War delays but likely will not fully derail IMEC plans

U.S. President Joe Biden hailed it as a “real big deal.” India’s Prime Minister Narendra Modi called it “a testament to human endeavor and unity across continents.” European Commission President Ursula van der Leyen labeled it the “most ambitious project of our generation.” Saudi Arabia’s Investment Minister Khalid al-Falih went further, describing it as “the equivalent of the Silk Route and Spice Road.”

A little over two months have passed since the proposed India-Middle East-Europe Economic Corridor (IMEC), which prompted these gushing endorsements, was unveiled on the sidelines of the G20 summit meeting in New Delhi. But already the optimism seems misplaced. The Oct. 7 Hamas attack against Israel and the latter’s ongoing military operation in Gaza have stalled progress in the development of the corridor and raised questions about its prospects for eventual completion.

Imagining the IMEC

According to the Memorandum of Understanding (MoU) released by the White House, the IMEC will be composed of two separate corridors, with the eastern flank connecting India to the Arabian Peninsula and the northern flank connecting the Arabian Peninsula to Europe.

The IMEC is intended to facilitate the flow of energy and container traffic from the Gulf to Europe by cutting shipping times, costs, and fuel use. Proponents of the initiative estimate that the IMEC could cut the time to send goods from India to Europe by 40% and slash transit costs by 30%. The IMEC also aims at expanding digital connectivity through a network of undersea electrical cables and serving as a conduit for green energy production and distribution.

The IMEC is one of multiple “connectivity initiatives” to have emerged in recent years focusing on infrastructure development in low- and middle-income countries and prioritizing green projects. More specifically, it is an outgrowth of other collaborative efforts among G7 members, notably the Partnership for Global Infrastructure and Investment (PGII), which incorporates the European Union’s Global Gateway Strategy and aligns with the U.K.’s Clean Green Initiative (CGI) and the Blue Dot Network (BDN), the latter a multi-stakeholder certification program for international Infrastructure projects.

Were the IMEC to be fully implemented, it would solidify the Gulf’s position as the primary trade route linking Asia, Europe, and Africa. It could also facilitate the export of green energy produced in the region to other continents. For Saudi Arabia, the potential to boost tourism, investment, and logistics, while enabling a domestic energy transition toward renewable sources, aligns with Saudi Vision 2030, the kingdom’s long-term economic development plan. The IMEC could also help position the country as a global logistics hub, a goal laid out in its National Transport and Logistics Strategy. For the United Arab Emirates, the IMEC tracks with Abu Dhabi’s efforts to leverage multiple minilateral platforms for cooperation, such as the I2U2 (comprising Israel, India, the UAE, and the U.S.) forum and the Trilateral Cooperation Initiative (including the UAE, France, and India), and to flesh out the Comprehensive Economic Partnership Agreement (CEPA) with India.

Beyond the hype

Yet finding opportunity beyond the hype requires laying to rest two of the more unrealistic expectations regarding the IMEC. The first is the notion, touted by some observers, that the IMEC is a geopolitical game-changer whose implicit objective is to draw regional states away from China’s Belt and Road Initiative (BRI) — an objective that notably neither Saudi Arabia nor the UAE shares. In fact, rather than seeking confrontation or competition with China, Riyadh and Abu Dhabi regard the project as an opportunity to bolster ongoing efforts to diversify their economies. Both Saudi Arabia and the UAE are signatories to the BRI and have sought to obtain Chinese investments for their own infrastructure projects and digital networks. Both have also endorsed China’s Global Development Initiative (GDI) and Global Security Initiative (GSI). Last March, Saudi Arabia became a dialogue partner of the Shanghai Cooperation Organization.

The second improbable notion is that the IMEC might prove to be a geo-economic rival, foil, or challenger to China’s BRI, supplanting or even outright killing the latter transit corridor. But the scale, reach, and popularity of the BRI is far beyond what the IMEC could realistically be expected to achieve. For one thing, the BRI has had a 10-year head start. For another, since the BRI’s inception, China has signed over 200 cooperation agreements with 152 countries and 32 international organizations, mobilized nearly $1 trillion, and implemented about 3,000 projects. Furthermore, despite criticism that China has saddled some countries with unsustainable levels of debt and its own economic slowdown, Beijing has vowed to “continue to promote the BRI as its overarching plan and its top-level design for opening up and win-win international cooperation.” Importantly, many partner countries remain interested in engaging China under the BRI framework. Therefore, it is more realistic to expect the IMEC to run parallel to and possibly to compete with the BRI, than for it to become a wholly alternative trade corridor.

Viability challenges

Nevertheless, stripped of the hype, the IMEC initiative does face several formidable viability challenges, especially when viewed against the backdrop of the disappointing results of previous Western infrastructure programs. It is important to recall that the stated goal of the U.S.-championed Build Back Better World (B3W) was to leverage $40 trillion in infrastructure investment by 2035. Yet one year later, the overall investment goal from the G7 countries and the private sector of the PGII, which some have described as a “repackaged version” of B3W, was scaled back to $600 billion by 2027. Some undertakings, announced as “new,” were projects that had been underway for some time and were rebranded as part of the PGII.

Secondly, there is the question of financing, which is likely to be no less thorny an issue in the case of the IMEC than it has been for other Western connectivity initiatives. When the IMEC initiative was announced, no binding financial commitments were made. Since then, official cost projections have yet to be released. One early estimate suggested that developing each of the IMEC routes could cost anywhere between $3 billion and $8 billion. Another put the total figure much higher, at $20 billion. It has also yet to be determined how the financial burden will be shared between the U.S. and its partners. However, several things are already clear. First, U.S. and European public funds are stretched thin, and there is currently no dedicated financing available. Second, the IMEC (unlike the BRI) will rely primarily on attracting private capital, which might only be forthcoming if prospective investors are provided with guarantees. Third and related, Gulf funding will be crucial to the development of the corridor.

Thirdly, the IMEC will necessitate close coordination between governments and businesses. At the present time, however, there is no overarching, transnational, issue-specific coordination mechanism across all G7 countries for financing and developing high-standard infrastructure investments. Instead, as the implementation of the PGII has shown, each G7 country appears to coordinate its own institutions’ contributions. The U.S., for example, in providing details about how it will implement its approach, has called for the appointment of a special presidential coordinator to spearhead its whole-of-government approach. As yet, however, there is no team of senior officials dedicated to coordinating the efforts of multiple federal development and lending agencies and to interacting with their respective counterparts in other G7 countries or the private sector.

At the end of the day, the IMEC’s success will not be assessed based on its conceptual framework but on its practical achievements. It is therefore important to note that the project’s completion also faces logistical hurdles, including the prospect of multi-modal shipment transfers; moreover, the possibility of consignments being subjected to multiple national customs checks and clearance could end up offsetting the estimated savings. The IMEC will require the harmonization of international regulations and trade policies; that is, standardizing policies on paper and in practice — neither of which is assured.

Even so, neither the physical work yet to be done nor the financing and bureaucratic barriers to the implementation of the IMEC are insurmountable. Rail connectivity upgrades in the Gulf are already underway. Etihad Rail — an integral component of the Gulf Cooperation Council (GCC) railway network — is complete. Elsewhere, GCC railway projects have been progressing with renewed momentum thanks to the stabilization of intra-GCC relations and the improved fiscal conditions afforded by relatively high oil prices.

The Israel-Hamas war and the persistence of geopolitics

The seamless transport of goods through the northern IMEC route will be predicated on the normalization of relations between Saudi Arabia and Israel. This is because Israel’s Haifa port is likely to be the key gateway to the maritime route connecting the Middle East to the major ports in southern and western Europe, bridged by a rail artery linking the UAE and Saudi Arabia to Jordan and Israel. It reportedly was Israel that raised the idea of connecting the region through railways during meetings of the I2U2 forum. But with the civilian death toll in Gaza topping 15,000 and public anger across the Arab world seething, it seems inconceivable that Saudi Arabia and the UAE would enter into such a project with Israel anytime soon.

Nevertheless, the core logic of regional and cross-regional connectivity and of the linking of markets underpinning the IMEC project still holds despite the carnage and the many uncertainties surrounding the war in Gaza. The conflict has not reversed the trend toward the further consolidation of U.S.-India, India-Israel, or India-Gulf relations. Nor has it lessened the Gulf states’ need for infrastructure connectivity to help power their transition to a post-oil future. In sum, the underlying economic and political motivations of the countries involved in the IMEC have not changed.

Senior Indian officials remain bullish on the IMEC’s prospects. Although External Affairs Minister Subrahmanyam Jaishankar acknowledged the unfolding conflict in Gaza to be a serious “unanticipated problem,” he gave no indication that India was rethinking its participation in the IMEC. Similarly, Finance Minister Nirmala Sithamaran, referring to the conflict as a ”worrying manifestation” of the geopolitical challenges to the IMEC, nonetheless characterized it as “one of the most promising connectivity projects that we have embarked upon.”

But the actual chance of any form of closer regional connectivity gaining traction, absent an end to the violence in Gaza, seems remote. So, too, does making any headway on developing the northern IMEC route, which is to pass through Jordan, without a clear indication as to how and by whom post-war Gaza will be administered. That said, even in this climate of uncertainty, it is possible to conjure two potentially promising pathways forward. One pathway, a default option, would be to proceed with the development of the eastern route, with Saudi Arabia and the UAE moving ahead to increase rail connectivity across the Arabian Peninsula and India advancing efforts to develop intermodal links to the Gulf. A second, more visionary option would be to devise arrangements whereby the West Bank and Gazan Palestinians are incorporated into the IMEC project, and not sidelined by it.

Conclusion

The proposed India-Middle-East-European Economic Corridor faces multiple viability challenges, but none of them are insurmountable. The conflict in Gaza — a stark reminder of the persistence of geopolitics and of the havoc it can cause with even the best laid plans — will surely delay the project’s completion and might result in the northern route involving Israel being shelved indefinitely. Yet the core logic of linking European, Middle Eastern, and Indian markets still holds. And the appetite for following through with the project remains strong, especially on the part of India. In the words of Finance Minister Sitharaman, “IMEC is for the long term.” For that very reason, the stakeholders are unlikely to abandon it.

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