In today’s Finshots we break down the roadblocks to the India-Middle East-Europe Economic Corridor (IMEC), which aspires to connect Asia and Europe via the Middle East.

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The Story 

In 2023, at the G20 summit in New Delhi, a big announcement shook up global trade discussions. India, the US, the European Union (EU), and key West Asian nations signed a memorandum of understanding (MoU) to build a new trade route. They called it India-Middle East-Europe Economic Corridor (IMEC). The idea? A sea-to-rail corridor linking Asia and Europe via the Middle East.

Here’s how it would work: A ship carrying goods leaves an Indian port, docks in Dubai, where cargo is quickly shifted onto a railway network. From there, it travels through Saudi Arabia and Jordan, reaching Haifa in Israel. Then, it’s loaded onto another ship that sails across the Mediterranean to Greece in Europe. So, the goods are now moved from India to Europe. 

The promise here was faster, cheaper trade. The European Commission (EC) claims IMEC could slash travel time by 40% and costs by 30% compared to the traditional Suez Canal route. Plus, it’s not just about moving goods. Because the IMEC corridor will also lay undersea fiber-optic cables to improve digital connectivity between Asia, the Middle East, and Europe. And it also aims to boost clean energy trade by exporting green hydrogen from the Middle East to Europe.

And for India? It could mean better market access in Europe and the Middle East. Stronger energy security with green hydrogen imports. And it could mean a larger role in global trade. Some even see it as a counter to China’s Belt and Road Initiative (BRI) by offering a competing trade route.

So that’s a lot of good that the IMEC is said to do. And on paper, it sounds like a perfect plan. But if you take a closer look, you’ll spot several roadblocks.

Let us explain…

First, geopolitics could throw a wrench in the works. 

You see, IMEC needs seamless cooperation between countries that don’t always get along. Take Israel and Saudi Arabia, for instance. While diplomatic ties have warmed, they lack formal agreements, and that could make trade negotiations a bureaucratic nightmare.

And that’s just one piece of the puzzle. The region is riddled with conflicts—Saudi Arabia and Iran’s historical rivalry, civil unrest in Syria and Yemen, and threats to Israel from Iran-backed groups in Syria and Lebanon. So, any escalation could derail IMEC’s progress.

Let’s not forget the countries that aren’t on board. Egypt, for instance, relies heavily on revenue from the Suez Canal. If IMEC diverts trade away, Egypt could fight back with policy barriers to keep the Suez route more competitive.

And all that’s just the political side of things. Let’s now look at the economics of it.

IMEC isn’t just another infrastructure project; it’s a multi-billion-dollar gamble. While $20 billion has been pledged, mostly by Saudi Arabia and the UAE, the EU is yet to roll out a solid investment plan. And considering each section of the corridor could cost about $3 to $8 billion, funding gaps remain a major concern.

There’s also the cost of logistics. Nearly 40% of IMEC’s route is rail, and rail freight is three times costlier than ocean freight. Add the constant loading, unloading, and reloading of cargo between ships and trains, and costs could quickly spiral.

Then there’s the Chinese threat looming. 

China has mocked IMEC as a “knockoff” of its Belt and Road Initiative (BRI) route. And it has reasons to be smug. China produces 3 million shipping containers a year, while India barely makes 20,000 to 30,000. So, if China decides to restrict container supply to India, it could slow IMEC’s rollout. And something more concerning here is Haifa, the crucial Israeli port on IMEC’s route. The catch? Two parties - Adani Group and a Chinese company called SIPG - run it. And that gives China significant leverage over the corridor’s operations as well.

And lastly, we have the environmental hiccup.

Rail transport emits more carbon than maritime shipping. And a study by Fraunhofer ISI and CE Delft confirms that IMEC, with its heavy rail reliance, could be less eco-friendly than the existing Suez Canal shipping route.

So yeah, ironically the proposed IMEC trade route is filled with obstacles. 

But is it doomed? Not necessarily.

One thing that could turn it around is if the US steps up, which is already wary of China's growing influence in the Middle East. If key stakeholders, including the US, back the project with financial and diplomatic efforts, it could gain the momentum needed to succeed.

Also, if member nations align their interests and invest wisely, the corridor could turn into a viable alternative to existing trade routes.

And while the road ahead is anything but smooth, with the right and timely push, this corridor could prove to be a game-changer.

Until then…

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Note: We have updated the story to include the fact that Adani Group also owns the Haifa port. We regret the oversight and have made the necessary changes.

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