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China’s presence in Iran economy may hamper oil-for-goods deal with Russia

Business Materials 15 September 2017 22:02 (UTC +04:00)
The oil-for-goods agreement between Russia and Iran is still on the way to its finalization point. However, there are concerns regarding the importance of the deal for Iran.

Baku, Azerbaijan, Sept. 15

By Ali Mustafayev – Trend:

The oil-for-goods agreement between Russia and Iran is still on the way to its finalization point. However, there are concerns regarding the importance of the deal for Iran.

Iran is not likely to be interested in the amount of goods offered in return for its oil because of Chinese presence in its trade turnover, especially considering the size of the planned goods supply worth $45 billion per year.

“The $45 billion figure is unrealistic as it is slightly more than the overall volume of Iran’s imports in the last fiscal year and there is no such a large market gap in Iran for it. Iran is already awash with inexpensive Chinese goods, and Russia and other regional countries find it difficult to compete with Beijing,” said Ahmad Khalid Majidyar, an analyst with the Middle East Institute.

He added that currently, the entire trade turnover between Moscow and Tehran stands at below $3 billion a year and only major arms sales and construction projects could be feasible alternatives to a certain extent.

Chinese presence is added to the overall picture of discontent inside Iran. Most of the officials opposed the decision to sell oil for Russian goods. Rouhani’s government, in turn, claimed that Russia will pay 50 percent of the oil value in cash. However, it is still not clear if Moscow will accept that.

“If the deal comes to fruition, it will certainly constitute the key pillar of economic cooperation between Tehran and Moscow,” said Khalid Majidyar.

In May, Iranian Oil Minister Bijan Namdar Zanganeh said Tehran and Moscow signed an agreement whereby Iran will sell crude to Russia in exchange for products.

Later, Russian Trade Representative in Iran Andrei Lugansky said Russia can supply Iran with goods worth $45 billion within the framework of this program. The agreement still remains in revision process.

Iranian oil exports decreased by 50 percent after international sanctions against the country were tightened in 2001 due to a dispute over Tehran’s nuclear program.

The country plans to raise oil output by about 200,000 bpd to around 4 million bpd by the end of 2017.

Iran was exempted from the OPEC deal to reduce output to regain market share after Western sanctions over its disputed nuclear program were lifted in January 2016.

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