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The Iron Silk Road: Istanbul’s Marmaray Tunnel Links Europe, Asia Undersea

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A commuter rail running through a tunnel beneath the Bosphorus Strait, part of what is being called the “Iron Silk Road” by the Turkish government, is just the first phase of major changes and investment opportunities coming for Istanbul—and, by extension, for the rest of Turkey and the entire region.

Turkey’s Prime Minister Recep Tayyip Erdogan took an idea first conceived of in 1860 by an Ottoman sultan—linking the continents of Europe and Asia via a tunnel beneath the Bosphorus Strait—and, following other ambitious men at various stages in Turkey’s history, acted on it.

But instead of being content to allow the tunnel to languish in the planning stages—it had been envisioned as a rail tunnel since 1891, when another Ottoman sultan, Abdulhamid, set French engineers the task of designing such a tunnel—Erdogan strong-armed it through to reality.

But that’s just part of the larger-than-life project he plans for this city of 16 million. The massive modernization plan, which his critics call “pharaonic”, includes not just the first-ever subsea rail tunnel to link two continents but also a third bridge over the Bosphorus, another airport destined to become the busiest in the world, a canal around half of Istanbul, atomic power plants and a massive mosque perched atop a hill that would oversee the complete transformation of the city.

Neither the discovery of an archaeologically significant Byzantine seaport during tunnel excavations nor huge public protests at Erdogan’s imperial manner of progress have done anything more than slow the process. The commuter rail line beneath the Bosphorus, begun in 2004 and built by a Japanese/Turkish consortium, was launched at the end of October, on the 90th anniversary of the founding of the modern Turkish republic. Called the Marmaray, it is so named by combining the name of the Sea of Marmara with the Turkish word “ray,” meaning train.

Originally the entire tunnel was supposed to be operational by this year. However, when the rail upgrades are complete, the suburban passenger line, with planned capacity to carry 75,000 passengers per hour in each direction, is expected to reduce urban crowding, traffic congestion—two million people use the city’s two bridges to cross the Bosphorus each day—and pollution.

The existing passenger rail line only accounted for some 3.6% of all trips in and around the city. At completion, Marmaray is projected to draw 28%, which is on a par with New York and London. Rail freight, which will come later, will also add capacity.

The modernization being done on the rest of the rail system including upgraded tracks, capacity, safety features, and rolling stock, will pave the way for a future integrated network of Istanbul’s passenger and freight lines that can move beyond the city and link with systems that travel across Europe and Asia.

In addition to the trains that will use the underwater crossing, the country’s transportation ministry announced in early November that it will hold a tender in December to build yet another tunnel, this one for the passage of motor vehicles.

John Blank, chief equity strategist for Zack’s, said that Erdogan’s is a “build it and they will come” mentality similar to that which spawned Dubai’s modern successes. “It strikes me as, this man reads a lot of history and is a little jealous of what’s going on in Dubai, so he’s trying to assert the supremacy of the Turkish model and history,” he said. In addition, Turkey offers advantages that Dubai, with all its glittering businesses, doesn’t: a more secure political environment and access for Muslims to access western Europe, he said.

Dubai’s business model has become a “beacon of strength within the Muslim world,” but Istanbul has been a crossroads, and a melting pot, for Europe and Asia for centuries, Blank said. And it shows in the Turkish business model. “What [Turkey can say] is, ‘If you’re worried about long-term fixed investment in other [less politically stable Islamic] countries, you can do [that long-term investing] in Turkey and stay Islamic. And if you’re going to ship to Europe, we’re close.’”

Another advantage Turkey offers as a draw for all those massive projects is its prospective membership in the European Union. Even though the process has been stalled—particularly after the government’s forceful quelling of demonstrators earlier this year—talks have reopened, spurring hopes of renewed possibilities. Not only that, but in Turkey, both euros and British pounds are widely accepted currencies in its shops and markets in addition to the lira.

 “The rise of Istanbul could put London over New York [as a business hub]. As Russia and Turkey rise, it’s a shorter flight to London,” Blank said. The easy accessibility of Europe to Asia and vice versa will provide opportunities for easier business expansion in both directions.

But, EU membership or not, Turkey has been turning its face more toward the Islamic world, in the hope that embracing possibilities from both east and west will increase business in a host of ways. That would help justify the $250 billion Erdogan plans to spend just on roads, energy and IT infrastructure over the next 10 years.

Another part of his plans includes the Istanbul International Financial Center, being built in the Atasehir district on the city’s Asian coast. Another 10-year goal for Erdogan is for Turkey’s economy to be among the top 10 globally.

Just as certainly, other businesses are planning for it. Agaoglu Group, a Turkish company involved in everything from construction to tourism and energy, took a page from Erdogan’s book in March when it announced an April $2 billion sukuk (sharia-compliant bonds) to finance the building of the financial district in Istanbul. The sukuk offered an entrée to investment funds from the Persian Gulf. Ali Agaoglu, the company’s chairman, has already opened a Dubai office to attract Gulf investors to put money into Turkish construction.

Amidst all those long-term plans, Erdogan must hope there will be at least some short-term benefits for Istanbul and, more broadly, for Turkey and the lira. The collection of modernization projects will boost the country’s foreign debt level by at least $180 billion. The tunnel alone cost close to $3 billion. Already Turkey’s current account deficit could reach 7% this year, according to the International Monetary Fund.

The lira, too, has been on the slide, and Goldman Sachs said in November that, with core inflation accelerating on the back of foreign exchange pass-through, it expects the Central Bank of the Republic of Turkey (CBRT) to have to tighten its monetary policy in 2014. It also expects a slowdown in domestic demand, coupled with “excessive FX volatility and monetary tightening (in 2014),” to result in a slowdown in Turkish industrial production and also in overall economic activity.

Ironically, however, Goldman said in a report that the economic slowdown “may help the external rebalancing process” and London-based economist Ahmet Akarli, co-author of the report, commented that a decline in the lira in 2014 “would help rebalance the economy.” He and Mark Azerov, his co-author, said in the report that “ultimately, the exchange rate will continue to serve as the main adjustment channel.”


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