Since Russia has shown willingness to work with Iran over the years, the question is more about the logistics of their dealings. The geopolitical advantages may override business logic.
Russia’s engagement with Iran has been guided by its interest in seeing the latter remain free of nuclear weapons. It sees Iran as a key power in West Asia, integral for regional security and stability, while Iran considers Russia a counter to the United States and an emerging strategic ally. They have often found themselves on the same side of various issues of common concern; however, some degree of wariness exists. Key areas of cooperation include energy, security and transportation infrastructure.
In the military sphere, Russia has been an important weapons supplier to Iran. However, Russia also supplies arms to Iran’s rivals in the region, including Turkey and Saudi Arabia. This shows that its interest also lies in increasing arms sales to developing markets, including West Asia. <1> In early 2016, soon after the JCPOA went into effect, its S-300 air defence system was finally delivered to Iran. The USD 800 million contract was signed in 2007, but was suspended in 2010 following international pressure. <2> The two parties also began preliminary talks in 2016 over the supply of weapons up to USD 10 billion, including possibly the T-90 main battle tank and the Su-30 fighter aircraft. <3>,<4> The two have cooperated in Syria: Russia was the first power to be allowed to use Iranian air force bases since 1979, in order to conduct bombing runs. <5> Despite this, sales did not significantly rise after the JCPOA was implemented due to the restrictions placed by the UN and other regional security concerns. <6> The American exit is unlikely to significantly alter the status quo.
In the sphere of energy, too, their dynamic has aspects of both competition and cooperation. Russia assisted in Iran’s civilian nuclear programme before the JCPOA, notably in the construction of its nuclear power plant at Bushehr. A deal for the construction of two additional units was also reached; the preparatory work began in May 2018. <7> In the oil and gas sector, several preliminary agreements have been signed. Zarubezhneft is the second foreign entity to enter the Iranian market after the JCPOA, concluding a deal of USD 742 million. <8> In the long term, Iranian fields are more lucrative for Russian companies as Western sanctions hinder the exploitation of unconventional deposits. <9>,<10>,<11> With the American withdrawal, these projects may be put on hold, or investments diverted to domestic upgrade and exploration. Any potential rise in oil prices at the end of the winddown period will also depend on the actions of Russia and OPEC and the reactions of China and India, Iran’s two largest customers. If they decide to reduce their purchases of Iranian oil, they could come to rely on other suppliers, including Russia. Existing pipeline infrastructure may make increasing deliveries to China easier. <12> Otherwise, they may opt to enter the Iranian market themselves, leading to competition with Russian companies. <13>
Since Russia has shown willingness to work with Iran over the years, the question is more about the logistics of their dealings. The geopolitical advantages may override business logic. Payments may revert to a barter system, but if other players decide to adopt similar measures, it is unclear what Russia can offer Iran. There have already been attempts to drop the US dollar in bilateral transactions and instead use their national currencies. <14> Russia has been developing its own alternative to the SWIFT system to reduce its vulnerability to US sanctions. <15> Though there has been talk of Iran joining the system, much depends on whether other countries will be willing to recognise and use it. <16> As of now, Iran is still connected to SWIFT. Thus, coordination with China and the EU will be key. There are also talks about integrating the indigenous payments systems of the two countries. <17>
Russia’s outreach to Iran fits well within its design of a multipolar world order. It welcomes Iran as a partner in various multilateral fora such as the Shanghai Cooperation Organisation (SCO) and the Eurasian Economic Union (EAEU). <18> Iran will also be a crucial partner in achieving a settlement in Syria, even though the two have different priorities: Russia seeks to preserve the Syrian state, while Iran is essentially pro-Assad. As tensions with Israel continue to escalate, Russia may be pushed to balance and possibly mediate the two sides, as it has already been doing. <19> It may ultimately settle for a compromise that may or may not see Assad in power. But a nuclear-armed Iran would destabilise the region and conceivably threaten Russia, owing to its geographical proximity. This assures its commitment to the JCPOA. The American withdrawal may bring Europe and Russia closer and may even lead to some concessions over Ukraine-related sanctions. It will undoubtedly affect the Russian-Iranian relationship, but no critical interests are at stake for Russia in the short term.
This essay originally appeared in ORF Special Report Beyond JCPOA: Examining the consequences of US withdrawal.
<1> Lionel Beehner, “Russia-Iran Arms Trade,” Council on Foreign Relations, 1 November 2006.
<2> April Brady, “Russia Completes S-300 Delivery to Iran,” Arms Control Association, 30 November 2016.
<3> “Iran's demand for Russian weaponry estimated at $10 bln,” TASS, 14 November 2016.
<4> “Russian Official: No Ban on Export of Sukhoi-30, T-90 tanks to Iran,” Fars News Agency 6 April, 2016.
<5> Dmitri Trenin, “Russia and Iran: Historic Mistrust and Contemporary Partnership,” Carnegie Moscow Centre, 18 August 2016.
<6> “UN Arms Embargo on Iran,” Stockholm International Peace Research Institute, 20 January 2016.
<7> “Rosatom begins work at phase 2 of Bushehr power plant,” Press TV, 4 May 2018.
<8> “Iran signs $742 million oil deal with Russian company,” The Times of Israel, 14 March 2018.
<9> Olga Hryniuk, “The Impact of Western Sanctions on Russian Energy Companies,” CIS Arbitration Forum, 1 November 2017.
<10> “Russian oil and gas companies ready to invest into hydrocarbons production in Iran,” Hellenic Shipping News, 12 May 2017.
<11> Elizabeth Buchanan, “The crumbling Iran deal could make Russia rich,” The Moscow Times, 15 May 2018.
<12> Tsvetana Paraskova, “China is replacing Europe as Russia's No. 1 customer,” Business Insider, 2 May 2018.
<13> “China tipped to profit after Donald Trump quits Iran nuclear deal,” South China Morning Post, 18 May 2018.
<14> “Russia, Iran, Turkey mull unified payment system,” Press TV, 10 April 2018.
<15> Natasha Turak, “Russia’s central bank governor touts Moscow alternative to SWIFT transfer system as protection from US sanctions,” CNBC, 23 May 2018.
<16>IFT Alternative Due to Western Sanctions,” CoinWire, 21 May 2018.
<17> “Iran, Russia integrate bank payment systems,” Xinhua, 28 October 2017.
<18> “Iran agrees interim free trade zone with Russia-led Eurasian Union,” The Moscow Times, 17 May 2018.
<19> Andrew Osborn, “Russia, after Netanyahu visit, backs off Syria S-300 missile supplies,” Reuters, 11 May 2018.
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