Iran recently announced plans to build nine cross-country rail corridors. Those would elevate the country to a serious rail transit country, especially within the framework of the so-called International North – South Transport Corridor (INSTC). The plan could significantly boost regional connectivity. However, there are some serious obstacles on the horizon, and those seem even more insurmountable when looking west.
As part of its ambitious plan, Iran wants to build 3,200 kilometres of new tracks to form nine rail corridors across the country. In total, the corridor network is supposed to be 17,000 kilometres in length. For comparison, Germany has a rail network that is approximately double that size, at 34,000 kilometres.
Notably, Tehran wants to create various corridors from the vital Astara hub at the Azerbaijan border to the Indian Ocean. When put into practice, such corridors would be a major development for the INSTC and ease traffic along the north – south axis. The ports to be connected include Bandar-Khomeini, Bushehr, Bandar-Abbas and Chabahar.
Delays and unexpected costs
Moreover, Iran wants to build a rail corridor along its eastern border, close to Pakistan and Afghanistan. That line could give the famously landlocked Central Asian countries access to the Indian Ocean – and earn Iran even more transit revenue by offering better connectivity on the eastern branch of the INSTC. A part of this line is already in place.
Iran says it wants to complete these projects in seven to ten years. Whether it will manage to do so remains to be seen, but rail projects are often delayed and met with unexpected costs.
A 2005 agreement, but still not building
For example, the crucial Rasht – Astara railway, the last missing rail piece for an uninterrupted western branch of the INSTC, was supposed to start construction in early 2024. However, construction has not started as of January 2025, even if an agreement to build the route was signed as early as 2005.
Similarly, a railway to the key port of Chabahar was supposed to be finished in 2024, but such a connection seems to be nowhere in sight.
Rail projects often grow significantly in costs as time passes. In Europe, Rail Baltica is a case in point: The project was initially estimated at 5,7 billion euros in 2017, by summer 2023 this number had grown to 25 billion euros.
Quarrelling with Russia
With the lack of progress on Iranian rail projects, costs will inevitably grow too. Quarrels with Russia over the Rasht – Astara railway concerned exactly that issue. Russia wants to move ahead with land surveying and purchasing, arguing that land prices will rise spectacularly if delayed. For unclear reasons, Iran does not exactly seem to be in a hurry, but that might be explained by the fact that Russia is funding the majority of the project.
There clearly are major hindrances to Iran’s rail plans, and that is even without considering the country’s dire geopolitical situation.
Tehran’s nine new rail corridors are supposed to boost Iran’s rail capacity to 60 million tonnes annually, and should cost slightly over 10 billion euros.
Oil and gas
Even without the likely cost inflation, that is no cheap price tag for a country already running a sizable budget deficit at close to 6 per cent of GDP. Unfortunately for Iran, there is no financial easing in sight in the foreseeable future. It is going through a serious economic crisis.
Even though Tehran is famously a large oil and gas exporter, sanctions have hampered the sector’s modernisation. As a result, production is seriously lagging, the country is already rationing energy and risks becoming a net importer of energy with growing domestic prices. In combination with dozens of billions of politically sensitive energy subsidies for the general population, that puts pressure on Iran’s budget – it can’t afford to free up money by making its impoverished and dissatisfied population pay more for energy.
And then there is the international arena. The USA just inaugurated a very hawkish president (at least on the topic of Iran). Experts expect the new American administration to more strictly enforce sanctions against Iran, putting additional pressure on its already troubled economy and budget.
Will the INSTC survive?
Add to that the loss of key ally Bashar al-Assad in Syria, and the door is open for arch nemesis Israel to take further action against Tehran – something that experts note is now a rather likely scenario. Iran is reportedly tripling its military budget in 2025. If accurate, it would amount to over 30 billion dollars. It seems unlikely that rail infrastructure and the associated budget will be at the top of Tehran’s minds with a looming Israeli attack.
Iran’s dire economic and geopolitical situation are likely to put a spanner in the works of its rail plans. They were already questionable before Trump took office, and now seem even more unrealistic. The game changer now is that the entire INSTC might be in trouble: without Iranian infrastructure, there is no INSTC. The question is if Iran will retain the capacity to act as a transit hub for rail freight. If so, are shippers going to be willing to send their goods through an Iran that is seriously destabilised by Washington and Israel?