Russia’s objectives in Iran

Their short-term economic interests coincide despite their mutual lack of trust

Roughly six months in, the Russian economy has thus far managed to withstand the pressure of Western sanctions imposed as a result of the invasion of Ukraine. This is due largely to earnings from energy exports, which contribute substantially to Russia’s federal budget and national wealth fund.

But Moscow also needs to consider how it can weather the storm in the long term, especially because it could face more severe sanctions in the future. It’s dependent on a number of imported goods, most notably high-tech products, to which its access is now limited, and it’s aware that even tougher sanctions could threaten its economic and political wellbeing.

There are several ways to mitigate the effects: introducing import substitution initiatives, finding ways to skirt the sanctions, finding alternative suppliers of key imports, keeping energy exports flowing as leverage against the West, and participating in regional cooperation initiatives.

Iran can play an important role in each of these options. This explains why Moscow has been in recent months edging closer to Iran.

From January to June, trade turnover between Moscow and Tehran was approximately $2.7 billion, 42.5 percent higher than in the same period a year ago. In his last meeting with his Iranian counterpart, Russian Foreign Minister Sergei Lavrov said relations with Iran were “reaching a new qualitative level,” which could culminate in a major bilateral agreement already in the final stages of completion.

Tehran is facing tough Western sanctions of its own, and it sees an opportunity to gain access to a number of technologies and the fairly large Russian market. With their short-term economic interests seemingly compatible, Russia sees a chance to pursue its broader objectives in the region, however difficult it may be.

Russia’s Goals

Russia has long maintained a cautious policy toward Iran, but sanctions have incentivized broader cooperation. To an extent, Moscow can learn from how Tehran has dealt with the sanctions imposed on it by the West. The restrictions on its banking and industrial sectors are similar to those applied to Russia, so Moscow may look to the Iranian example as it charts a path forward.

Moscow is searching for a partner that can provide otherwise inaccessible goods and buy some of the Russianmade products that now lack markets. Iran has been able to help fill both these gaps.

For example, in mid-March, when the European Union banned steel imports from Russia and capped imports of a number of other metals, Iran immediately expressed a desire to import zinc and aluminum and to buy steel in exchange for Russia’s purchase of auto parts and gas turbines.

Iran also suggested it might import more grain from Russia after becoming its second-largest grain buyer in the 2021/2022 agricultural year.

In July, Iran agreed to supply aircraft components to Moscow and to provide maintenance and repairs for Russian airliners. Russia is likely interested in Iranian-made electronic control units and airbags. With Iran’s participation in the Russian MIR payment system expected soon, such transactions will only increase.

There are also benefits in the energy sector. In July, Russia’s Gazprom and Iran’s NIOC signed a memorandum of understanding on oil and gas projects worth $40 billion. Russian firms have also agreed to offer investment and technology for Iranian oil and gas projects or to participate as contractors.

The Kremlin believes this might offset Russian losses if tougher sanctions are imposed or if European countries purchase energy from other suppliers. Even if Western sanctions on Iran are lifted and European investors reenter the Iranian market, Russia will have already established itself as a key partner for the Iranian energy industry, making Russian companies highly competitive with European ones.

Another target for Russia is the Iranian IT sector. Russia has a fairly developed IT sector of its own but needs more expertise on tech security, especially as cyberattacks on critical infrastructure increase.

Iran has experience in this field considering it has been the target of a number of cyberattacks since 2010, making it an important player in cybersecurity technologies that help protect nuclear, military and economic facilities.

The country has invested heavily in this area since the 2010 Stuxnet attack that disabled its nuclear power program. This presents an interesting opportunity for Russia because its military campaign in Ukraine is increasingly turning into a tech war.

In the past six months, the number of cyberattacks on critical Russian infrastructure has grown by 50 percent and on energy and financial industries by 70 percent compared to the same period last year. The number of data leaks has increased by almost 50 percent.

In Iran, Russia also sees an opportunity to access new markets. In fact, the International North-South Transport Corridor – which connects Russia to India through Iran but bypasses the Suez Canal and seas in which NATO has a presence – is already in operation.

The corridor is becoming one of the main routes for the delivery of goods from Mumbai to St. Petersburg. It comprises sea, river and rail transport, making it possible to halve the time required to deliver goods between India and Russia.

The transit time along the traditional route through the Suez Canal is between 30 and 45 days, while it takes just 15 to 24 days using the new corridor.

Challenges

Despite these potential opportunities, the relationship between Russia and Iran is not as close as it may seem. There are several factors that will complicate attempts to strengthen relations between them.

The two countries have conflicting interests in strategically important nearby regions – namely the South Caucasus, Central Asia, the Caspian and the Middle East – which have long been a springboard for confrontation between regional powers.

For instance, they have competing claims to resources in the Caspian Sea, and though the 2018 Convention on the Legal Status of the Caspian Sea was meant to resolve the dispute, Iran is the only country of the five states that initially signed the deal that has yet to ratify it.

In addition, Iran is in the process of trying to restore the 2015 Joint Comprehensive Plan of Action, and Russia is wary of allying with a country that could be a competitor for energy buyers at a time when its energy exports are the target of sanctions.

If Iran’s relationship with the West improves, Moscow risks losing leverage in the energy market because Iran could become an alternative for European countries that want to avoid buying Russian fuel. This would limit Russian leverage over Europe as the Ukraine war continues and, in the long term, threatens to reduce Russian influence if Iran can develop a more stable economy that no longer requires Russian cooperation or support.

Negotiations on reviving the Iran nuclear deal have resumed at an inconvenient time for Moscow. Russia, which is a signatory of the JCPOA, now finds itself in a precarious spot: On the one hand, it can’t abandon the JCPOA and risk damaging its carefully cultivated relations with Iran, and on the other hand, it can’t allow Iran to be opened for Western investment, especially in the energy industry.

If a deal is reached, it’s likely that Iran will resume oil exports to the West, which will bring an additional 1 million barrels of oil per day to the global market and help reduce the price of energy.

The Kremlin is looking to convince Iran that a deal will eventually be reached so Iranian negotiators don’t rush to sign a less-than-favorable agreement.

Russian Foreign Minister Sergei Lavrov said the deal must be restored to its original terms, hoping the Iranians will propose amendments to the text that would again stall the talks.

It’s certainly true that the economic interests of Russia and Iran overlap more now than before the Ukraine war.

Iran sees Russia as a promising market for its manufactured goods, and Russia sees Iran as a source of much-needed equipment and semi-finished products for its industries that have been cut off from their traditional suppliers.

For Moscow, cooperation with Iran and participation in joint projects can also have political benefits, possibly leading to an expansion of its influence in the region. Under the current circumstances, it’s a mutually beneficial relationship. But the level of trust between the two remains low; in the long run, their interests are bound to collide.