After Russia’s short-lived Wagner mutiny ended, Iran’s president called Vladimir Putin to express “full support” for his regime. Iran even dispatched to Moscow its chief law enforcement officer, Brig. Gen. Ahmad-Reza Radan, who had played a significant role in suppressing the 2009 Green Movement and the 2022 protests following the death in police custody of Mahsa Amini as well as in crushing a Kurdish rebellion in 1979 when he was a member of the Islamic Revolutionary Guards Corps (IRGC).
Expanding ties with Russia has become a key element of Iran’s foreign policy pivot to the East and thus not easily shaken. However, despite a rise in Iranian arms sales to Russia since its invasion of Ukraine and advice to the Kremlin on how to circumvent sanctions and crush dissent, the two countries face significant challenges in deepening their relationship.
Historically, Russian-Iranian economic relations have suffered from incompatibility and competition. Russia holds the world’s largest natural gas reserves, with an estimated 1,688 trillion cubic feet, and the sixth largest oil reserves, with approximately 80 billion barrels of crude. Iran, holds the second-largest natural gas reserves and the third-largest oil reserves globally. Given their fossil fuel riches, both countries’ economies rely heavily on exporting oil and gas. Roughly 15 percent of Russia’s gross domestic product (GDP) and 45 percent of its annual budget are derived from oil and gas exports. For Iran, about 18 percent of GDP and a quarter of revenue come from exporting fossil fuels.
Therefore, it is logical that Russia and Iran would compete for a larger share of the market, especially since Russia, unlike Iran, is not bound to play within the boundaries of the oil cartel, OPEC. One might argue that the market is big enough to accommodate both producers. That was certainly the case when Russia was the major supplier of natural gas to Europe. But its invasion of Ukraine has curtailed that relationship and forced Moscow to compete for the same Asian markets as Tehran.
For two decades prior to the Ukraine war, Iran was relatively successful in expanding its market in the East, particularly in China, India and South Korea, through “competitive pricing” and flexible payment options. That changed in 2022.
The invasion of Ukraine unleashed waves of sanctions against Russia, tightening Moscow’s access to the Europe. As a result, Russia turned to the “Iranian solution” and shifted its focus toward the Asian market. Since the beginning of the Ukraine war, Russia’s crude oil exports to Asia have doubled. According to Iranian sources, “Russia’s notable discount” on crude has caused irreversible damage to Iran, with Russia essentially taking over Iran’s oil market in Asia. Even the IRGC-owned Frasnews, a strong advocate for Iran’s strategic alliance with Russia, has admitted that Russia’s new tactics pose a significant threat to Iran’s export of petroleum products.
One of the other sectors that has been severely affected by the Ukraine war is Iran’s market for bitumen, a tar-like black sticky form of petroleum. According to Hamid Hosseini, the general secretary of Iran’s oil by-products exporters union, Russia has captured a quarter of Iran’s bitumen market, primarily in India. This has caused a substantial drop in Iranian revenue.
Additionally, competition between Russia and Iran has extended to non-petroleum sectors, particularly the steel market. Reza Shahrestani, a representative of Iran’s steel producers, stated in an interview with Iran’s Shargh Daily that Russia has enticed Iran’s major steel customers in Thailand and South Korea with discounts of 15-20 percent, costing Iran $6 billion in annual revenue.
Despite this competition, bilateral trade and financial cooperation between Iran and Russia have been growing. Iran has been teaching Russia how to bypass sanctions, and it has authorized its “ghost fleet” of tankers to transport Russian oil. Bilateral trade has increased by approximately 20 percent and reached $4.9 billion. However, most of the growth has been in Russia’s exports to Iran, with a nearly 25 percent increase worth close to $4 billion. Considering the significant losses in the petroleum and steel markets for Iran, the revenue generated from bilateral trade is relatively insignificant. Moreover, there appears to be a disparity in enthusiasm for financial cooperation between Tehran and Moscow. While Iranian officials celebrated the recent opening of branch of Russia’s VTB bank in Tehran, Russian authorities have been keen to deny such developments.
In conclusion, there is a growing tactical cooperation between Iran and Russia, including in the economic realm. However, on a strategic level, it may be premature to expect a significant change in the dynamics of their relationship, at least in the near future.
Russian-Iranian economic cooperation is still in its early stages, and it is uncertain how it will evolve. Unlike Iran, Russia has shown itself to be cautious in its approach to conflict with the West, and it has used the “Iran card” in various ways to navigate its relations with Western countries. Even before the Wagner mutiny highlighted divisions within the Russian elite, it may be prudent for Iran to try to re-diversify its economic relations by restoring a role for Europe.
Arman Mahmoudian is a lecturer of International Affairs and Researcher at the University of South Florida Global and National Security Institute. He tweets @MahmoudianArman.
Economic Incompatibility Limits Russia-Iran Ties
By Arman Mahmoudian
Middle East & North Africa
After Russia’s short-lived Wagner mutiny ended, Iran’s president called Vladimir Putin to express “full support” for his regime. Iran even dispatched to Moscow its chief law enforcement officer, Brig. Gen. Ahmad-Reza Radan, who had played a significant role in suppressing the 2009 Green Movement and the 2022 protests following the death in police custody of Mahsa Amini as well as in crushing a Kurdish rebellion in 1979 when he was a member of the Islamic Revolutionary Guards Corps (IRGC).
Expanding ties with Russia has become a key element of Iran’s foreign policy pivot to the East and thus not easily shaken. However, despite a rise in Iranian arms sales to Russia since its invasion of Ukraine and advice to the Kremlin on how to circumvent sanctions and crush dissent, the two countries face significant challenges in deepening their relationship.
Historically, Russian-Iranian economic relations have suffered from incompatibility and competition. Russia holds the world’s largest natural gas reserves, with an estimated 1,688 trillion cubic feet, and the sixth largest oil reserves, with approximately 80 billion barrels of crude. Iran, holds the second-largest natural gas reserves and the third-largest oil reserves globally. Given their fossil fuel riches, both countries’ economies rely heavily on exporting oil and gas. Roughly 15 percent of Russia’s gross domestic product (GDP) and 45 percent of its annual budget are derived from oil and gas exports. For Iran, about 18 percent of GDP and a quarter of revenue come from exporting fossil fuels.
Therefore, it is logical that Russia and Iran would compete for a larger share of the market, especially since Russia, unlike Iran, is not bound to play within the boundaries of the oil cartel, OPEC. One might argue that the market is big enough to accommodate both producers. That was certainly the case when Russia was the major supplier of natural gas to Europe. But its invasion of Ukraine has curtailed that relationship and forced Moscow to compete for the same Asian markets as Tehran.
For two decades prior to the Ukraine war, Iran was relatively successful in expanding its market in the East, particularly in China, India and South Korea, through “competitive pricing” and flexible payment options. That changed in 2022.
The invasion of Ukraine unleashed waves of sanctions against Russia, tightening Moscow’s access to the Europe. As a result, Russia turned to the “Iranian solution” and shifted its focus toward the Asian market. Since the beginning of the Ukraine war, Russia’s crude oil exports to Asia have doubled. According to Iranian sources, “Russia’s notable discount” on crude has caused irreversible damage to Iran, with Russia essentially taking over Iran’s oil market in Asia. Even the IRGC-owned Frasnews, a strong advocate for Iran’s strategic alliance with Russia, has admitted that Russia’s new tactics pose a significant threat to Iran’s export of petroleum products.
One of the other sectors that has been severely affected by the Ukraine war is Iran’s market for bitumen, a tar-like black sticky form of petroleum. According to Hamid Hosseini, the general secretary of Iran’s oil by-products exporters union, Russia has captured a quarter of Iran’s bitumen market, primarily in India. This has caused a substantial drop in Iranian revenue.
Additionally, competition between Russia and Iran has extended to non-petroleum sectors, particularly the steel market. Reza Shahrestani, a representative of Iran’s steel producers, stated in an interview with Iran’s Shargh Daily that Russia has enticed Iran’s major steel customers in Thailand and South Korea with discounts of 15-20 percent, costing Iran $6 billion in annual revenue.
Despite this competition, bilateral trade and financial cooperation between Iran and Russia have been growing. Iran has been teaching Russia how to bypass sanctions, and it has authorized its “ghost fleet” of tankers to transport Russian oil. Bilateral trade has increased by approximately 20 percent and reached $4.9 billion. However, most of the growth has been in Russia’s exports to Iran, with a nearly 25 percent increase worth close to $4 billion. Considering the significant losses in the petroleum and steel markets for Iran, the revenue generated from bilateral trade is relatively insignificant. Moreover, there appears to be a disparity in enthusiasm for financial cooperation between Tehran and Moscow. While Iranian officials celebrated the recent opening of branch of Russia’s VTB bank in Tehran, Russian authorities have been keen to deny such developments.
In conclusion, there is a growing tactical cooperation between Iran and Russia, including in the economic realm. However, on a strategic level, it may be premature to expect a significant change in the dynamics of their relationship, at least in the near future.
Russian-Iranian economic cooperation is still in its early stages, and it is uncertain how it will evolve. Unlike Iran, Russia has shown itself to be cautious in its approach to conflict with the West, and it has used the “Iran card” in various ways to navigate its relations with Western countries. Even before the Wagner mutiny highlighted divisions within the Russian elite, it may be prudent for Iran to try to re-diversify its economic relations by restoring a role for Europe.
Arman Mahmoudian is a lecturer of International Affairs and Researcher at the University of South Florida Global and National Security Institute. He tweets @MahmoudianArman.
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