Key takeaways:
The Grand Faw Port and Development Road project in Iraq aims to boost trade, investment, and connectivity, linking southern Iraq to Turkey and Europe whilst significantly reducing East-West shipping times.
Despite facing delays and challenges since its proposal in 2010, the project is progressing, with significant backing from international stakeholders such as China and Turkey.
The project includes plans for one of the world's largest ports, with South Korean company Daewoo awarded a contract for its construction.
Chinese companies have heavily invested in the project, securing contracts for various components, including LNG import terminals and infrastructure for the Development Road.
Operational security poses a significant concern, with potential disruptions from various armed groups and geopolitical tensions in the region threatening the project's success.
Overview
The development of the Grand Faw Port has long been an Iraqi aspiration, seeking to expand trade, investment, and interconnectivity. The port, located in southern Iraq on the Persian Gulf, will be linked to Turkey and subsequently Europe by the Development Road, a 1,200 km network of rail, road, and oil and gas pipelines. This route aims to substantially reduce shipping times from China to Europe, slashing them from 30 days through the Suez Canal to just 25 days via the Grand Faw Port and Development Road, thereby leading to significant reductions in shipping costs. Since its proposal in 2010, the project has been hindered by delays, conflicts, and corruption, yet the goal is now nearing fruition. With two-thirds of the port already built, a scheduled completion date of 2027, and multi-billion dollar contracts granted, the project has garnered backing and financial commitments from major international stakeholders, notably China and Turkey. President Erdogan described the project as 'the new ‘Silk Road’ of our region'.
Set to be one of the world's largest, the Grand Faw Port has a planned dry tonnage capacity of 99 million tonnes per year, with South Korean giant Daewoo awarded the USD 2.7 billion contract to build the port's berths. Chinese companies have made substantial investments and played a pivotal role in the advancement of both the Port and Development Road. In 2018, contracts for the Port's LNG import terminal were granted to two Chinese companies, Power China and Nerco Chinese. Chinese companies are also competing for contracts worth USD 17 billion for the construction of the Development Road, which include building its high-speed railway and energy pipeline components.
The Development Road aims to connect the Faw Port in Basra, Iraq's southernmost city, with Turkey at Iraq's northern border. The Iraqi government has enlisted the services of the US-based company Oliver Wyman to conduct a comprehensive financial and economic study of the project, underscoring efforts to ensure its viability and sustainability. The Grand Faw Port and Development Road project hold significant promise for Iraq's economic growth, offering opportunities for increased trade, investment, and regional integration whilst diversifying its economy away from hydrocarbon export dependence. The ambitious project also carries wider implications, including challenging regional influence and drawing global powers, notably the US and China, into the region.
Sino-Iraqi Opportunities
A functioning and reliable East-West trade route through Iraq is still a distant vision, but the potential benefits make it impossible to dismiss. China-Europe shipping times are currently 45 days around the Cape of Good Hope and 30 days via the Suez Canal. Turkish Transport Minister, Abdulkadir Uraloglu, announced after a meeting with his Iraqi counterpart in February 2024 that the project would reduce shipping times to 25 days. Improved regional connectivity facilitated by the Faw Port and Development Road could simplify logistics, making the transportation of goods more efficient and enabling businesses to adapt faster to market changes. Investors could see higher trade volumes and profits due to smoother movement of goods through the Port and related infrastructure projects. Ultimately, establishing the Faw Port as a significant regional hub strengthens supply chain resilience and reduces risks linked to current trade routes or modes of transport.
The Faw Port and Development Road project represents a pivotal opportunity for Iraq's economic and geopolitical standing. Iraq's landmark 2024 budget forecasts an annual government expenditure of USD 153 billion. This record-breaking budget highlights a commitment to infrastructure development and economic growth. In particular, the budget emphasises significant investment the Port and Development Road, positioning Iraq as a key player in regional trade and connectivity. The Port's strategic location at the northern tip of the Persian Gulf positions it as a critical node in international commerce, linking commercial lines between East and West via the Development Road. Partnerships like that between the AD Ports Group and the General Company for Ports of Iraq (GCPI) highlight international interest and collaboration in Iraq's economic development. Leveraging the Port's strategic location, these partnerships aim to unlock new opportunities for trade and investment, contributing to Iraq's economic growth. The development of the project represents "Iraq's most prominent economic and logistics development," according to Iraqi Transport Minister Razzaq Al-Saadawi. By facilitating efficient transportation routes and enhancing connectivity, the project aims to stimulate economic growth, attract foreign investment, and strengthen Iraq's position in regional and global trade networks.
Although not a formal facet of China's Belt and Road Initiative (BRI), the Faw Port and Development Road projects still feature extensive Chinese involvement, with Chinese companies securing contracts for several aspects of the project. The extent of this influence is seen in the Iraqi Transport Minister's letter to the Chinese embassy in Baghdad inviting "serious and capable Chinese companies to benefit from the numerous investment opportunities within the Development Road." China’s BRI not only focuses on investment, but equally the successful fulfilment of construction contracts. In 2021, this strategy saw China invest USD 10.5 billion in construction contracts in Iraq. Since then, their focus has expanded to the delivery of infrastructural projects from gas pipelines to railway construction. The project holds significant importance for China as it offers an alternative path to the Maritime Silk Road and the China-Central Asia-West Asia Corridor. Additionally, it enhances connectivity from the China-Pakistan Corridor to Europe.
China's existing oil trade with Iraq and the wider region would be bolstered by a reliable Faw Port. While China has been attempting to diversify its oil suppliers, its dependence on Middle Eastern oil remains a vulnerability; with much of the world relying on Chinese products, this can be interpreted as a global vulnerability. Nonetheless, China's appetite for Middle Eastern oil persists. In February 2024, S&P Global Commodity Insights reported that "an average of 1.18 million barrels per day, or 35% of Iraqi crude is exported to China”, whilst half of China's oil imports came from the Middle East in late 2023. A comprehensive strategic partnership agreement signed between China and Saudi Arabia in December 2022 inaugurated a "new era" in Chinese-Arab relations, with a focus on energy deals and BRI cooperation. The success of the Faw Port could be pivotal in leveraging China's existing involvement in Iraq, potentially boosting Iraqi energy exports and reshaping regional trade dynamics. Additionally, the Port and Development Road initiative would streamline transportation, enabling increased Chinese goods transport to Europe and optimizing oil and gas exports from the region. This project has the potential to significantly benefit Sino-European trade while directly benefitting Iraq, the Arab Gulf states, and Turkey.
Operational Security
One of main scepticisms levied at the project by foreign companies and investors relates to security concerns. Iraq's turbulent history remains an obstacle to development, its global trade prospects tarnished by the memory of wars, political upheavals, and infrastructure deficiencies over the past forty years. Conflict and instability have historically disrupted trade routes and damaged crucial infrastructure, obstructing the efficient exchange of goods and services. The Development Road will pass through areas influenced by well-armed tribes, paramilitaries, ISIS, and the Kurdish Regional Government (KRG), all capable of disrupting its operation. These concerns primarily focus on two aspects: Shipping and the Development Road, which encompasses the road network, railway route, and oil and gas pipelines.
Shipping
To reach the Faw Port through the Arabian Sea, ships must pass through the Gulf of Oman and the Persian Gulf. The presence of US naval and air bases in Oman, the UAE, Qatar, Bahrain, and Kuwait highlights the importance of this maritime route. The presence of US military installations in the region also poses a risk, particularly amidst heightened US-Iranian tensions. The Iranian border lies approximately 70 miles from US Army Camp Buehring in Kuwait, where significant US forces are stationed in close proximity to Iranian territory. This geopolitical rivalry frequently unfolds in the Persian Gulf, marked by military posturing and attempts to exert influence in the region.
This risk is exacerbated by the ongoing tit-for-tat oil tanker seizures by the US and Iran. On 11 January 2024, Iran seized a tanker in the Gulf of Oman, which departed from the Basra Port, in retaliation for the US seizure of the same vessel when it was carrying Iranian crude the previous year. As the Faw Port and Development Road project boosts shipping activity in the area, mitigation measures by means of diplomatic discussions and agreement on common rules of engagement would be required to ensure the project’s success; an unlikely prospect given the US and Iran’s poor diplomatic record. While diplomacy appears off the table, heightened regional tensions, particularly between Israel and Iran, have prompted the US to distance itself from "any offensive operations" against Iran and emphasise its work “to de-escalate from any potential conflicts." Should de-escalation policies prevail and diplomatic discussions begin, the security of the project and shipping in the Persian Gulf will likely be high on the agenda.
Considering Iran's naval presence and missile capabilities in the Gulf, a potential blockade in the Persian Gulf could be more effectively enforced than the Houthis' blockade in the Red Sea's Bab al-Mandab Strait. The Houthis have targeted ships heading to Israeli ports in response to the war in Gaza, as well as US and UK vessels due to their airstrikes on Houthi targets in Yemen. Despite the likely end of this blockade coinciding with the eventual cessation of conflict in Gaza, the vulnerability of current shipping routes and the consequences of blockades underscore the necessity for alternative options.
Development Road
Iran's efforts to leverage the project by establishing railway connections to Basra suggest a potential rise in geopolitical tensions should the US perceive Iran's actions as a means to evade sanctions. The prospect of the US using its influence in Iraq to impede Iran's benefits from the route adds another layer of risk to the project's security dynamics. The success of the project will greatly benefit Iran, as the Shalamcheh-Basra railway could be connected with the Development Road in Basra. Iranian media reported a ceremony in Shalamcheh in April 2024 officially inaugurating the planned 18-month railway construction, attended by Iran’s First Vice President and Transport Minister, along with Iraq’s Prime Minister Sudani. Iran’s First Vice President described the railway project as an important joint project between Iran and Iraq “which will affect the entire region”. The Shalamcheh-Basra railway was proposed to give 3-4 million Iranian pilgrims easier access to the Shia Muslim holy city of Karbala in Central Iraq, avoiding busy border crossings. Iran also aims to increase its regional trade influence by accessing trade routes to the Mediterranean through Syria and Turkey, bypassing sanctions in the process. Despite the potential economic and religious benefits Iran may gain from access to the Development Road, the prospect of a more autonomous Iraq may not be in Iran’s best interest. The absence of adequate gas refinery infrastructure in Iraq has led to a reliance on Iranian gas, which in turn has become a vital export for Iran amid severe sanctions. The gas refinery elements of the Port project would minimise Iraq's current dependence on Iranian gas, constituting a blow to the Iranian economy. While the project threatens an important component of trade for Iran, the sanctioned country stands to achieve a net gain from its success through expanded regional connectivity.
Iran-linked paramilitary groups have long enjoyed influence in parts of southern and central Iraq, with the war against ISIS leading to their presence in western Iraq and near the Kurdish Region of Iraq (KRI) in the north. Since 2020, the Iran-linked coalition of militias known as the Popular Mobilisation Forces (PMF) have vowed to remove US troops from Iraq. Recent hostilities between factions of the PMF and US forces in Iraq have included attacks on US bases in northern, western, and central regions of the country, as well as targeted killings of PMF leaders by US forces. Although these groups, alongside Iran itself, have the capacity to jeopardise the project’s security, they also have a vested interest in its success. Arabic media reports suggest potential collaboration between Iranian-linked factions and Beijing in advancing the Development Road, driven by a common goal of countering Western influence in the country. The project's strategic benefit for the PMF is rooted in establishing an independent Iraqi-led initiative, thus advancing Iraqi autonomy and distancing the country from what the PMF views as a period of American occupation.
Though cooperation between Iraqi Security Forces (ISF) and Kurdish Security Forces (KSF) have improved throughout joint anti-ISIS operations, the uneasy relationship between the central government in Baghdad and the semi-autonomous Kurdistan Regional Government (KRG) remains. The US Department of Defence has reported "no movement on the creation of ISF-KSF joint brigades", highlighting the inevitable friction between the Iraqi Central Government and the KRG with regard to the project. Before the Development Road can advance, cooperation between both parties must be secured, necessitating intricate negotiations. The KRG is expected to leverage its position, yet it stands to benefit from the streamlined gas export route that the Development Road offers. The KRI has proven gas reserves of over 25 trillion cubic feet, constituting 20 percent of Iraq's total proven reserves. Although both Baghdad and the KRG would benefit from oil and gas exports through the Development Road, tensions between the KRG and Turkey, as well as between the KRG and Baghdad, have resulted in the Kurds being largely side-lined from the negotiations. Notably, the route strategically bypasses KRG territory. Talks between Iraqi and Turkish delegations have resulted in cooperation agreements focused on addressing the security challenges posed by elements of ISIS and the PKK (Kurdistan Workers Party) around the Development Road. These states forecast continued tensions with the Kurds, highlighting the operational security concerns surrounding the project.
Outlook
The development of the project could carry adverse geopolitical implications for the United States, particularly in light of regional competition with China. The congressional body for US-China competition referred to this period as a "Sputnik moment"; a nod to the US-Soviet Space Race of the 20th century. As China advances its BRI and anticipates benefits from the project, the US is advocating for an alternative trade route: the India-Middle East-Europe Economic Corridor (IMEC). Announced at the New Delhi G20 Summit 2023, this proposed route stretches from India to Europe through the United Arab Emirates, Saudi Arabia, Jordan, Israel and Greece. However, the ongoing war in Gaza has derailed IMEC progress, something Israeli President Isaac Herzog suggests was initiated by Iran to target the IMEC. Amid its current state of war, Israel is deemed unfit to accommodate the IMEC's infrastructure or progress cooperation with its Arab IMEC partners. Normalisation talks between Saudi Arabia and Israel have been postponed and the Jordanian monarchy, government, and public have voiced outrage against Israel's bombardment of Gaza. Consequently, regional integration efforts towards the IMEC seem a distant prospect.
Turkey was quick to voice its opposition to the IMEC, declaring there will be "no corridor without Turkey." Feeling excluded from the proposed East-West trade corridor, Turkey has turned to Baghdad and Beijing to secure its pivotal role in the Faw Port and Development Road project. For Europe, the Iraqi project offers the potential for a cheaper and faster supply of oil and gas from the Middle East. With European endeavours to substitute Russian oil and gas amid the conflict in Ukraine, attention has turned toward the Arabian Gulf, with a specific focus on Qatar, as a means to attain energy security. For as long as the Suez Canal and Red Sea are unviable for safe transit, both energy suppliers and purchasers will be exploring all options for efficient and diversified supply routes.
The Grand Faw Port and Development Road project is a visionary endeavour set to unfold over the next decade. While challenges such as operational security, corruption, and negotiation obstacles within Iraq will pose complexities, the potential benefits for numerous stakeholders promise a brighter future ahead. For this brighter future to be realised, a number of specific challenges must be addressed. To ensure effective administration and minimise the influence of transient political figures, establishing a dedicated ministry or department accountable directly to the Prime Minister's office is crucial. International involvement should be strategic and balanced, prioritising local job creation to foster community support and deter potential disruptions. Addressing internal corruption and bureaucratic obstacles is essential to keep costs low and ensure investor confidence; responsible participation from investors will be key to maximising the route's potential benefits. Despite the influence of regional and global politics, the project warrants significant attention and investment to mitigate international shipping risks and enhance trade efficiency.