Via Bloomberg and National Geographic, two interesting articles about the increased trade and ties among emerging economies, in particular the New Silk Road.

The first, via Bloomeberg, examines how trade between emerging nations is growing quickly:

“…The high-speed rail link China Railway Construction Corp. is building in Saudi Arabia doesn’t just connect the holy cities of Mecca and Medina. It shows how Asia, the Middle East, Africa and Latin America are holding the world economy together.

Ties between emerging markets form what economists at HSBC Holdings Plc and Royal Bank of Scotland Group Plc call the “new Silk Road” — a $2.8-trillion version of the Asian-focused network of trade routes along which commerce prospered starting in about the second century.

Today’s world-spanning web is insulating markets such as China from the drag of weak recoveries in the advanced world and providing global growth with a new power source. Stephen King, HSBC’s chief economist, predicts the relationships will strengthen and lists them as a reason for his forecast that emerging markets will grow about three times faster than rich nations this year and next on average.

“The potential for inter-emerging market trade is ginormous,” said Jim O’Neill, chief economist at Goldman Sachs Group Inc. in London, who coined the term BRIC in 2001 to describe the rising role of Brazil, Russia, India and China. “That makes it quite difficult to see how you get a sustained global recession because of what’s going on in the west.”

Share of Trade

The BRIC economies hold a 13 percent share of world trade and have been responsible for about half of global growth since the start of the financial crisis in 2007, according to O’Neill. He predicted the BRICs will grow about 9 percent this year and next compared with 2.6 percent in advanced nations.

Investors are tuning in. Research by Kieran Curtis, who helps oversee $2 billion at Aviva Investors in London, found growing trade between emerging markets helps explain why they now account for about 30 percent of global final consumption, about the same as the U.S. and up from 10 percent in 1990.

That should increase demand for the Chinese yuan if the government continues to loosen restrictions on settling trade transactions with its currency, he said.

“Go to a market in Nairobi and you’ll see Chinese goods on sale,” Curtis said. “If emerging market fundamentals continue to be superior, there is the potential for serious currency appreciation against old-guard currencies.”

Currency Policy

China’s government signaled June 19 that it will allow a more flexible exchange rate. So far, it’s limited the yuan’s rise to less than 1 percent against the dollar after allowing a 21 percent appreciation in the three years to July 2008.

Jerome Booth, who helps oversee $33 billion of emerging- market assets as head of research at Ashmore Investment Management Ltd. in London, said emerging markets are increasingly starting to denominate trade contracts in currencies other than dollars as commerce between them rises.

Commodity prices that may have been dropped in the past when advanced nations grew less are now cushioned by trade between emerging markets, said Dariusz Sliwinski, head of emerging markets at Martin Currie Investment Management in Edinburgh.

“Commodity prices would have been much lower without the support, which is good for the likes of Russia and Brazil,” said Sliwinski, who helps manage about $15 billion.

Royal Bank of Scotland Chief China Economist Ben Simpfendorfer in Hong Kong says emerging Asian and Middle Eastern economies will account for 75 percent of every extra barrel of oil consumed or produced in the next decade, while copper should gain because it’s a key input in infrastructure and nickel may benefit because of its use in steel.

Impact on Commodities

The Standard & Poor’s GSCI Total Return Index, tracking the net amount investors received from 24 raw materials, climbed 13 percent last year. While the price of oil fell as low as $32.40 a barrel during the recession it has since rebounded, ending last week at $78.95 a barrel. The cost of nickel and copper more than doubled over the same period.

Chu Moon Sung, a fund manager at Shinhan BNP Paribas Asset Management Co. in Seoul, which manages $26 billion, says investors will increase their holdings of emerging-market equities.

“The populations in emerging markets, especially in Asia, are large,” he said. “They are getting more educated and income levels are rising, which make these countries very attractive for companies. China is a favorite for stock investors but we’re seeing more interest in Indian, Brazilian and Russian markets.”

Gains in Trade

The Geneva-based World Trade Organization estimates intra- emerging market trade rose on average by 18 percent per year from 2000 to 2008, faster than commerce between emerging and advanced nations. It totaled $2.8 trillion in 2008, about half of emerging-market trade with all nations.

That performance is especially welcome now given the sluggish recovery in the rich economies, said HSBC’s King, author of “Losing Control: The Emerging Threats to Western Prosperity” and a former U.K. Treasury official.

Chinese exports to the emerging world accounted for about 9.5 percent of gross domestic product in 2008, compared with 2 percent in 1985, he calculated. India’s jumped to 7.3 percent from 1.5 percent and Brazil’s almost doubled to 6.3 percent.

Emerging-market economies will grow 6.9 percent this year and 6.2 percent in 2011, King said, outpacing the 2.4 percent and 1.9 percent projected expansions of developed economies.

Providing Protection

“There are now massive trade connections within the emerging markets and they’re becoming increasingly important,” said King in a telephone interview. “It means in one sense the emerging world is protected from the worst ravages of the developed world.”

Those ravages were born in the global recession of 2008-09 from which the advanced world is proving slow to recover, even after policy makers cut interest rates to record lows. That’s prompting businesses and investors to seek other sources of growth.

Of the foreign direct investment flowing into south, east and southeast Asia alone, China was a source of 13.3 percent in 2008, compared with the U.S.’s 7.9 percent and up from 0.4 percent in 1991, according to a report last month from the Geneva-based United Nations Conference on Trade and Development.

China, the world’s fastest-growing major economy, dominates the push into fellow emerging markets, passing the U.S. as the biggest exporter to the Middle East in 2008.

Huawei in India

Shenzen-based Huawei Technologies Co., its biggest maker of phone equipment, had orders of $1.7 billion from India in 2008 and said in January that it will invest $500 million in its research center in Bangalore.

China Mobile Ltd. of Hong Kong, the world’s biggest phone carrier, is “interested in doing business in Africa,” where it can boost services in rural areas, Chairman Wang Jianzhou said in a June 26 interview.

Elsewhere in Asia, a group led by Korea Electric Power Corp., South Korea’s largest utility, beat off competition from General Electric Co. and France’s Areva SA to win a $20 billion UAE nuclear contract. The Saudi Railways Organization last month awarded a contract to China South Locomotive and Rolling Stock Corp. to supply 10 cargo locomotives. The Mecca-Medina rail contract went to Beijing-based China Railway as part of a Saudi- Chinese consortium.

Brazil in Africa

In Latin America, Brazil’s Vale SA has been on an international spending spree, helped by booming commodities demand from China and a currency that has doubled against the dollar since 2003. The company estimates that its $1.3-billion coal mine in Mozambique will have a capacity of 11 million tons per year three to four years after it enters production in the first half of 2011.

Vale in 2009 acquired stakes in three copper projects, in Zambia, Africa’s largest producer of the metal, and the Democratic Republic of Congo. In April this year, the company agreed to pay $2.5 billion for iron ore deposits in Guinea, including assets the country confiscated from the Rio Tinto Group.

“We saw the same phenomenon with American and European companies 50 to 100 years ago as they went global,” said Shane Oliver, head of investment strategy at AMP Capital Investors, which manages about $95 billion in Sydney. “Emerging-market companies are now big enough and they have the choice of going to developed countries where they may be more constrained or to the emerging world where the growth potential is.”

Competition Rises

They are also jostling with each other. Brazil’s Empresa Brasileira de Aeronautica SA, or Embraer, is braced for increased competition from new Chinese and Russian rivals.

In December 2009, 32 percent of the backlog of orders for Embraer’s medium-range E-Jet airliners was from emerging markets, up from 1 percent in 2005. Over the same period the company’s backlog of orders from North America and Europe fell to 53 percent of the total, down from 91 percent.

“We are selling less, on a proportional basis, to the U.S. and Western Europe, and we have a growth in sales in Latin America, Asia and Asia-Pacific,” said Paulo Cesar, Embraer’s executive vice president-airline market, in a telephone interview.

Embraer is braced for new competition from Russia’s Sukhoi Co. and the Commercial Aircraft Corporation of China, or Comac, particularly in their home markets, Cesar said. Both companies are developing civilian airliners.

Middle East Link

Royal Bank of Scotland’s Simpfendorfer, whose book “The New Silk Road: How a Rising Arab World is Turning Away from The West and Rediscovering China” was published last year, says the trade ties between China and the Middle East alone make for a modern Silk Road.

The original was more than 4,000 miles (10,200 kilometers) of trade routes crossing Asia and into southern Europe and north Africa. Based around China’s silk industry and once traveled by Marco Polo, the commerce it enabled also helped power the growth of civilizations from Egypt to Rome.

Governments are seeking to take advantage of the modern version. India said in May that it will open an economic division at its embassy in China’s capital as the two countries seek to increase bilateral trade to $60 billion this year from $43 billion last year. Since taking office in 2003, Brazilian President Luiz Inacio Lula da Silva has visited about 68 developing nations, more than any of his predecessors.

With trade nevertheless comes tension. Developing economies in Asia and the Middle East accounted for about 45 percent of new anti-dumping investigations reported to the WTO in 2009, up from 22 percent in 1998.

Trade Tensions

China said in May that India shouldn’t discriminate against Chinese telecommunication products, a month after people with knowledge of the matter said contracts for products from Huawei Technologies and ZTE Corp. were vetoed by India’s government on national security grounds.

MTN Group Ltd., Africa’s largest mobile-phone company, in June halted talks to purchase $10 billion of assets from Orascom Telecom Holding SAE after Algeria’s government blocked a sale of the company’s local unit, the most profitable in the portfolio. Orascom, the biggest mobile-phone company by subscribers in the Middle East, also operates in Bangladesh, Pakistan and Egypt.

There is still scope for ties to strengthen. In a study released last week, the Washington-based Inter-American Development Bank concluded “massive bilateral trade” could develop between Latin America and India if tariffs are cut.

Gene Grossman, who succeeded Federal Reserve Chairman Ben S. Bernanke as head of Princeton University’s economics department, sees a repeating pattern of what he called the “home market effect,” in which countries at similar income levels increasingly trade because their consumers have similar tastes and spending power.

India’s Tata Group was the second-largest investor in sub- Saharan Africa in the six years through 2009, according to the Organization for Economic Cooperation and Development.

“Once an Indian firm enters and develops expertise based on its sales to its local market it now sees profit opportunities in serving markets elsewhere,” said Grossman.

The second, courtesy of National Geographic, A railroad through the southern Caucasus will soon connect Europe and Asia, fueling dreams and discord in the region.  As the article notes:

“…The dynamite comes from Ankara. Ten tons, and it takes two days. The truck climbs carefully, screwing 2,500 feet up the mountains of northeastern Turkey, where the clouded sun makes faraway ice fields roll like a distant sea. This is beautiful, forbidding country, through which a new railroad will soon run.

Arslan Ustael awaits the dynamite in the snow, with night temperatures reaching 40 below. Standing before the rail tunnel, Ustael says that in this weather your spit freezes before it hits the ground. He is a young man still, 30, and free with Turkish good humor, even up here in the cold clouds waiting for the dynamite that will make the volcanic mountain agreeable to his demand to bore a tunnel through it. Free with good humor because he knows this is an undertaking that could make a young engineer’s career: building the Baku-Tbilisi-Kars (BTK) railway, an “Iron Silk Road” that will connect the oil-rich Caspian Sea region to Turkey—and beyond to Europe.

The travels of antiquity are tiring to contemplate. The 750-mile stretch of land between the Black Sea and the Caspian Sea is known as the Caucasus, named for the mountain range through which Ustael is digging his tunnel. Before the region got swallowed up by the Russian Empire, the Caucasus served as a transit point between Europe and Asia; the old Silk Road passed through it. Yet transport between West and East has never been easy. For centuries, to get from one sea to the other, you had to paddle north up the Don River from the Sea of Azov, portage over the steppe, then drift down the Volga to the Caspian. Only when the Russians began building railroads over the Caucasus in the 19th century could you travel more directly across the region.

The Iron Silk Road will launch a new chapter in the history of the Caucasus. After the Soviet Union collapsed in 1991, the newly independent republics of the southern Caucasus—Georgia, Armenia, and Azerbaijan—regained strategic importance. A realization of the enormity of the oil and natural gas reserves lying beneath and along the Caspian Sea ignited a scramble to lay pipelines across the southern Caucasus to bring those resources to the European market. Today the pipelines are operational, and the BTK is being built to grease a trade boom, transporting European goods east and petroleum products west across the southern Caucasus. Once completed, by 2012, the railway will begin at the Azerbaijani capital of Baku and travel through the Georgian city of Tbilisi, before carrying on to Kars, a Turkish post town on the southwestern lip of the Caucasus region.

The participation of Turkey signals a new alignment in a region often viewed as Russia’s backyard. Like the Baku-Tbilisi-Ceyhan (BTC) pipeline—which opened in 2005 to bring oil from Baku to the Turkish port city of Ceyhan, on the Mediterranean—the BTK railway is the result of an alliance between Turkey, Georgia, and Azerbaijan; neighboring Armenia was deliberately left out of the party. And like the pipeline, this east-west corridor will provide an alternative to going through Russia to the north or Iran to the south. It is a more than $600-million project of economic development, social engineering, or shrewd geopolitics, depending on your point of view, which in the southern Caucasus shifts as quickly as the snow that obscures the mountain road.

For Ustael, chief of the tunnel operation on the Turkish-Georgian border, this railroad has become something else: a road to loneliness. Back in Trabzon, a temperate, Turkish Black Sea coastal town, his girlfriend’s face clouded when she imagined two years in the Caucasus Mountains, for that is how long it will take to build this tunnel. She just couldn’t do it. Ustael exhales, stirs the sugar through his tea. A man must make choices. Smoke hangs over the canteen. Workers chalky with tunnel dust stare distantly at the men in sun and shorts chasing a ball across the TV. Through the windows, another blizzard is mixing up the air. In World War I, 90,000 Ottoman soldiers waited in these mountains for the Russians to come. “Some froze to death without firing a shot,” Ustael says. He grabs a hard hat and walks to the door. Tunnel work progresses in round-the-clock, three-hour shifts.

Work is likewise endless for the Turkish state, toiling to gain acceptance into the European Union (EU). Turks look indignantly at countries like Bulgaria and Romania that have already been accepted, places with much less developed economies and greater corruption. Turkey, the Cold War NATO ally, meanwhile, waits for an invitation that may never come. This “raises questions of fairness, at least,” says N. Ahmet Ku?hano?lu, the Turkish deputy director of transport in charge of railways. “Turkey’s face is turned westward since two centuries.” Now Turkey is looking east in order to make itself indispensable to the West. Once the Marmaray rail tunnel opens in 2013 beneath the Bosporus in Istanbul, trains from Baku will reach all the way to London. “It is easy to see that this railway shall serve Europe also,” says Ku?hano?lu.

Looking directly east, Turkey has lately sought to repair relations with its neighbor Armenia. In 1993 it had closed the border and shut down its rail service with Armenia as a sign of loyalty to Azerbaijan—a close Turkish ally with the same Muslim religion—after Christian Armenia helped ethnic Armenians in the Azerbaijan enclave of Nagor­no-Karabakh wage a bloody war to secede. Last year in Zurich, under the watchful eyes of the EU and the U.S., Turkey signed an agreement with Armenia to mend diplomatic ties and reopen the border. But the Armenians then demanded that Turkey acknowledge that the 1915 massacres of its people constituted genocide, which Turkey is loath to do. For their part, the Turks began insisting on some resolution to the Nagorno-Karabakh conflict. Since neither is likely to happen anytime soon, the deal—and the opportunity for a rapprochement—collapsed last spring.

A bridge between Turkey and Armenia actually does exist, though most of it has crumbled into the Akhuryan River, which cuts deeply through a gorge that serves as the border between the two countries. The Silk Road city of Ani stands abandoned along this part of the border, its mosques and churches intact after a thousand years, its bazaars echoing in a winter wind. Beyond an electric fence and across the river, Armenian guard towers keep watch over the ruins.

Some 50 miles north of Ani, Ustael’s workers continue to dig 13 feet every day. Once completed, the tunnel will run for a mile and a half, 1,300 feet beneath the surface. It will be one of the longest in Turkey, Ustael says, and everyone will know his name. “Maybe then I can go work someplace warm.”

Ustael spends his downtime in Kars, 42 miles south of the border, the two-hour drive made eventful by the slippery fact of coming down the mountain. Along icy roads, the car twists through slopeside villages, past minarets and the mud roofs of stone huts overgrown with grass. A vast westward migration of people in search of jobs has robbed these villages of all but the least mobile. Foxes forage at the roadside, headlights igniting their eyes.

In Kars, the site of great 19th-century battles between Ottoman Turks and Russians, the hilltop citadel remains. The women stay indoors. The men walk arm in arm down the streets, savoring a drink of raki in the saloons that exist in this region of lax Islam. Raki tastes like the anise-flavored pastis of France, but there is little European refinement in Kars. That could change when the BTK links this city to Baku, its wealthy antipode on the Caspian, injecting new revenue into the local economy. The governor of Kars, Ahmet Kara, talks of how the railroad will transform Kars into a city “important in the world’s eyes.” Behind Kara hangs a photo of Mustafa Kemal, or Atat?rk, the first president of Turkey, who turned the Ottoman Empire into a modern, secular state, encouraging Western ways and outlawing the fez.

With a knit cap on his head and bundled in a thick anorak, Ustael watches a drill needle the far wall of the tunnel, making small stones out of solid rock. A front loader strains up the tunnel’s incline, its bucket carrying a ton of freshly dislodged stone. It emerges from the tunnel and rolls into the blizzard, driving past Ustael toward a waiting truck. He says he wants to contribute to modern Turkey, to help bridge East and West. When the dynamite arrives, he laughs when he sees that it was made in China; it has already crossed this border once before.

There will be no explosions today. The mountain rock is soft enough for the drill to do its work without dynamite. Ustael looks down the tunnel toward Georgia. “We haven’t found gold yet,” he jokes. The stones tumble from the front loader into the truck, the crash almost drowning out his voice. “The Silk Road will live again.”

They’re not hiring in Akhalkalaki. There’s no gold here either. Not much glitters in the hardscrabble hills near this town in the Georgian south. This is where the old railroad from Georgia’s capital city of Tbilisi terminates. Beginning here, 60 miles of new rail will be laid, running south through Ustael’s mountain tunnel to Kars. Another 75 miles of existing rail will be rehabilitated. Work begins with the thaw.

Akhalkalaki is in Georgia, but most of its residents are ethnically Armenian—and desperately poor. The factories in Akhalkalaki were dismantled after the Soviet collapse, their components sold off in the new capitalism. Since the agricultural collectives shut down, once fertile lands have overgrown with weeds. Bandits clipped the aluminum wires and copper connectors that helped propel rail cars, selling the metal in Iran and Turkey. The economy took a big hit in 2007, when the Russians closed a military base here.

There is no work, so the men go to Moscow, where they step into the orange jumpsuits of the street cleaner, sending money back home. Many who have stayed feel neglected by the central Georgian government. Protests have been frequent. Very few people in Akhalkalaki and the surrounding Javakheti region speak Georgian, and in the schools there is no one to teach the language. During the 1990s the prospect loomed that Javakheti could be Georgia’s next breakaway region, like Abkhazia and South Ossetia in the north, which declared independence in the early 1990s but remain largely unrecognized.

Now Georgia is counting on the BTK railway to boost economic activity and help integrate this turbulent Armenian enclave into the rest of the country. When plans to open the railway were first announced, Georgia’s Armenians opposed its construction, citing the unfairness of its bypassing Armenia. But today in Akhalkalaki there is a small hope that the new railroad will alleviate this long postcommunist endurance.

Grigoriy Lazarev stands guard at Akhalkalaki’s outdoor bazaar. He takes potatoes on consignment from a local farmer, barters them for mandarins, then sells the fruit at the bazaar for 40 tetri a kilo, or about ten cents a pound. He would like to work on the railroad. “I am a mechanic, a welder, a master engineer,” he says. “Selling mandarins is not good for my psyche.” He stands before a pile of fruit in the trunk of his green Moskvitch, looking left and right at the many others who also sell mandarins here. In Soviet days this street had order, Lazarev says. “But everybody became sellers.” He is 58 years old, has only enough teeth to chew soft food like citrus fruit. He has two young children, and a few tetri jangle in his coat pocket.

When Lazarev drove two hours to the town of Kartsakhi to apply for work on the railroad, the contractors turned him away. He visited the camp forming on the outskirts of Akhalkalaki, where Turkish and Azerbaijani skilled workers will soon congregate. You cannot operate a Komatsu excavator, they said. You do not speak Georgian.

The ministers in Tbilisi say Akhalkalaki will be the site of a critical station on the Iron Silk Road, where trains will switch between European and Russian rail gauges. For people in Akhalkalaki, it is difficult to imagine how they will benefit. Like Lazarev, many hundreds of locals have petitioned for railroad work, yet such work remains elusive.

Conditions have improved since Mikheil Saakashvili assumed the Georgian presidency—people in Akhalkalaki will admit that. Under Eduard Shevardnadze, they had electricity only five hours a day—while they slept—long enough for bread to bake in time for morning. It was subsistence living: no TV, poor roads, little interaction with Tbilisi, and a rationing of the wood that fueled the house stoves that kept people from freezing in their beds. Now there are a few good roads and electricity all day, if not running water in every home. It is often cold in Akhalkalaki, even indoors, and the abiding stress makes the people wander these streets weakly, nothing like the powerful Narts, the fabled giants that inhabited the Caucasus before humans arrived and that inspired them to carve mountains into kingdoms and then into nations.

Just 19 years old as a nation, Georgia is struggling through its adolescence. Seven years ago the Rose Revolution engendered all manner of youthful aspiration. Membership in NATO. Inclusion in the European Union. Bringing the breakaway regions of Abkhazia and South Ossetia under firm federal control. Reworking relations with Russia. Saakashvili wanted it all, wanted it quickly. If not for Georgia’s northerly neighbor, he might have gotten it all.

The Russians have long felt a sense of entitlement toward Georgia, for they were the ones who folded Georgian nobility into their ranks during the 19th century, forming many principalities into a single governable entity, a Christian fortification in a region otherwise allied with the Ottomans or Persians. Russia also feels a deep emotional attachment to a land romanticized by Aleksandr Pushkin and Leo Tolstoy. But benevolence is a matter of perspective. Soon after Alexander I attempted to adopt Georgia in 1801, the widowed Georgian queen greeted the tsar’s envoy with a dagger in the side, killing him.

More recently tensions spiked as Russia, fed up with Georgia’s Western desires, closed the border between the two countries in 2006. Russia worries that if Georgia gains entry to the Western institutions it so esteems, this could inspire similar freethinking in the northern Caucasus—including the Russian regions of Dagestan, Ingushetiya, and Chechnya—which continues to shudder with explosions and assassinations that threaten Moscow’s territorial hold.

The long-running tensions between Russia and Georgia escalated into war in the summer of 2008. Russia moved to assert control over the breakaway regions. Its troops routed Georgia’s army, and Russia recognized South Ossetia and Abkhazia as new nations. It was a reminder that a small skirmish in these borderlands could spark a global showdown. Yet the EU and the U.S. were notably indisposed to intervene. Since the war, Georgia’s pro-Western policy has stalled. Though the border between the two countries reopened last March, tensions are still high.

Like Prometheus, whom the gods chained to the Caucasus as punishment for giving humanity the power of fire, Georgia cannot escape its coordinates. Yet its position on the map may be its strongest asset. For NATO, the southern Caucasus is now viewed as a needed route for supplying the war in Afghanistan, ever since terrorist attacks in November 2008 began threatening the supply route through Pakistan’s Khyber Pass. For Turkey, an important trade partner, Georgia is the gate to Central Asia. Armenia and Russia cannot trade with each other without going through Georgia. And Azerbaijani oil cannot reach the Mediterranean without passing through Georgia, earning the country $65 million in annual transit fees.

Georgia is a small player at the table, left to stack small chips. Indeed, the most significant impact of the Iron Silk Road on Georgia may prove to be the dismay it will create in the Black Sea ports of Batumi and Poti, the country’s most dynamic economic centers, once freight can be diverted to Turkey instead. Still, Georgia can hope that if there’s another conflict with Russia, European countries will cry foul if their trade through the southern Caucasus is disrupted.

In Akhalkalaki, Grigoriy Lazarev packs up his scale and its rusted one- and five-kilogram weights, and slowly walks away from the bazaar. He passes a funeral procession running along the main thoroughfare, a photo of the deceased man affixed to the windshield of a sedan. Arms linked, men walk up the mud of the street, women up the mud of the sidewalk.

Lazarev’s small house was built in 1850, in the time of hard-willed Nicholas I. The roof leans severely, threatening to cave. Lazarev cannot pay to fix it. He and his family live off his mother’s 90-lari (about $50) monthly pension. Still, when they have guests, Lazarev’s wife, Liza, busies herself setting the table with what food they possess. A daughter, Gohar, sits at an old upright piano and practices her lessons, filling the small room with music and missteps. Lazarev grieves over his bad luck with the railroad and more generally, but not so loudly that his family will hear.

He rummages through a wardrobe and returns to the table. In his hand is a felt-backed shoulder board, its green fabric faded nearly to gray. It is the emblem of a lieutenant, an engineer with the Russian border service. “My grandfather served under Nicholas II,” Lazarev says. “He built roads to Akhaltsikhe and Batumi.” Lazarev smiles, a rare incident, and then the room goes dark. The electricity has gone out in Akhalkalaki, and the Lazarevs fall silent, but for the sound of the old piano.

It is electricity that initially impresses in Baku, its roadway lamps gilding the new asphalt from airport to city. Baku no longer supplies half the world’s petroleum needs, as it did at the opening of the 20th century. But it feels like it does. In the past three years all manner of luxe stores have opened along the boulevard Neftchiler Prospekti, their windows reflecting the Caspian waters. Plans are progressing on a $4.5-billion, carbon-neutral resort on Zira Island, in the bay beyond the city. A Four Seasons Hotel will open shortly to house the guests drawn to Baku by the wealth of the state oil monopoly, located across the street. In the five years since the BTC pipeline began pumping oil out of the Caspian and money into Baku, Azerbaijan’s economy has grown by more than 100 percent.

In the years after the former Turkish president, Süleyman Demirel, broached the topic of the Iron Silk Road in a Tbilisi speech in the late 1990s, the parties involved attempted to secure international funding for its construction. But the Armenian diaspora blocked all financing efforts, arguing convincingly that the routing of the railroad, like that of the oil pipeline before it, was a punitive gesture linked to Nagorno-Karabakh. Washington, the EU, and the World Bank stayed away. When the oil spigot turned on in 2005, briefly making Azerbaijan the world’s fastest growing economy, the hesitance of international financiers no longer mattered. Azerbaijan can now afford its own portion of the railroad, upgrading 313 miles of outdated lines to the Georgian border. It is also loaning Georgia a few hundred million dollars for its section on neighborly terms—25 years at one percent annually. Magnanimity is a pleasure of abundance.

No train passed through Musa Panahov’s hometown in the Azerbaijani west, so he went out looking for one. He graduated from the Moscow Transportation Institute during the time of Leonid Brezhnev, then joined the Soviet railroad fraternity. The Soviet Union administered the world’s largest, by volume, rail system; all strategic goods were transported by train. This centrally commanded network was a key part of the national security infrastructure, protected and privileged. Train employees had their own separate hospitals, their own schools, even their own militia. “We had everything except a foreign ministry,” says Panahov, now Azerbaijan’s deputy minister of transport.

Railroads are less important in Azerbaijan today. Oil and gas predominate, according to the plan of the late Heydar Aliyev, the country’s third president and primary citizen, who by force of will forged Azerbaijan into what it is today: the relatively secure, relatively independent economic dictator of the region. Aliyev possessed the foresight to invite foreign firms to cooperate in Caspian development, and he understood the importance of the Iron Silk Road. Panahov is the man laying another plank in Aliyev’s plan for Azerbaijanis’ continued independence.

Panahov, 51, unrolls a map of the southern Caucasus across a table in his office and slowly runs his fingers from east to west, from sea to sea. At this table he negotiated with transport ministers from Georgia and Turkey in discussions that lasted until early in the morning. Cherubic but with graying hair, he speaks in a soft voice as he delineates the numbers. Total length of the Iron Silk Road: 500 miles. Total annual cargo capacity: 25 million tons. He speaks of the Azerbaijanis who fled to Turkey to escape communism. “It gives me a sense of happiness to connect brothers again,” he says.

Azerbaijan became a Muslim parliamentary republic in 1918 and enjoyed that status for a cou­ple of years. Since the breakup of the Soviet Union, however, little about Azerbaijan is visibly Muslim or parliamentarian. It is difficult to locate a minaret or an honest vote in Baku, less so a Bentley. Prosperity and social equality need not be strangers, but when a country has oil, it is tempting to focus on the former at the expense of the latter. More tempting still when the world needs what it has to give. The BTC is the only pipeline that delivers non-Russian, non-OPEC, non-Arabic oil to Mediterranean tankers. With the global oil supply diminishing, Azerbaijani influence has only risen.

Social justice is not a topic of public debate in Azerbaijan. More important to those in power is the fact that this small nation has managed to survive—and now thrive—in a difficult neighborhood. As one official said, “The optimists live in Georgia, the people who are complaining all the time live in Armenia, but the realists live in Azerbaijan.”

Or rather in Baku. A short ride on the existing rail leading northwest from the capital reveals not political realists but reality itself, the hovels that house those who have not felt the benefits of Baku’s oil boom. A quarter of Azerbaijanis live below the poverty line.

These train cars retain the cracked gloss of Soviet adornment, frills and curtains that are rough to the touch, landscape paintings that hang in the spaces between the windows. A sorority of railway workers in starched uniforms tends to the train as it rolls through a world cleanly separated from Bakuvian luxury. One woman shovels coal into a furnace that heats the car’s interior.

Musa Panahov knows these trains, knows they do not rival their German, Japanese, or American counterparts. He is a railway man in an oil country. “But oil and gas will end someday,” he says, smiling. “The railroad will live always.”