Oil Barter Deal: Another Russian Kool - Aid to Drink?

Bahram Amir Ahmadian

AAmid the mounting Russia-Ukraine crisis, Iran and Russia's recently announced $20 billion oil-for-goods trade deal has sparked global attentions and raised various reactions from politicians and experts of the field. Thus, the time is opportune to take a look at the current status of the two countries in terms of their economic and political relations.
Iran and Russia are both crude oil exporters. The sanctions on the Iranian oil sector reduced its crude oil exports and revenue dramatically during the past few years. However, the Geneva interim nuclear agreement opened the door for some modest relief in sanctions under which Iran could access some of its frozen oil revenue and the Asian oil tycoons including India, China, South Korea and Japan could resume their cooperation with Iran as the main importers of Iranian crude oil, in return for products needed in Iran such as consumer durables and non-durables, industrial products, technical and engineering services, machinery and technology. The development helped the beleaguered economy of Iran experienced partial recovery.
In the meantime, while being an exporter of energy, raw materials, metals, wood and wood products (accounting for 65% of the government's budget), Russia imports similar goods however, unlike Iran from European countries as its main energy export partners and consequently with higher quality.
Not being an OPEC member, Russia has used the opportunity to act as a price buster during energy crisis period by increasing production and offering low prices and consequently influencing OPEC prices to its interests. (As of 2000, Russia could recover from economic crisis by huge oil exports and revenue).
As to Iran's controversial nuclear program, the Russians always rendered support to the UN Security Council resolutions against Iran and not only did not veto or abstained but also voted for them.
As Iran holds the world's second-largest reserves of natural gas, Russia considers Iran as an energy rival and a threat to her own strong presence in the European energy markets where she wants to maintain monopoly in order to use it as a political lever. Therefore, Russia will never allow the Iranian gas to flow in the European markets. Instead, Russia encourages Iran to export gas to Pakistan, a country that cannot afford the costs and has no potential to make investment in this sector. Given the positive developments in the relations between Iran and the West and serious energy challenges faced by the Europe, it is high time for Iran, to fulfill Europe's energy needs. Nurturing a strategic relationship between Iran and Europe in the energy field will be an important development as it can transform Iran into an influential economic power internationally and pave the ground for Europeans to make investment in energy sector of Iran in terms of exploitation and exports.
Given the above facts, it can be easily concluded that Russia is an energy exporter and does not need to import energy. Moreover, in the absence of any obstacles and having the largest oil tanker fleet in the world, Iran can directly export oil to the world markets without Russia's assistance. Geographically speaking, Russia, as a northern neighbor, shares the landlocked Caspian Sea as her common border with Iran. With our export terminals located in the Persian Gulf, if the oil barter deal is a tool to bypass the sanctions, it will not be neglected by those imposing the sanctions. This time they will press Russia to prevent it. Besides, due to the recent her recent conflicts with Ukraine, Russia is currently facing sanctions that are expected to grow. This will adversely impact Russia's banking transaction and Iran's oil export revenue (Annually $20 billion equal to one third of Iran's oil revenue at the time of economic boom by exporting 2.5 million barrels of crude oil per day) could this time be blocked in Russia.
In 2005, when Iran planned to extend Iran-Armenia gas pipeline to Georgia, Russia subdued the plan by acquiring the possession of the Armenia's gas pipeline structures in return for the latter's debts. Now the motivations behind Russia's eagerness to enter oil market of Iran remains unknown.
Iran spent billions of dollars to set up infrastructure for Caspian crude oil swap that can currently swap one million barrels of crude oil per day. While the facilities have not been utilized operationalized due to inefficient policies of the previous government, Russia could play an active role in encouraging ex-Soviet states under his dominance namely Turkmenistan and Kazakhstan (partly Azerbaijan) to cooperate with Iran and utilize the potential. However, Russia chose to remain indifferent. The Supreme Leader of Iran is eagerly looking forward to a day when Iran can grow economically without dependency on oil exports. The government has to manage these opportunities efficiently.
Russia, herself, is currently under sanctions and cannot relieve the burden of sanctions off Iran's shoulder. Therefore, it would be a huge mistake of Iran to put all her eggs in one basket. Throughout the history, Russia has always proved herself to be an unreliable partner for Iran. As a proof to Russia's constant failure in fulfilling her fragile promises to Iran, it is worthwhile to look, in retrospect, at some of the instances. Amid the heightened tensions between Iran and the West over Iran's disputed nuclear program and the threats of war, Russia suspended the contract signed between the two countries in 2007 to supply S-300 missile defense to Iran. Constant delay in the completion of Bushehr Nuclear Power Plant is another indication of Russian inefficiency. Since the outbreak of war in Chechnya in North Caucasus, Russia closed the only border road, in Azerbaijan's border with Dagestan, only to the Iranian trucks despite heavy volume of trade exchange between the two countries. Requiring official invitation letters form Iranian applicants to issue entry visa is another sign of distrust on the part of Russia toward Iran.
A quick glance at Iran-Russia trade figures indicate that Iran's exports to Russia is very humble in comparison to large-scale imports. With this in mind, how could we expect a sudden 10-fold increase in the current trade volume and figures? Which goods, in what markets and how are going to contribute? In any business relations, it is very important for the goods, the seller, the buyer and the market to reach stability through processes that require time to develop. These questions have not been answered yet and lack of transparency on the part of the government has further complicated the matter for the public to understand.