TEHRAN – As major players in the world and West Asia’s political and economic scene, Iran and Russia have been expanding political and economic ties for many years, however, the relations between the two countries have entered a whole new level over the past few months.

The imposition of sanctions on both countries has been a major factor in bringing the two sides closer together, making them a strong alliance against U.S. pressures. Over the past few months, senior officials from the two sides have been meeting and visiting each other to consolidate bilateral cooperation in various fields, including energy, oil, gas, and transit, as well as diplomatic and political relations.

As the most significant event among the mentioned exchanges, Russia’s President Vladimir Putin visited Tehran on Tuesday to attend the 7th Summit of the Guarantor States of the Astana Process.

During his visit to Tehran Putin met with Leader of the Islamic Revolution Ayatollah Seyed Ali Khamenei and President Raisi and exchanged views on the recent development in the world and in the relations between the two countries.

In these meetings, the two sides reached new agreements and stressed the need for taking the necessary measures for broadening political and economic ties between the two countries in order to nullify the impacts of the U.S. sanctions.

Using national currencies: an end to the dollar dominance

During his meeting with President Putin, Leader of the Islamic Revolution Ayatollah Khamenei said global developments entail mutual and growing cooperation between Iran and Russia. He stressed the need for the two countries to implement a monetary agreement to use national currencies for trade exchanges.

The talks over using the national currencies in trade exchanges have been ongoing between Iran and Russia for years and the two sides have even implemented the idea in some of their exchanges over the past few years, however, the imbalance in the level of trade between the two sides have been a major impediment in the way of the full realization of the mentioned goal.

In the meeting with Putin, the Leader stressed the necessity of implementing the agreements and contracts between the two countries, saying such collaborations will benefit Tehran and Moscow in the distant future.

He advocated the use of national currencies in the trade between the two countries and also using other currencies instead of dollar, suggesting, “Dollar should be slowly removed from the path of global transactions, and this is possible step by step.”

The Leader emphasized that economic cooperation between Iran and Russia, especially in the wake of Western sanctions, is necessary for securing the interest of both countries.

Outlook of a free trade agreement

Among other issues, Tehran and Moscow have been negotiating a free trade agreement to ensure acceleration in the economic relations between the two countries.

According to Kambiz Mir-Karimi, the deputy head of the Iran-Russia Joint Chamber of Commerce, the two sides have been implementing a preferential agreement that is applied to several commodity items since 2018, however, turning this preferential agreement into a free trade agreement would mean that 80 percent of the items exchanged between the two countries will be subject to free trade and will have zero tariffs.

“Negotiations on this issue are progressing rapidly, as Iran is also in talks with the Eurasian Economic Union (EAEU)to reach a free trade agreement as well,” he said.

Surge in transit through Iran

The war between Russia and Ukraine has had various political and economic consequences for all the countries in the world and in the region, among which the shift in the usual routes for commodity transportation is of significant importance.

As major suppliers of foodstuff and cereal in the world, both Russia and Ukraine have been facing difficulties in sending their products to destination markets, thus looking for new ways for distributing their commodities.

In this regard, the International North-South Transport Corridor (INSTC) has become a major focal point for Russia to achieve its trade goals, and once again, this has brought Iran to the center of attention for the federation as a significant part of the mentioned corridor passes through Iran on the way to access South East Asia.

To this end, Russia has recently signed an agreement with Iran for the transit of up to $10 million worth of goods through the Islamic Republic. The country is also making new investments in Iran’s transportation projects along the INSTC routes.

Final words

The new developments in the political relations between Iran and Russia depict a bright outlook for the two countries’ economic relations as well.

However, in the economic sense, the important issue that should be taken into consideration is that the trade exchanges between the two sides should be balanced as soon as possible otherwise the realization of the economic targets set by the leaders of the two countries would be difficult if not impossible.

Currently, Iran’s imports from Russia are three to four times more than the exports to the country, so if the two countries are to use their national currencies for trade, this imbalance would result in a lack of Ruble for Iranian traders to pay for the imported goods.

The best way to compensate for this shortage is for Russia to invest in Iran for the joint production of the goods that are demanded in Russia. Also, investment in transportation and transit projects in the Caspian Sea region can benefit both sides, as it will increase the volume of transit through Iran, and this way, the Islamic Republic can also access third markets in East Europe and especially in the EAEU region more easily to export its commodities to the said region.

EF/MA