By Jahangir Karami*
JULY 30, 2016
JULY 30, 2016
The implementation of Iran’s nuclear deal with the P5+1 group of countries, which is known as the Joint Comprehensive Plan of Action (JCPOA), and removal of sanctions imposed on Iran is an issue, which will affect Iran’s relations with many states. As a result, economic relations between Iran and the Russian Federation have been offered with many new opportunities in post-JCPOA era and the deal will be an end to an eight-year period in which trade exchanges between the two countries were in decline. The following article focuses on this issue and argues how these new opportunities can be taken advantage of to meet the national interests of the country under conditions that have come about following the implementation of the JCPOA.
Following the implosion of the former Soviet Union, economic relations between Iran and Russia soared from about USD 400 million in 1991 to about USD 4-4.5 billion in the 2000s and this figure continued until 2007. However, following adoption of sanctions against Iran by the United Nations Security Council, the aforesaid figure started to fall and reached about USD one billion between 2008 and 2013. This situation was mostly a result of the policy adopted by the government of the former Russian president, Dmitri Medvedev between 2007 and 2010. According to that policy, Moscow turned toward the West and cooperated with the West in adoption of six sanctions revolutions against Iran. Russians also followed suit with all kinds of sanctions against Iran from withholding delivery of S-300 missile defense system to implementing monetary and banking sanctions against Iran as a result of which Tehran had problems even for paying monthly salary of the Islamic Republic of Iran’s embassy staff in Moscow through Russian banks.
After the beginning of the new term of Vladimir Putin as Russian president in 2012, relations between Russia and the West became tense over a host of issues, including NATO’s policy to expand toward the East and a plan for establishment of NATO’s missile defense shield in the Czech Republic, Poland, Romania and Turkey. That tension reached its acme due to the crisis in Ukraine in which the European Union and the United States imposed sanctions on Russia. However, due to the legal structure of those sanctions, they did not affect the improving trend of economic relations between Iran and Russia and the volume of trade exchanges between Tehran and Moscow stood at USD one billion.
Cooperation between Iran and Russia during the Syria crisis from 2012 and adoption of a new policy by the Islamic Republic of Iran’s new President Hassan Rouhani were followed by adoption of an active diplomacy toward Russia. As a result, there have been frequent meetings between the two countries’ officials as Tehran and Moscow have been trying to boost their interactions through exchange of new ambassadors. However, all efforts made between 2013 and 2014 simply stopped the declining trend of bilateral trade and increased its volume by about USD 0.5 billion in past year, thus raising hopes for further increase in the two countries’ trade exchanges.
In fact, the main reason behind limited growth of economic relations between Iran and Russia and absence of effective increase in those relations despite vast diplomatic activities on the part of Iran is restrictive nature of banking sanctions imposed on Tehran. As a result, it has not been easy for big Russian banks to circumvent those sanctions and many major Russian companies still stick to considerations that restrict their relations with Iran.
Due to their vast exchanges with the Western banks, Russian banks are not willing to forgo the huge benefits of working with them. It must be noted that the volume of Russia’s annual trade exchanges adds up to about USD 800 billion, half of which pertains to the Western countries, and this figure is by no means comparable to Russia’s trade volume with Iran which stands at about USD one billion.
Therefore, the issue of banking sanctions has had a major impact on Moscow’s trade relations with Tehran and once they are removed, interactions between Tehran and Moscow in economic and trade fields are sure to see a great spurt. Many infrastructural steps to achieve this goal have been taken in the past two years and the two countries have signed a comprehensive agreement for ten-year cooperation to total amount of USD 70 billion. They have also designed a roadmap to increase economic exchanges to USD 40 billion in medium term and activate joint commissions between the two sides.
Other fields of relations between the two countries have also witnessed preliminary steps toward expansion since the beginning of the nuclear negotiations and early agreements reached on that issue. Examples to the point include cooperation in technology and forming a technology committee to discuss the issue of technology transfer; cooperation in such sectors as communications, construction of railroads, as well as air and rail transport; agreement on building new thermal and nuclear power plants in Iran; cooperation in oil and gas, mines and metals, aerospace industries, and especially in recent months, in the fields of agriculture, dairy products, as well as meat production and aquatics culture. However, the most important area of economy, which will be affected by removal of sanctions and the post-JCPOA conditions, is related to banking and monetary issues, which have created a major obstacle to further expansion of relations between Tehran and Moscow in the past six years. It seems that expansion of economic relations between Tehran and Moscow is awaiting final lifting of relevant sanctions in order to achieve the high growth that would suit the reality of the two governments’ relations.
The diplomatic approach adopted by Iran’s new government has been able to take important steps such as expanding communications between the two countries and launching new flights by the country’s flag carrier, Iran Air, and Mahan Airline, while at the same time, reducing customs tariffs for agricultural, livestock, dairy, meat, and aquatic products for Iranian exporters. Efforts made to facilitate travel and waiver visa for the two countries’ nationals; negotiations for the establishment of a joint investment bank; agreement for investment by Russia in Iran up to USD 40 billion; as well as opening of two lines of credit worth USD five billion and USD two billion by Russian banks have been other measure taken as the hope rises in final removal of sanctions in post-JCPOA period. If sanctions are totally removed, Iranian producers, especially in foodstuff and agricultural sectors, can take advantage of a 140-million-strong food market in Russia.
One of the latest measures taken by Iranian officials was to establish a green customs corridor in order to facilitate exchange of goods through electronic means. Finally, it must be noted that negotiations are underway for Iran’s accession to the Eurasian Economic Community in order to allow Iranian exporters avail themselves of preferential trade facilities. Iran is also planning a free trade zone with member states of the Eurasian Economic Community, which will greatly boost the country’s non-oil exports in the future.
It seems that when sanctions are removed, as the main factor reducing Tehran’s economic relations with Moscow, and when grounds are provided for monetary and banking cooperation and exchanges, and also after other measures, which can rid both countries of the curse of sanctions are taken, we could hope that the volume of trade between the two countries would even go higher than USD four billion, which was achieved between 2001 and 2007. This time, trade relations between Tehran and Moscow will continue to increase at a time that Russia is under heavy pressures from the West and its economic exchanges with Turkey have also contracted.
There are also some measures, which can boost economic relations between Tehran and Moscow and, as a result, increase the two countries’ economic interdependence as a basis for expanded political and security relations. Making the North-South Corridor operational; creating an air corridor for rapid transfer of foodstuff and agricultural products; providing software, legal and regulatory foundations for trade cooperation; and activation of such free zones as Aras Free Trade Zone and Bandar Anzali Free Trade Zone are among those steps, which can be very effective in this regard.
*Jahangir Karami
Associate Professor of International Relation at the University of Tehran
Iran Review is a Tehran-based site that is independent, non-governmental and non-partisan and representing scientific and professional approaches towards Iran’s political, economic, social, religious, and cultural affairs, its foreign policy, and regional and international issues within the framework of analysis and articles.
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