Azerbaijan’s energy export capacity makes it a key node in the expanding East-West trade corridor. But Baku is also emerging as a hub for North-South trade, as reflected by its significant jump in exports to Russia.
Azerbaijan’s State Customs Committee reported that the country’s Russia-bound exports increased in 2023 by almost 23 percent, reaching $1.2 billion. Imports from Russia rose 16 percent, topping $3.2 billion. The bulk of Azeri exports to its northern neighbor were non-energy-related goods.
While Russia has maintained a relatively strong trade relationship with Azerbaijan since the Soviet Union’s collapse, the uptick in commerce is indicative of a shift in the Caucasus’ geopolitical dynamics following Baku’s reconquest of Nagorno-Karabakh. As Moscow’s economic connection to Baku has strengthened, Russia’s ties with Armenia have grown more strained.
According to Toghrul Valiyev, a Baku-based independent economist, changes in trade patterns precipitated by the Ukraine war have heightened Azerbaijan’s reliance on Russian trade. Before the war, he noted, European imports came to the country through Russia. Those same goods are now more expensive.
“[All] this leads to increased dependence on those products that turn out to be cheaper,” he said. “And products from Russia in certain [cases] turn out to be cheaper.”
The catalyst for expanding Azerbaijani-Russian trade turnover is a strategic cooperation agreement signed in 2022, just days before the Kremlin launched its botched blitz on Ukraine. The pact included language about ensuring the “sustainable full-scale operation of the North-South international transport corridor.” Azerbaijani President Ilham Aliyev lauded the development as a byproduct of the two countries’ “friendly feelings, mutual interests and aspirations for the future.”
The North-South corridor aims to create a network of road, rail and shipping routes stretching nearly 4,500 miles from Mumbai to Moscow, via Iran and the Caucasus. Such routes appear to be Russia’s safest option for evading sanctions, according to Nikita Smagin, an Iran expert. “Heavily sanctioned Iran... has nothing to lose by working with Russia,” he wrote in a policy analysis published by the Carnegie Endowment for International Peace.
Azerbaijan’s geographic position makes it a key cog in the emerging trade network. Since Azerbaijan regained full control of Nagorno-Karabakh, officials in Baku have turned their attention to various North-South road and rail projects. Last October, for example, Aliyev attended the opening of a new toll highway connecting Baku and the Russian border.
In January, Russia and Azerbaijan inked an economic cooperation blueprint covering 2024-26. The memo contains provisions covering energy, agriculture and transport infrastructure ventures. At the signing, officials also discussed Russia’s investing in the “liberated” territories of Azerbaijan, although it is unclear exactly what that will look like.
Rail freight between Iran and Azerbaijan grew by 28 percent between March 2023 and February 2024, and there are currently several different rail routes linking Azerbaijan and Iran in the planning stages. Perhaps the most viable is known as the Aras corridor, which would connect Azerbaijan proper to Turkey via the Nakhchivan exclave, traversing Iranian territory while circumventing Armenia. The route, if completed, could supercharge North-South trade, connecting Azerbaijan to the Black Sea and Persian Gulf.
Experts say the construction of at least 140 kilometers of new track will be needed to complete the Aras route. Financing remains an open question.
In 2023, First Deputy Prime Minister of Russia Andrei Belousov predicted that North-South trade capacity would triple by 2030. Officials in Baku would not mind seeing that happen. But not everyone is convinced such a target is realistic, given the uncertainty surrounding Russia’s sanctions-strapped economy and potential roadblocks in relations between Baku and Tehran.
“How can Russia help us if Russia has its own problems in this sector?” said Samir Aliyev, an economics expert at the Baku Research Institute, referring to each country’s non-fossil fuel economy.
