Iran after Sanctions: How to Build Up Trade Ties

The competition and struggle for the Iranian market between different countries, companies and firms becomes tougher.

The Russian-Iranian relations in all spheres got a new impulse after the lifting of sanctions on January 16, 2016. The main task now is to transform all the ideas, projects, intentions into real concrete contracts, despite the complexities and high degree of competition.

Even before the decision of sanctions’ lifting businessmen from around the world, including Americans, flocked to Tehran with aim to put down a peg for the future. Iran became an attractive place for international business. For Russia it will not be easy to compete with international business.

In just ten days after the removal of financial and economic sanctions, Iranian President Hassan Rouhani held a remarkably massive rally to restore Iran's positions in the world political and economic arena. There was a successful visit of Chinese leader Xi Jinping to Tehran and fruitful tour of the Iranian president to Rome, Vatican City and Paris.

As expected, Iran took active measures to restore economic cooperation with developed countries. Iranian economy needs two main things: huge foreign investments in virtually all sectors of the economy (about 500 billion dollars in 5 years) and high technologies. Western countries can give this, as well as Japan, South Korea, China and other developed states.

The volume of trade between Russia and Iran in 2014 amounted about 1.7 billion dollars, which, of course, does not correspond to the two countries' potential. Naturally, Russian and Iranian leaders announced their intention to increase trade turnover.

Russia and Iran are interested to establish long-term strong links that could not be influenced by the political situation, inside and outside. However, the competition and struggle for the Iranian market between different countries, companies and firms becomes tougher. Russia's chances in the Iranian market are limited by few sectors of the economy: energy, including nuclear; space exploration, including launch of Iranian satellites by Russian carriers for practical economic needs; railway construction, electrification and modernization of Iranian railways; agriculture at various levels from state enterprises to small businesses. As before an important area is military-technical cooperation. In general, we can say that the bilateral trade and economic relations today do not correspond to the potential and interests of the two countries and need an intensive development. Iran's share in Russia's foreign trade turnover in 2015 amounted only 0.2%, while the share of Russia in Iran's foreign trade - 1.1%. Decline in sales continues. Investments are also rather modest.

Both parties feel lack of knowledge of small and medium businesses characteristics and rules, its legal base, needs and capabilities of each other. Russian businessmen and companies do not have a clear idea about the economic possibilities of cooperation with Iran, how really to cooperate with Iranians. This ignorance results in a lack of confidence, an unwillingness to invest or sign commercial contracts with Iranian businessmen. On the other hand, the Iranians also do not have enough information about the features of Russian economic markets.

Russian and Iranian experts, who deal with bilateral relations, have identical or similar views on the nature of main trade and economic cooperation problems. They can be named as follows:

Banking system. Big Russian banks (Sberbank, VTB) left the Islamic Republic of Iran due to the anti-Iran sanctions. Interbank relations in the required frameworks and volumes are virtually absent.

Transport and logistics. Each transport area (road construction, air, sea, railways) has its own problems, affecting the Russian- Iranian economic and trade cooperation. In addition, there are big problems with the production storage, lack of modern warehouses and storage facilities.

Problems of export and import goods standards. Between Russia and Iran there is no agreement on harmonization of requirements for export-import goods standards. This means legal harmonization of technical, pharmaceutical, sanitary, phytosanitary, veterinary, environmental and other requirements to the standards of export-import goods of the Russian Federation and IRI.

The strong bureaucracy and weak corporate structures both in Russia and in Iran.

Russian businessmen are not familiar with the Islamic mentality.

However, in spite of all the above-mentioned negative points, it should be noted that the potential of the Russian Federation and Iran economic and trade relations is extremely high. The task is to convert this potential into reality and promote the bilateral partnership to a higher level.
Views expressed are of individual Members and Contributors, rather than the Club's, unless explicitly stated otherwise.