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Russia Opens Market for Iran

Iran enters the free trade zone with Eurasian Economic Union.

On October 27 Iran joins a free trade zone with the Russia-led Eurasian Economic Union. For Iran it means tariff concession on more than 500 trade items.

On Wednesday the head of the Eurasian Economic Commission Tigran Sargsyan and the Iranian Ambassador to Russia Mehdi Sanai exchanged diplomatic notes that all formalities to create a free trade zone have been completed.

It took three years to negotiate the Iran’s accession to the economic union. The first meeting of Mr Sargsyan and Mr Sanai on the matter took place in 2016.

“The negotiations were not a simple path, yet, now they have been successfully completed. The agreement has been signed and ratified. The result is obvious!” said Mr Sanai.

There is, no doubt, an economic component here – Iran, after all, is the key to Near and Middle East. Yet, the main reason why Russia decided to intensify the talks lies in politics.

The entire volume of mutual trade between the EAEU and Iran is estimated at $2.7 billion. For comparison, Iran’s trade with China is worth $40 billion and with the EU - $13 billion.

Iran takes negligible 0.25% of Russian export which puts it on the 50th place of Russia’s trading partners.

More significantly, Iranian goods are not of interest to Russia. Its main items are crude oil, natural gas and petroleum products. In addition, these are leather and forged products, nuts, raisins, fruits and vegetables. Russia has plenty of these.

In 2014, Russia and Iran singed an “oil-for-goods” deal. Moscow agreed to buy up to 5 million tons of Iranian oil a year in exchange for goods. Tehran had to spend half of the proceeds on Russian goods, primarily buses, trucks, pipes, planes, equipment for railways and airfields.

However, the execution of the deal was repeatedly postponed. Apparently, because of difficulties with settlement. Yet the real reason was that the US started to ease the economic pressure on Iran and it felt less compelled to continue with the agreement.

Then the United States withdrew from the nuclear deal and reintroduced the sanctions. Most foreign companies left Iran, the country's GDP dropped by more than 3%, unemployment reached 12% (among young people - up to 25%), inflation rose to 30%. It is not surprising, then, that Iran decided to return to trade negotiation with the EAEU.

There is a chance, of course, that the deal would significantly increases mutual trade between the EAEU countries and Iran.

Kazakhstan, for example, wants to supply wheat and other crops to Iran. Earlier, the Minister of Economy of Kazakhstan Timur Suleimenov estimated the capacity of the Iranian market for Kazakhstan goods at $8 billion.

Even so, it seems that the main goal here is political. Moscow does not want the Islamic Republic to yield to American pressure and strengthen its position in the Asian region.

Published: August 29, 2019