Russia and Iran Strengthen Economic Ties in Bid to Counteract US Sanctions

Dimitri Simes | August 25, 2022 | 5:51pm EDT
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Russian President Vladimir Putin meets with Iranian President Ebrahim Raisi in Tehran on July 19, 2022. (Photo: The Kremlin)
Russian President Vladimir Putin meets with Iranian President Ebrahim Raisi in Tehran on July 19, 2022. (Photo: The Kremlin)

Moscow ( – Russia and Iran are moving to strengthen energy, industrial, and logistical ties as the two countries seek to ease the burden of U.S. sanctions against them.

On Wednesday, Iranian Oil Minister Javad Ouji announced that Iran and Russia were close to finalizing a natural gas swap deal, allowing Iran to import Russian gas and then deliver a certain amount of it to third party countries. Ouji told reporters Moscow and Tehran were also negotiating about jointly developing 14 oil and gas fields in Iran.

Last month, the two signed a $40 billion memorandum of understanding under which Russian state energy conglomerate Gazprom agreed to help develop seven oil and gas fields in Iran. Habibollah Zafarian, an energy expert at Tehran’s Amirkabir University of Technology, told the Fars news agency that the deal opened the door for Iran to become a “regional hub” for Russian gas.

“Now there is an opportunity for Iran and Russia to sit around the same table and divide the gas market between them,” he said. “Russia is the first and Iran is the second holder of gas resources in the world and they can define an optimal strategy for market development by working together.”

Zafarian argued that Iran could begin purchasing surplus Russian gas that was originally designated for the European market, and then resell it to neighboring countries such as Pakistan and Iraq. Russia has sharply reduced its gas deliveries to Europe in recent months, citing sanctions issues and disputes over payment methods.

Some Western diplomats fear Iran could likewise become a “back door” for sanctioned Russian oil into Europe if the 2015 nuclear deal is resurrected. Politico recently reported that Tehran could begin “importing Russian crude to its northern Caspian coast and then sell equivalent amounts of crude on Russia's behalf in Iranian tankers leaving from the Persian Gulf.”

Beyond energy, the Kremlin is increasingly looking to Iran for help in filling gaps created by Western sanctions and the exodus of multinational corporations from Russia.

During a trip to Moscow on Tuesday, Iranian Industry Minister Reza Fatemi-Amin declared that the two countries were expanding cooperation in the shipbuilding, car, and aviation industries.

He said Iran hoped to conclude a free trade agreement with the Eurasian Economic Union, a Moscow-led trading bloc that includes Russia and several of its traditional allies in the post-Soviet space.

Iran’s assistance is potentially significant since the car and aviation industries are the two sectors of the Russian economy that have suffered the most from sanctions.

New car sales have plummeted by 60.5 percent year-on-year during the first seven months of 2022, with many foreign brands ceasing their operations in Russia and domestic manufacturers struggling to acquire critical components. Meanwhile, Russian airlines have begun stripping planes for spare parts no longer readily available due to sanctions, according to Reuters. 

Earlier this month, Iran’s leading automaker announced that it was paying “special attention” to the Russian market and would begin exporting its cars to the country later this year. On Tuesday, Russian and Iranian automakers and parts manufacturers signed $700 million worth of deals on the sidelines of a car industry show in Moscow.

A similar story has played out in the aviation sector. Last month, the two countries signed a memorandum of understanding allowing Iran to begin exporting spare parts and equipment to Russia and to provide Russian aircraft with repair, maintenance, and technical services.

Another way Iran can help Moscow bypass sanctions is by offering itself as a new logistical hub for Russian goods headed to the outside world.

The main option for now is the International North-South Transport Corridor (INSTC), a 7,200 kilometer network of ship, rail, and auto routes connecting Russia and India through Iran. According to a study from India’s Federation of Freight Forwarders, the INSTC is 30 percent cheaper and 40 percent shorter than the traditional Suez Canal route.

Although Russia and Iran have been holding talks about launching the INSTC for more than two decades, the project began to move ahead after the U.S. and European countries in March banned Russian ships and planes from their ports and airspace.

Those new restrictions “virtually wrecked” Russia’s trade logistics, according to Transportation Minister Vitaly Savelyev, and forced the Kremlin to look for alternative routes. At the same time, India’s importance as an economic partner for Moscow significantly increased as New Delhi went on a buying spree for Russian oil.

In June, Iran’s state-run shipping company announced that it had successfully delivered the first batch of Russian goods to India through the INSTC.

Since then, around 3,000 tons of goods and 114 containers have been shipped along the route, according to India’s Economic Times. Iranian officials have indicated that Russia could potentially help to construct new railways in Iran as part of the INSTC, in exchange for oil barter.

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