The Alliance of the Aggrieved (Part 2) - Russia and Iran
Deeper Economic Cooperation | Iranian Knowledge Transfer | Trade Route Investment
Dear BWR Subscribers,
“Barbershop Whispers….Russia” begins with “My Takeaways” on the main topic, followed by the main topic discussion. The last two sections of “Barbershop Whispers…Russia” are “Follow-ups” regarding previous publications and “Quick Bites” briefly addressing emerging events.
In last week’s BWR, I discussed the flowering alliance of convenience between Russia and North Korea.
In this week’s BWR, I discuss the deepening economic relationship between Russia and another member of the Aggrieved Alliance—Iran.
Takeaways:
ECONOMICS: Russia and Iran are the two most sanctioned countries in world history. As a result, their respective participation in the $110T global economy is limited and costly. The beneficiaries of this alliance are corrupt Russian and Iranian government officials and enabler countries capitalizing on the arbitrage opportunities created by the artificial market distortions. Hello China, Türkiye, UAE, India, and Brasil.
GLOBAL CITIZENS STATUS: In a short 10 years, Putin led Russia from a G8 member in good standing to the leader of the emerging alliance of the aggrieved and most sanctioned nation status. The latter milestone took decades for the infamous Islamic Revolutionary Guard Corps (IRGC) and the ruling Iranian mullahs to achieve.
CRITICAL MASS: The bilateral relationship and alliance of aggrieved Western-sanctioned countries do not have the economic or political bandwidth to seriously disrupt the Western-dominated World order. Without the backing of an organized and well-funded pool of support(s), they do more harm to themselves than to the Western-dominated economic system.
The Russian and Persian Empires have a history of five wars over three centuries. The last of the Russo-Persian wars ended in 1828. By this time, Persia had ceded to Russia what is today Armenia, Georgia, Dagestan, and much of the North Caucasus. Post-war relations after the Fifth Russo-Persian War saw Persia as a shadow of its former self. The Ottomans and the British contributed to the erosion of the Persian Empire’s power.
Sanctions and Trade:
Trade between Russia and Iran was $4B in 2023.
The Russia—Iran relationship, however complicated by influence competition in Syria, is a blossoming one founded on deep-seated anti-Western grievances, collective sanctions evasion knowledge, and their growing economic dependence on China. Russia and Iran share the distinction of being the most Western-sanctioned countries in the World.
Western sanctions have forced Russia and Iran to adapt to the expulsion from the mainstream global economy by developing new markets and trade routes. Adaptation has also resulted in greater economic and industrial machinery dependence on China. Today, China is Russia’s largest trading partner, accounting for more than 31% of all Russian exports and 38% of imports. Similarly, Iran relies on China for 90% of its oil exports and is the destination for 30% of Iranian exports, while Iran represents less than 1% of Chinese trade.
While there will always be an underlying mistrust between Tehran and Moscow, driven by history and influence competition in Syria, their aligned anti-Western interests and sanctions have brought them together to create a deeper relationship, ranging from weapons technology transfers to formal acceptance in regional organizations. For example, Shahed drones are now assembled in Kazan, and the Russians have enhanced the platform and transferred that knowledge to Tehran. Also, the Kremlin endorsed Iran’s membership in the Shanghai Cooperation Organization (SCO) in 2023.
The knowledge transfer from Iran to Russia regarding sanctions evasion practices is significant. Iran has been subject to Western sanctions for decades, much longer than Russia. One might argue that Russia has decades of Western sanctions evasion experience dating back to Soviet times. While that may be the case, time out of the game and technological advancements have made that Soviet-era knowledge obsolete. For that matter, Iran and North Korea are practicing masters of the art. They have developed discreet and fluid trade routes, established support services in non-aligned jurisdictions, payment and banking networks, and barter settlement platforms. The Kremlin is quickly adapting to the environment with the help of enablers and opportunistic arbitrageurs such China, India, the Gulf States, and Brasil.
In February 2023, the 17th meeting of the Russia-Iran Intergovernmental Commission on Trade and Economic Cooperation was held in Tehran. Russian Deputy Prime Minister Alexander Novak stated that a dozen bilateral cooperation agreements were signed, ranging from agriculture to energy and transport. Agreements in the energy and transportation sectors were the most important of these bilateral projects. It should be noted that Gazprom Chairman Alexei Miller was on a working visit to Iran when Putin led a high-level delegation to Beijing last month. His absence was significant given the time and effort the Kremlin has invested into Power of Siberia 2.
Last week, Iranian Oil Minister Javad Owji and Gazprom Chairman Alexei Miller signed a Memorandum of Understanding (MOU) on behalf of the National Iranian Gas Company (NIGC) and Gazprom, respectively, to deliver Russian gas to Iran and create a gas hub in Iran. Present at the signing of the MOU was Iran’s acting President Mohammad Mokhber, who stated:
"With this memorandum signed, Iran will become a regional gas hub…Tehran’s and Moscow’s intention to increase the level of relations sends an important signal to the whole world,…the two countries will lead to the signing of larger agreements and contracts,"
Other energy projects include the development of six Iranian oil fields as part of a $40B memorandum of understanding (MOU) signed with NIOC during a visit to Tehran by Putin.
Separately, the Kremlin is also pursuing its own gas hub project with Türkiye, which has the full endorsement and support of President Erdoğan.
Land Transport Corridor
On the transportation front, the Kremlin provides €1.2B, or 80% of the construction financing, for the Rasht-Astara railway.
This 163KM stretch includes nine stations, a vital International North-South Transport Corridor (INSTC) component. Russia and Iran agreed to build the stretch from Astara (Azerbaijan) through Rasht (Iran).
This project initially included financing from Azerbaijan, but the Azeris withdrew from the funding because they were concerned about repercussions from Western sanctions on Russia and Iran.
This past week, Iran and Russia celebrated the opening of the Rasht-Caspian Railway, a critical 37KM stretch of the INSTC that connects to Iran’s Caspian port. Acting President Mokhber and Russian Presidential Aide Igor Levitin participated in the event.
Conclusions:
Like the North Korean relationship, the Russia-Iran relationship is driven by the economics of Western sanctions and grievances against the West, particularly the EU and the US. Exclusion from the mainstream global economy, particularly the two largest economies in the World—the US and EU markets—does more harm to their economy's short-term and long-term competitiveness than it does to the Western-dominated global system.
Putin has taken Russia from a global citizen of good standing and a member of the G8 to the most sanctioned country in history.
Additional Reading(s)
China Lies about Its Oil Imports from Iran (Foundation for the Defense of Democracies, 6 May 2024, Policy Brief)
Explained: What is Rasht-Astara Railway (India Times, 23 May 2023)
Iran, Russia Inaugurate Rasht-Caspian Railway, Strengthening International Transport Corridor (Caspian News, 22 June 2024)
Follow-ups & Quick Bites
Follow-ups
North Korea May Send ‘Volunteers’ to Russian-Occupied Ukraine
According to Reuters, North Korea may send ‘construction workers and engineers’ to Russian-occupied Ukraine as fulfillment of its recent security agreement with the Kremlin.
US Air Force Gen. Pat Ryder, responding to a question in a press conference this past week, said:
“That’s certainly something to keep an eye on…I think that if I were North Korean military personnel management, I would be questioning my choices on sending my forces to be cannon fodder in an illegal war against Ukraine…”
The possibility of North Korean military personnel in Russian-occupied Ukraine resulting from the Russia/North Korean “Strategic Partnership” was raised in last week’s BWR issue, “The Emerging Alliance of the Aggrieved – Russian and North Korea”
Additional Reading(s)
The Emerging Alliance of the Aggrieved—Russia and North Korea, (Barbershop Whispers…Russia, 23 June 2024)
North Korea Offers 100,000 ‘Volunteers’ for War in Ukraine, (National Review, 5 August 2022)
Ukraine Situation Report: North Korea May Send Forces to Occupied Territories, (The War Zone, 26 June 2024)
Quick Bites
Auto Dealers File Complaint Against Chinese Automakers
The Russian Auto Dealers Association (RADA) submitted a complaint with the Federal Ant-Monopoly Service against Chinese auto manufacturers, accusing them of forcing excess inventory on them and not providing the proper technical and servicing support needed to service the Chinese cars. The first half of this year has seen dealers’ warehouses overstocked due to Chinese automakers’ plans to control 80% of the Russian market in 2024. Sergei Klimov, a co-founder of the Dolavto Auto, dealership, says Chinese car companies are also trying to force Russian dealers to sell non-core products, such as bicycles.
Dealers began voicing complaints about Chinese automakers in the second half of 2022. Most European, Korean, and Japanese brands had pulled out of the Russian market then, while Chinese manufacturers filled the vacuum.
According to Wards Auto, Russia’s top-selling automaker in 2023 was domestic producer AutoVAZ, maker of Lada automobiles. The next three biggest sellers were Chinese: Chery, Great Wall, and Zhejiang Geely.
Additional Reading(s)
Russian Auto Dealers Clash with Chinese Manufacturers(Wards Auto, 24 June 2024)
Vol 2, No 30 - BWR 30.06.2024
Thank you for reading “Barbershop Whispers....Russia” written by Adam A Blanco! “Barbershop Whispers…Russia” is a product of e8Q Technologies, a consultancy with insights on all things Eurasia. Subscribe for free to receive new posts.
The Iran to India railway development is fascinating. Key takeaway for me is
importance of Azerbaijan