Russia and Iran look to powerful trade alliance to brush off Western sanctions
Russia asks Iran to join an economic union that will improve resilience against international sanctions.
MIDDLE EASTGLOBALISATIONBUSINESSRUSSIAIRANTRADEUKRAINE
Image: Russian President Vladimir Putin and Supreme Leader of Iran Ali Khameni meet to discuss the major new trade deal. Source: DW
While sanctions weigh, Russia and Iran are forming a powerful trading bloc that could challenge the West.
Russia and Iran have announced that they are looking to integrate their economies more closely through a free trade pact, improving resilience against Western sanctions. The announcement comes at a time when both countries have been facing increasing scrutiny, Russia for its war in Ukraine and Iran for the violent suppression of recent protests. Russia is the sixth largest economy in the world by purchasing power, and Iran not far behind, with higher economic output than the Netherlands, UAE, or Thailand. The deal would thus create a major international trading bloc - which already includes several former Soviet countries - which would rival the West.
Image: The Eurasian Economic Union will span 3 continents if existing talks are successful. Source: Silk Road Briefing
Russia and Iran possess complementary economies that could be harnessed to stimulate trade and economic growth. Russia is a major exporter of energy resources, including oil, gas, and nuclear technologies. Iran too possesses vast reserves of oil and gas, along with a strong agricultural sector. A regional free trade pact between Russia and Iran could enhance market access for both countries. By reducing trade barriers and tariffs, businesses in both nations would gain increased access to each other's markets. This would not only boost bilateral trade but also promote diversification away from traditional trade partners. Being heavily dependent on their respective trade relations with Western nations makes both vulnerable to economic sanctions and geopolitical uncertainties. A trade pact between Russia and Iran would offer a valuable alternative market and reduce the risks associated with heavy reliance on a single trade partner.
The ongoing war in Ukraine has significantly influenced Russia's pursuit of closer ties with Iran. Sanctions have targeted key sectors of the Russian economy, including energy, finance, and defense, as relations with the EU and US have reached new lows. The sanctions have restricted Russian access to Western markets, technology, and investment. Major global brands, such as Visa, McDonald’s, Starbucks, Toyota, and H&M have pulled out, leaving malls and high streets empty. In response, Russia has turned to other nations, including China, to bolster its economic resilience, and find new direct buyers for its oil and gas. But by forging closer ties with Iran, Russia can tap into a large and resource-rich market, counterbalancing the economic pressure it faces from the West.
Strengthening economic ties with Iran allows Russia to consolidate its presence in the Middle East...adding to its long-standing influence in Syria through Bashar al-Assad.
Furthermore, the Ukraine conflict has highlighted the geopolitical importance of Iran to Russia. With the annexation of Crimea, Russia sought to secure its access to the Black Sea and maintain influence in the region. Iran's geographical proximity and historical ties to the Caspian Sea region make it a valuable partner for Russia's strategic objectives. Not only will the deal improve its political influence, but also allow it to transport goods more easily out of the region and access Asian markets, where appetite for Russian imports still remains strong. Strengthening economic ties with Iran allows Russia to consolidate its presence in the Middle East and counterbalance Western influence in the region, adding to its long-standing influence in Syria through Bashar al-Assad.
In an interview with the official TASS news agency, Russian Deputy Prime Minister Alexei Overchuk stated that negotiations between Iran and the Eurasian Economic Union, which consists of Armenia, Belarus, Kazakhstan, Kyrgyzstan, and Russia, are close to their conclusion. “We are moving forward” Overchuk stated, adding that he hopes to sign an agreement by the end of the year.
Image: Trade flows between Russia and fellow Eurasian Union members is typically highly one-sided. Trade with Iran promises to be genuinely bilateral. Source: BNE Intellinews. Data from 2016.
The deal aims to enhance cooperation and trade in key sectors such as energy, transportation, and agriculture. Unlike many trade relationships Russia has historically held, the pact will be truly bilateral; with Iranian consumers gaining greater access to Russian products but also being able to export their plentiful resources.
Image: The roster of current Eurasian Union leaders. Many of them practice autocratic rule and rank among the least democratic nations globally. Source: Chatham House.
The possible trade agreement has been praised by Russian sources. One writer from rueconomics.ru predicts a 30% increase in trade with Iran, which will have a substantial economic impact. The report highlights that there has already been a growth in trade between the two nations since the outbreak of the war. Key sectors include agricultural products, machinery and equipment, textiles, and pharmaceuticals. Iranian goods are gaining popularity in the Russian market due to their competitive pricing, quality, and suitability for meeting domestic demand.
If successful, the trade pact will reduce the reliance of emerging economies in the region on Western markets and contribute to the increasing development of a multipolar world order, as was seen during the Cold War. But only time will tell if the announcement will come to fruition, or the famous fractiousness of Middle Eastern politics will prove too much of a stumbling block for Russia.
Further Sources
Iran International, iranintl.com
The Jerusalem Post, jpost.com
Image: The conflict between Armenia and Azerbaijan over the Nagorno-Karabakh region simmers on the Iranian border. Russia has portrayed itself as a neutral peacekeeper in the region, but has closer ties to Armenia, as Azerbaijan has increasingly been an important trading partner for the West for non-Russian oil and gas. Source: marxist.com
However, challenges remain for the successful implementation of the trade agreement. Navigating international sanctions regimes and addressing legal and regulatory complexities are key areas that require attention. Additionally, the region's geopolitical dynamics and conflicting interests could pose obstacles to the progress and outcomes of the partnership. Russian involvement in the conflict between Armenia and Azerbaijan, two countries which border Iran, may prove a sticking point.
