Page 59 - bne magazine March 2017 issue

bne March 2017
Opinion 59
was reported that they were in talks over a multi-billion-dollar arms deal that would see Russia delivering a host of military equipment, including advanced tanks and planes, to Iran.
Although relations between the two countries came under strain in the past, Russia and Iran have maintained economic links, even during the nuclear-related sanctions regime. These ties were strengthened in 2014 after the imposition of US and EU sanctions on Russia over the Ukraine crisis. That same year, Iran and Russia reportedly discussed power-generation and Russian goods-for-Iranian oil deals, the latter of which was implemented the following year. In 2015, Moscow played a sig- nificant role in negotiations that led to the nuclear deal, under which Iran agreed to rein in its atomic energy programme in exchange for the lifting of nuclear-related sanctions.
While the volume of recent Russian-Iranian bilateral trade has been relatively small – dropping from $1.7bn to $1.3bn between 2014 and 2015 – last year it leapt by 80% following the lifting of the nuclear-related sanctions in January 2016. In August, Rus- sia’s ambassador to Tehran, Levan Dzhagaryan, said the removal of the measures had triggered a surge in interest among Russian firms in doing business with Iran. His remarks came several months after the speaker of the Iranian parliament, Ali Larijani, announced that Russia had been given priority in terms of invest- ment in infrastructure and other sectors of Iran’s economy.
One of Moscow’s main areas of interest is the Iranian energy sector. According to a paper by the US-based think-tank the Middle East Institute, “Russia sees in Iran a vast yet underde- veloped hydrocarbons sector that lacks sufficiently advanced production, refining and distribution technology and exper- tise”. Russian companies are well-placed to fill the gap.
Lack of competition
The Russians are assisted, for the moment, by the lack of competition. Western investors continue to be wary of doing business in Iran, many of whom are concerned about residual American sanctions that ban dollar transactions processed
by US financial institutions, and the possibility that President Donald Trump might adopt a tough stance on Iran – although it seems he is unlikely to carry out a pre-election threat to scrap the nuclear agreement.
Consequently, while there has been no shortage of western business delegations to Iran, few deals have been struck. This has put pressure on the country’s reformist President Hassan Rouhani, who has promised Iranians that the rapprochement with the West would deliver economic dividends. A poll in August showed that his popularity has dropped significantly since the nuclear deal was ratified. Fortunately for Rouhani, Russian firms seem to have fewer reservations about signing contracts, as Russia’s banks are less constrained by the remain- ing American sanctions.
At the same time, economic engagement is likely to be enhanced by two key regional developments. The Russian-dom-
inated Eurasian Economic Union is to begin talks on establish- ing a free trade zone with Iran, Egypt, India and Singapore. Additionally, Russia, Iran and India have been developing a new Eurasian trade route, which includes Caucasian and Central Asia countries. By bypassing the Suez Canal, the North-South Transport Corridor – a combination of road, rail and maritime connections stretching from Mumbai to St Petersburg – will markedly reducing shipping times to Western Europe.
While Russia and Iran are talking up their growing relations, there are likely to be limits to the partnership. The two coun- tries’ military interests have converged in Syria, but commen- tators suggest Moscow will not want its cooperation with Shia Iran to hinder relations with other key players in the region. While Russia is keen on building up the Iranian energy sector, other observers suggest its attitude may change if they begin to compete for a share of the European gas market or if Iran’s race to achieve pre-sanctions levels of oil production squeezes Russia’s market-share.
President Trump’s policy towards both could well be key. A mutual sense of isolation has seemingly drawn Russia and Iran together. That dynamic might change if, as some predict, Trump warms to Moscow and maintains a tough line on Tehran.
Yigal Chazan is an Associate at Alaco. Alaco Dispatches is the business intelligence consultancy’s take on events and developments shaping the CIS region.
bne has a full roster of columnists and opinion-makers, among them:
Mark Galeotti Liam Halligan Suna Erdem
Chris Weafer David Cecire Ben Aris
Selected headlines from the past month:
· STOLYPIN: We all need to worry about Russia’s incredible shrinking foreign ministry
· ALACO DISPATCHES: Investors unnerved by Turkish turmoil · STOLYPIN: Belarus tests limits of Russian confidence
You can find all bne’s comment at
www.intellinews.com/opinion
www.bne.eu