Iran-Russia ties: economy versus diplomacy

Baku, Azerbaijan, Nov. 30

By Umid Niayesh – Trend:

Despite the fact that Iran and Russia enjoy very close political ties at a strategic alliance level, the alliance is not reflected in trade ties.

The sides have failed so far to boost the volume of the trade, as obstacles still exist. After the tension between Moscow and West escalated in recent years, there was a big opportunity for Iranians to pave their way to Russia’s food market, but the expectations did not materialize due to various obstacles.

Experts believe that shortcomings in banking ties, transportation issues, lack of proper marketing and unawareness of the Russian market’s capacities, different hygienic standards applied in the two countries and low quality of Iranian products, visa complications, the tendency to consume European goods by Russians and a lack of reciprocal trust between merchants of the two sides are among the main obstacles ahead of Iranian exporters to find a foothold in Russian market.

Some Iranian businessmen are satisfied that the trade relations, which have been hampered for many years, will not be established overnight.‎

Earlier, Secretary General of Iran's Aquatics Producers' Association Ali Akbar Khodaei said that the export of aquatics to Russia is a long process and needs much ground preparation.

The two parties also have established an arrangement of oil for goods barter, which is expected to come into force in the near future.

The arrangement dates back to 2014 when Iran tried to boost vital energy exports in the face of intensified Western sanctions. At the time, it was said that Moscow and Tehran were discussing a barter deal that would see Moscow buy up to 500,000 barrels a day (bpd) of Iranian oil in exchange for Russian equipment and goods.

Hereinafter, we will take a look at the Islamic Republic’s trade with Russia in recent years, comparing the trade value before intensification of the international sanctions against Tehran in 2012, under the sanctions, and in post-sanctions era.

The figures show that Iran-Russia trade balance was in favor of Moscow in all years of the study period.

Despite the fact that Iran’s exports to Russia did not witness big changes in these years, the country’s imports have experienced significant fluctuations.

Russia’s exports to Iran jumped by 115 percent to $1,632 million in the fiscal year of 2012/2013, when the intensified sanctions hit Iran’s economy. However the figure decreased by 58 percent in the succeeding year and did not revive till the removal of international sanctions in 2016.

In 2016/2017 Russia’s exports to Iran hiked by 198 percent to $1,541 billion.

Comparing the prices of the exported and imported goods, indicates that Iran’s exports to Russia were more valuable goods in comparison to Russian ones.

Food, agricultural products and cement form the lion share of Iran’s export basket to Russia.

The following table, extracted from the data of Iran’s state-run Trade Promotion Organization (TPOI) and Tehran Chamber of Commerce shows Iran’s non-oil trade values with Russia in recent years.

Despite the fact that Russia’s exports to Iran flourished during the first year following the removal of the sanctions, the latest statistics by Iran’s Customs administration indicate that the trend has changed downward again.

Russia exported $419 million worth of goods to Iran in the first seven months of the current fiscal year (started March 20, 2017), 63 percent less year-on-year.

However, the volume of exports was 909,000 tons, 1 percent more compared to the seven-month period of the preceding year. This indicates that the Russia has exported more goods but with less value to the Islamic Republic in the period.

On the other hand, Iran’s exports to Russia accounted to $228 million in the first half of 2017, 36 percent more year-on-year, a sign that Iran is gradually increasing its share from Russia’s food market.