The Russia-Iran deal might bring Russia more problems than benefits. The economies of the two countries are just too similar for the deal to make sense.
Iran's President Hassan Rouhani attends a news conference at a hotel after the fourth Conference on Interaction and Confidence Building Measures in Asia summit, in Shanghai May 22, 2014. Photo: Reueters
The forthcoming signing of a set of “breakthrough” trade and economic agreements between Russia and Iran may not be the blockbuster economic deal everyone thinks it will be. The unraveling of relations with the West and the forced policy of diversification leaves Russia short of prospective partners, China notwithstanding. Essentially, Russia may have been forced into a deal with Iran that it did not really want.
Economics is still predominantly governed by the law of “opposites attract,” in which regard, Iran and Russia are simply too alike (as strange as it may sound to the patriotic ear) for the new trade partnership to make sense.
First, the two countries possess some of the largest reserves of hydrocarbons anywhere in the world. Second, both Russia and Iran are critically dependent on oil and gas exports. Third and most importantly, they are friends in need, both hit hard by Western sanctions (Iran significantly more so than Russia).
Thus, in world trade (and world politics) Russia and Iran are more like natural competitors than partners. More specifically, Iran is theoretically capable of replacing Russia as the main supplier of gas to European markets, whereupon it is no coincidence that Tehran recently stated its readiness to feed the Nabucco pipeline, a once dead-in-the-water alternative to Russia’s South Stream. Unfortunately, by threatening its neighbors with retaliatory sanctions, Russia continues to push the European Union into the arms of other suitors.
Are there any positives in the Russian-Iranian economic alliance?
Yes, involvement in Iranian oil and gas projects, including the supply of hydrocarbon resources to the world market, could benefit Russian companies. But the rewards will be reaped only in the distant future, at a time when Tehran is fully released from the grip of international sanctions. But Russia’s pursuits here look more like an attempt to negotiate around them, which is extremely risky for all Russian organizations involved, since the West is hardly likely to turn a blind eye to such maneuvering.
Yes, in certain sectors (largely due to a lack of Western competition) Russian products and equipment could indeed be delivered to the Iranian market, and Russian companies could undertake infrastructure projects such as the electrification of railways. But as a result of the financial sanctions, payment will come in various unconventional ways — barter, inconvenient currencies, etc., which could neutralize any gain.
And, in any case, such deals may not be that easy to pull off in view of another, not insignificant detail in the field of military-technical cooperation.
Iran still remembers that in 2010 Russia reneged on the delivery of a consignment of S-300 air defense missile systems, and brings up this breach of contract at every opportunity. It is not ruled out that a precondition for securing any preferences from the Iranians will be for Russia to resume deliveries of the equipment.
But in the global community any hint of that would be perceived unequivocally as undermining the defense capacity of Israel. Thus, new contracts with Iran would at the very least seriously dampen Moscow’s quite amicable relations with Tel Aviv, which still holds, it should be noted, a very restrained position on Ukraine.
Furthermore, Israel is home to a large number of our former compatriots, whose safety we would be jeopardizing. Finally, the extremely influential pro-Israel lobby would immediately jump aboard the campaign to tighten the West's position in relation to Russia, which could be the last straw, resulting in a total “Iranian-style” blacklisting.
It is here that Russia’s new comrades have experience that they should and must share with their Kremlin colleagues. After the introduction in 2012 of tough sanctions on Iran's oil and financial sectors, two decades of uninterrupted economic growth ground to a halt in 2012-2013, official unemployment hit 16 percent, inflation soared to 42.3 percent, and the national currency, the rial, lost 60 percent of its value.
And there is one more potential downside, purely in terms of foreign policy. Russia's position in the international negotiations on Tehran's nuclear program has so far looked pro-Iranian. Sanctions-induced rapprochement with Iran would make it virtually impossible to preserve the illusion of neutrality, and the “Iran vs. 5+1” format could easily become “Iran+Russia vs. 4+1.” That is hardly the best position for Russia to adopt in the present circumstances, when it needs as many friends as it can get.
The opinion of the author may not necessarily reflect the position of Russia Direct or its staff.
Read another view: Russia steps up economic collaboration with Iran