Russia’s economic stakes in Iran are growing
I n the past several weeks, Russian President Vladimir Putin has received Saudi King Salman bin Abdulaziz Al Saud in Moscow and met with Iranian Supreme Leader Ayatollah Ali Khamenei in Tehran. Russia is making diplomatic efforts in Syria both through the Astana peace process and in expressing interest in autonomy for Syrian Kurds and so wooing the Democratic Union Party, an erstwhile United States ally against the Islamic State (ISIS).
Russian outreach does not stop there. Despite supporting Syrian President Bashar Assad alongside Hezbollah in the Syria war, Moscow maintains intelligence co-operation with Israel, vital in the split-second coordination required with fighter jets in the same airspace.
Compared to the pomp and media circus following US President Donald Trump, Putin proceeds with stealth. The crucial difference is that Putin does not see politics as a zero-sum game. By avoiding simplistic “either-or” options, he advances Russia’s political and economic interests even while posing as an arbitrator.
The regional powers understand this mentality. Turkey is allied with the United States and the Gulf Arabs in supporting the Syrian opposition but shares Iran’s fears over Kurdish autonomy. The Saudis talk of a “Shia crescent” and yet blockade Qatar, a fellow Salafist monarchy while reaching out to Iraqi Shia leaders. Israel has developed subtle links with Arab leaders who share the Israelis’ fears over Iran and the Muslim Brotherhood.
Likewise, Iran has long-standing commitments to regional allies — Syrian President Bashar Assad and Hezbollah — and a pragmatism that Iranian President Hassan Rohani has sought to develop. Iran’s leaders are suspicious of Russia given historical rivalries and Moscow’s 2005 support for referring Tehran’s nuclear programme to the UN Security Council. And yet, they welcome common ground against the Trump administration.
Putin’s visit boosts political and economic co-operation after Trump called for tougher sanctions on Iran and refused to certify Tehran’s compliance with the 2015 nuclear agreement. In Tehran, Putin reiterated Russia’s commitment to the nuclear deal, officially called the Joint Comprehensive Plan of Action (JCPOA). He stressed that Iran’s missile programme was an unrelated defence matter.
Putin took with him senior energy officials and CEOs and there were six memorandums of understanding signed with Russian companies, including Gazprom and Rosneft. Rosneft CEO Igor Sechin cited a figure, apparently for his company alone, of $30 billion in investments in “several oil and gas fields.” Russian Energy Minister Alexander Novak said that, by year-end, Russia and Iran would agree to a project involving Gazprom sending Iranian gas to India.
This adds to seven memorandums of understanding agreed to last year for seven oilfields with Lukoil, Gazprom, Tatneft and Zarubezhneft. The fields are largely established ones with poor recovery rates. Iran has said it was in talks with Rosneft over four oilfields and with Gazprom over gas projects, including a pipeline to India, storage and liquid natural gas.
Memorandums of understanding do not always come to fruition and Tehran is keeping its options open. It is wary of being too reliant on Russia or on anyone else.
Iran would like to tempt Western energy majors, which have the latest technology and can help meet Iran’s target of $200 billion foreign investment in energy by 2021 but it has not yet added to the $5 billion deal signed with Total in July for phase 11 of the South Pars gas field.
While European investment in the wider Iranian economy is increasing, the dollar’s special role in oil makes the energy majors fearful of current and possible US sanctions. If the Western companies continue to hold back, Russian involvement in Iranian energy will increase.
Russia’s overall trade with Iran — approximately $2 billion in 2016 — is below 2010’s record $3.7 billion but it is growing, with both sides examining options for barter given Iran’s lack of access to dollars to fund an unfavourable trade balance.
Russia’s exports to Iran are led by machinery, arms (notably the S-300 missile defence system delivered last year) and grain. Russian private companies are investing in Iranian internet companies and pharmaceuticals.
Energy is important but not the only potential area for growth. While in Tehran, Putin attended a three-way summit with Azerbaijani President Ilham Aliyev to move along the “north-south corridor” project. This is a transit link from Iran to northern and Eastern Europe. The summit backed speedy completion of the Rasht-Astana rail link, further energy swaps and establishing a legal regime for the Caspian Sea.
This is part of a web of new pipeline and rail links through central Asia to China that Oxford Professor Peter Frankopan has called a “New Silk Road” but there is also a more short-term, specific Iranian response to the United States. Whereas President Barack Obama saw the JCPOA as a step towards reorienting Iran towards the West, Trump is pushing it closer to Russia.