Russia and Iran Choose Frugal Cooperation

30.03.2017

The meeting between the Presidents of Russia and Iran on March 28, 2017 showed that Russia is strengthening its positions as a global player and considers Iran an important regional actor and a center of power.

The list of issues raised at the meeting, particularly when it came to defining common positions on Syria, Afghanistan, Iraq, Yemen and the war on international terrorism means that the leadership of both countries does not look at prospects of cooperation separately from the situation regionally and internationally, and seeks to develop it in the areas and formats that would assist stability in the region.

The matching of political and geopolitical interests for an array of principal positions is undoubtedly very important for Russia and Iran. However, both countries have sought to reverse the negative trends in their economic ties since the signing of the Joint Comprehensive Plan of Action (JCPOA). While the trade volume grew 5.3 times in the 2000s, reaching $3.75 billion in 2011, it quickly contracted in the following years as a result of the sanctions against Iran, going down to $1.2 billion in 2015. Only in 2016 did the trade volume again become significant.

Both Western and Russian companies have tried to return to or expand their presence on the Iranian market. However, the risks for their activity should not be underestimated. The Iranian economy is growing at a low rate and energy prices, which guarantee Iran’s solvency, remain low, while US sanctions have remained in force.

Other than Russia and Iran’s strained relations with the West, the situation is also complicated by the fact that because of their natural resources both Russia and Iran remain competitors on the energy market. The two countries’ presidents have attempted to resolve these issues at the March 28 meeting.

In my view, it was extremely important for both countries that Russia was rather decisive in its intention to accept Iran as a member of the Shanghai Cooperation Organization. Although it was previously said that work on preparing an agreement on the creation of a free trade zone under the auspices of the Eurasian Economic Union has been completed, there was, unfortunately, no final agreement on the issue at the meeting. Many of the signed documents were memorandums, rather than agreements or contracts, but this can be seen as a signal for the Russian business community on the state support for its development in Iran.

The meeting confirmed that Russia would give Iran a commercial loan, which includes financing the electrification of the Garmsar – Incheh Borun railway, which will assist completing the international North-South transportation corridor, mutually beneficial for both Russia and Iran’s transit potential.

The meeting also led to an agreement on visa-free group tours for Russian and Iranian citizens, which can be seen as the beginning of a process to simplify the visa agreement for other categories of population as well. The memorandum was also signed on cooperation on cross-border trade in electricity, which confirmed that the electricity project is underway.

One of the most important results of the meeting was the agreement to build two new blocks of the Bushehr nuclear power plant, which will become a factor in the growing trade of services.

Many in Iran and Russia expected that bigger agreements would be made. In my opinion, these agreements were to a large extent supported by political interest. The rapprochement and standoff with the new US presidential administration played a role as well.

The Russian-Iranian cooperation program, as reflected in the signed documents, has a measured, frugal character. The joint statement focuses on common positions on the most relevant issues, rather than opposing other centers of power, which reflects the interests of both countries.

Views expressed are of individual Members and Contributors, rather than the Club's, unless explicitly stated otherwise.

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