There’s Only One Solution Ahead for the Russian Economy. It’s A Corridor.

On the much anticipated 25th of December, 1991, the indifferent Kremlin observes the Soviet flag lowered as Mr. Gorbachev’s televised resignation speech marks an end to the soaring inflation, unprofitable private businesses and sarcastic fixed prices of the USSR’s planned economy. Whilst stagnation is at its worst, the government insists on its high military spending. These qualities might resemble Russia’s troubled economy today, as the war in Ukraine continues. This resemblance has persuaded many thinkers that the collapse of the Russian Federation is on the horizon. Indeed, economically, it might be. There is, however, one seamless solution unheard of, for which Russia has been striving particularly since it invaded Ukraine. That is the International North-South Transport Corridor (INSTC) which upon completion, will transform the Russian economy and save it from imminent recessionary pressures. To this we will shortly turn. A word must be said, however, as a brief description of INSTC and its history now.

The international North-South Transport Corridor (INSTC) is a 7,200-km-long trade route with its high-end in St Petersburg of Russia and its low-end in Mumbai of India. It is a corridor crossing through Russia in important cities like Moscow and Volgograd and further down in Astrakhan, Azerbaijan in Yalama, Iran in Astara, Tehran and Bandar Abbas and finally Mumbai. This corridor enables the freight movement through Central Asia and members of the EAEU, using rail, road and sea routes. The history of this corridor can be tracked down in the late 19th century when the Russian empire was willing to somehow connect the Nordic seas with the Persian Gulf and the Indian Ocean. Having come into formation as an agreement in 2000, the INSTC was officially ratified on May 16, 2002 and the railway and road constructions have been underway thereafter. This corridor is fundamentally an alternative to the traditional trade route of Suez Canal, often used by Europe and particularly Russia, to export to and import from Middle East, Southeast Asia and the East. Trade through the Suez Canal route can take over 45 days, impose limitations on the freight volume and cost suppliers as high as half the product’s price being shipped. Alternatively, the INSTC, offers 30% cheaper and 40% shorter transportation, accentuating the highly efficient nature of the project. It was on 23 March 2021 when a Panamanian ship ran aground and blocked the Canal for other ships for several days, that it became highly relevant to expedite the completion of INSTC. As we will see later in this article, the final push for EAEU members to speed up the constructions, was in 2022 following the full-invasion of Ukraine, which brought sanctions on Russian products and made it clear for Mr.

Putin that if Russia is to maintain its market presence, it must engage in deeper economic ties with Asia and in particular, India. Perhaps this can partly explain the more frequent meetings he has recently had with his Indian and Iranian counterparts, the latest being his cabinet’s exchanges with Mr. Larijani of Iran in December 2025 on the final missing link of INSTC, the Astara-Rasht railway.

Having described the INSTC in encapsulation, we now turn to an overview of the current Russian economy and how it sorely needs this corridor. But let me first mention that I am profoundly surprised by the unusual war economy of Russia and how despite the Central Bank of Russia’s simple yet detrimental policies in effect, the Russian economy functioned relatively well in 2023-2024 period. In general, the Russian economy is a resource-dependent economy, with a usually very high share of its GDP driven by consumer expenditure and its balance of payments being mostly positive. Comes the Ukraine war, and Russia runs short of its workforce due to many citizens immigrating to Europe and elsewhere, its aging population with the mean age of 40.3 and recruitment of many soldiers and trainees in the military. This shortage of labour in turn causes nominal wages to rise, adds to the costs of production of domestic firms, and causes a cost-push inflation. Yet, instead of addressing the problem in the supply side, the CBR decides to raise interest rates in October 2024 to 21%, exacerbating the situation by weakening demand through such policy. Private investment was dampened, thus long-term supply growth was hindered and taxes rose and became more regressive, to fund the war and to collect the most available. Exports revenue was also reduced due to the sudden sanctions of Europe on oil, gas and other products. I cannot think of a worse scenario than the one just delineated, with a decimated aggregate demand, aggregate supply and stagflation. The latest data shows Russia suffering a low GDP rate of growth of below 1% and its inflation at around 6% in 2025.

The Russian economy, in this very volatile circumstance, is in urgent need of INSTC’s western route to be completed and utilised. By linking Russia directly to Iran and India, Russia can make up for the missing market it lost in Europe and instead use the large Indian market, thus experiencing increase in its exports volume and as a results see its total demand rising. In addition, with low costs of transportation and time consumption it can boost its supply as these reduce business costs. Overall, the economy can find relief as its GDP will rise significantly, with perhaps a very slight reduction in inflation. This also provides an opportunity for the government to fund its war through direct tax revenues. This can enable CBR to avoid turning on its printing press and supplying the Russian army with untrue money and therefore prevent further inflation. Additionally, as India is already heavily importing mineral fuels and oil at around USD 59.53 billion from Russia, and Iran is importing Russian grain and wheat mostly in the form of cereals at about USD 962.63 million, the launch of INSTC in full, can increase these figures. These two – farm products such as grain, and oil and fuels such as petroleum – were

indeed exactly the two most important exports of Russia sanctioned by Europe and now INSTC can work as an effective bypass.

There are however, considerations to be made. For instance, the claim many make that a variety of local jobs are created as construction projects get underway and therefore unemployment level can be reduced, is not correct at all in a long-run view. The INSTC project, as it is hoped, will be fully complete by 2030, and at such date, those assumed to be employed will get unemployed, simply because the roads and rails are built and they will not be needed in their area and for their basic skills anymore. Therefore, some rise in unemployment level in Russia and involved countries can be expected after 2030. Additionally, a large share of Russia’s GDP has become associated with the production of military equipment, arms and ammunitions since the war with Ukraine broke out. Thousands of jobs were created and like all war economies, Russia has become massively involved in developing its economy, again, in an unsustainable and short-run manner. This is very problematic because it simply does not let Russia pull itself out of the war scene even if it wishes to. A big bad recession is waiting in the room for any peace talks, ready to devour Mr. Putin and his country. War is the only way to survive. That is why, I expect the Russian government to raise taxes similar to the corporate tax for Russian businesses as it sees INSTC relieving them from high costs of production. Then these tax revenues can be spent on production of military goods, which is over 70% funded by the Kremlin. This can mean, although the INSTC could help Russia grow, it will inevitably be used as a booster to help Russia survive. As a concluding consideration, let us pay due attention to the China factor, who clearly is not pleased with the INSTC going through its final stages. China had hoped its Belt and Road Initiative (BRI) will be the main new transport corridor in entire Asia and can connect it to Moscow, and thereon to Europe. Now, with the emergence of INSTC as a lead route in Asia, focus is shifted to India as a very attractive alternative to the distant China. The unhappy China therefore has reportedly aided terrorist groups in Southern borders of Afghanistan-Iran to indirectly postpone the development of Chabahar port by Indians, which can be used as a part of INSTC to ship freight to Mumbai’s port.

In closing, I must say that any step forwards or backwards can be harmful to the Russian economy. It is now, in my opinion, prudent for Russia to evaluate the mathematics of losses in cases of peace and war and choose the one that is least harmful. Nonetheless, as it was the primary focus of this article, the INSTC will be a significant game-changer for Russia.