Editor’s Note: From his base in Georgia, academic Emil Avdaliani follows regional security and economic trends and contributes frequently to Stimson on these topics. The author of a recent book, “China, Russia and New Eurasian Order,” he is particularly expert on regional ties with Russia and China and has also written for the Carnegie Endowment and for Trends Research and Advisory.
By Barbara Slavin, Distinguished Fellow, Middle East Perspectives
The meeting last week in Saudi Arabia between senior U.S. and Russian officials reverberated across the Persian Gulf in Iran, as well as in the South Caucasus and Europe.
Relations between Russia and Iran have improved significantly since the full-scale Russian invasion of Ukraine three years ago, including arms sales and cooperation in space, and culminating in a major partnership agreement signed during a Moscow summit in January 2025. Though historically distrustful of each other, Tehran and Moscow appeared to be solidifying an axis in military and political realms. The latest example came on February 18, when a trilateral plan was drawn up between Azerbaijan, Russia and Iran to construct the remaining Rasht-Astara railway section in the International North-South Transport Corridor.
Yet close ties with Russia are not guaranteed and could be severely undermined by a potential Russia-U.S. understanding over Ukraine. Much of Russia’s push to build closer ties with the Islamic Republic stemmed from the need to acquire new weaponry and find ways to circumvent Western sanctions.
One area of growing alignment has been bank-to-bank cooperation in non-dollar trade, which was mentioned in Article 20 of the Iran-Russia Comprehensive Strategic Partnership Agreement signed in January.
In December 2022, Russia’s major bank, VTB, launched money transfers to Iran, and in May 2023, the bank established a representative office in Tehran. In 2023, Tehran and Moscow connected their national analogues of SWIFT – the Russian Financial Messaging System (SPFS) and the Iranian SEPAM. This enabled the two countries’ banks to directly exchange transaction information.
Since September 2023, transfers in rials likewise became available to the clients of Sberbank, another major Russian bank. Roseximbank also provides transfer services in rubles and rials to facilitate Russian exports.
The leading institution in Russian-Iranian cooperation is the Iranian Mir Business Bank, a 100 percent subsidiary of another Iranian financial institution, Melli Bank. Mir Business Bank opened in the Russian cities of Astrakhan and Kazan in October 2023and since last summer, Russians have been able to use Mir Business Bank cards to pay in rials during trips to the Islamic Republic.
In July 2024, a swap agreement in national currencies was signed between Iranian and Russian central bank,s which completed the integration of the Russian payment system “Mir” with the Iranian system Shetab. In November, the first stage of the project to unite the payment systems of the two countries was initiated with Iranian nationals able to withdraw cash from Russian ATMs. In a second stage of the project, Russian tourists are expected to be able to withdraw cash in Iran using Russian bank cards. A third stage of the integration of Mir and Shetab is also envisaged, though no details have been released.
While progress has been significant, Iranian regulations remain a significant hurdle to financial integration. Iran’s maintenance of multiple exchange rates is one impediment and Russian business people and tourists often find it easier to bring cash into Iran to avoid unfavorable rates of currency conversion and the perils of the black market. Another problem, reported by Russian sources, is that Iranian cards still work on a magnetic strip, while Russian banks started using chip cards some years ago.
In November 2024 Iran and Russia abandoned the use of the dollar in mutual settlements and began using national currencies for trade clearance. Last year, the share of national currencies in mutual settlements between Iran and Russia increased by 12.4 percent and covered more than 96 percent of country-to-country trade dealings. Also in 2024, Russia and Iran increasingly turned to digital assets to circumvent Western financial restrictions. According to Cryptonews, sanctioned entities received some $15.8 billion worth of cryptocurrency.
Yet all of this could be at risk if U.S. sanctions on Russia are eased as part of a cease-fire deal over Ukraine.
Already commentary in the Iranian media has begun wondering whether U.S.-Russia talks in Saudi Arabia over potential resolution of the Ukraine crisis were not also about Russia curtailing relations with Iran. Dmitry Peskov, Russian president’s press secretary, tried to soothe Iranian fears by insisting that the bilateral cooperation between Tehran and Moscow is unrelated to what happens between Russia and the U.S.
The reality is likely more complicated. While President Donald Trump has spoken of his desire for a diplomatic resolution to the Iranian nuclear program, in early February he also signed a memorandum reimposing so-called “maximum pressure” on the Iranian economy to reduce Iran’s ability to sell oil. These measures are likely to exacerbate the Islamic Republic’s difficult economic situation and push it to seek closer ties with Russia and China.
Russia’s critical strategic interests are broader, however, in the wider Black Sea region, the Caucasus, Ukraine and beyond. Should the West lift sanctions on Russia, Russia might drop its unofficial support for Iran’s nuclear ambitions and cut back on imports of Iranian weaponry.
With the prospect of a Ukraine cease-fire and better U.S.-Russia ties under the second Trump administration, financial integration with Iran may also no longer seem as urgent or attractive to Moscow. Indeed, at the recent Munich Security Conference, Keith Kellogg, Trump’s Ukraine envoy, argued that the U.S. intends to break Russia’s ties with the Islamic Republic as part of its new diplomatic push.
Given Russian distrust of the West, it is unlikely that Russian leaders would completely sever military and financial cooperation with Iran. But Iran needs to keep that possibility in mind as it contemplates negotiations with the Trump administration over the Iranian nuclear program and regional posture. Moscow, for its part, may seek a more balanced foreign policy between the West and Iran, fearing that dependence on Iran could backfire in the longer run.
Emil Avdaliani is a professor of international relations at the European University in Tbilisi, Georgia, and a scholar of Silk Roads. He can be reached on Twitter/X at @emilavdalia
Iran Fears US-Russia Reconciliation Could Come At Its Expense
By Emil Avdaliani
Middle East & North Africa
Editor’s Note: From his base in Georgia, academic Emil Avdaliani follows regional security and economic trends and contributes frequently to Stimson on these topics. The author of a recent book, “China, Russia and New Eurasian Order,” he is particularly expert on regional ties with Russia and China and has also written for the Carnegie Endowment and for Trends Research and Advisory.
By Barbara Slavin, Distinguished Fellow, Middle East Perspectives
The meeting last week in Saudi Arabia between senior U.S. and Russian officials reverberated across the Persian Gulf in Iran, as well as in the South Caucasus and Europe.
Relations between Russia and Iran have improved significantly since the full-scale Russian invasion of Ukraine three years ago, including arms sales and cooperation in space, and culminating in a major partnership agreement signed during a Moscow summit in January 2025. Though historically distrustful of each other, Tehran and Moscow appeared to be solidifying an axis in military and political realms. The latest example came on February 18, when a trilateral plan was drawn up between Azerbaijan, Russia and Iran to construct the remaining Rasht-Astara railway section in the International North-South Transport Corridor.
Yet close ties with Russia are not guaranteed and could be severely undermined by a potential Russia-U.S. understanding over Ukraine. Much of Russia’s push to build closer ties with the Islamic Republic stemmed from the need to acquire new weaponry and find ways to circumvent Western sanctions.
One area of growing alignment has been bank-to-bank cooperation in non-dollar trade, which was mentioned in Article 20 of the Iran-Russia Comprehensive Strategic Partnership Agreement signed in January.
In December 2022, Russia’s major bank, VTB, launched money transfers to Iran, and in May 2023, the bank established a representative office in Tehran. In 2023, Tehran and Moscow connected their national analogues of SWIFT – the Russian Financial Messaging System (SPFS) and the Iranian SEPAM. This enabled the two countries’ banks to directly exchange transaction information.
Since September 2023, transfers in rials likewise became available to the clients of Sberbank, another major Russian bank. Roseximbank also provides transfer services in rubles and rials to facilitate Russian exports.
The leading institution in Russian-Iranian cooperation is the Iranian Mir Business Bank, a 100 percent subsidiary of another Iranian financial institution, Melli Bank. Mir Business Bank opened in the Russian cities of Astrakhan and Kazan in October 2023and since last summer, Russians have been able to use Mir Business Bank cards to pay in rials during trips to the Islamic Republic.
In July 2024, a swap agreement in national currencies was signed between Iranian and Russian central bank,s which completed the integration of the Russian payment system “Mir” with the Iranian system Shetab. In November, the first stage of the project to unite the payment systems of the two countries was initiated with Iranian nationals able to withdraw cash from Russian ATMs. In a second stage of the project, Russian tourists are expected to be able to withdraw cash in Iran using Russian bank cards. A third stage of the integration of Mir and Shetab is also envisaged, though no details have been released.
While progress has been significant, Iranian regulations remain a significant hurdle to financial integration. Iran’s maintenance of multiple exchange rates is one impediment and Russian business people and tourists often find it easier to bring cash into Iran to avoid unfavorable rates of currency conversion and the perils of the black market. Another problem, reported by Russian sources, is that Iranian cards still work on a magnetic strip, while Russian banks started using chip cards some years ago.
In November 2024 Iran and Russia abandoned the use of the dollar in mutual settlements and began using national currencies for trade clearance. Last year, the share of national currencies in mutual settlements between Iran and Russia increased by 12.4 percent and covered more than 96 percent of country-to-country trade dealings. Also in 2024, Russia and Iran increasingly turned to digital assets to circumvent Western financial restrictions. According to Cryptonews, sanctioned entities received some $15.8 billion worth of cryptocurrency.
Yet all of this could be at risk if U.S. sanctions on Russia are eased as part of a cease-fire deal over Ukraine.
Already commentary in the Iranian media has begun wondering whether U.S.-Russia talks in Saudi Arabia over potential resolution of the Ukraine crisis were not also about Russia curtailing relations with Iran. Dmitry Peskov, Russian president’s press secretary, tried to soothe Iranian fears by insisting that the bilateral cooperation between Tehran and Moscow is unrelated to what happens between Russia and the U.S.
The reality is likely more complicated. While President Donald Trump has spoken of his desire for a diplomatic resolution to the Iranian nuclear program, in early February he also signed a memorandum reimposing so-called “maximum pressure” on the Iranian economy to reduce Iran’s ability to sell oil. These measures are likely to exacerbate the Islamic Republic’s difficult economic situation and push it to seek closer ties with Russia and China.
Russia’s critical strategic interests are broader, however, in the wider Black Sea region, the Caucasus, Ukraine and beyond. Should the West lift sanctions on Russia, Russia might drop its unofficial support for Iran’s nuclear ambitions and cut back on imports of Iranian weaponry.
With the prospect of a Ukraine cease-fire and better U.S.-Russia ties under the second Trump administration, financial integration with Iran may also no longer seem as urgent or attractive to Moscow. Indeed, at the recent Munich Security Conference, Keith Kellogg, Trump’s Ukraine envoy, argued that the U.S. intends to break Russia’s ties with the Islamic Republic as part of its new diplomatic push.
Given Russian distrust of the West, it is unlikely that Russian leaders would completely sever military and financial cooperation with Iran. But Iran needs to keep that possibility in mind as it contemplates negotiations with the Trump administration over the Iranian nuclear program and regional posture. Moscow, for its part, may seek a more balanced foreign policy between the West and Iran, fearing that dependence on Iran could backfire in the longer run.
Emil Avdaliani is a professor of international relations at the European University in Tbilisi, Georgia, and a scholar of Silk Roads. He can be reached on Twitter/X at @emilavdalia
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