In the aftermath of the November 24, 2013 Geneva agreement between Iran and the P5+1 (the U.S., China, France, Russia plus Germany), Iran has improved diplomatic and economic ties with most of its neighbors. However, Iranian leaders remain dissatisfied with the low volume of trade with Russia.

From a geo-political context, it would seem natural that Iran would want to build a viable economic connection with Russia. Fostering a vibrant economic relationship between the two countries, however, requires more than addressing bureaucratic and legal hurdles. In fact, Iran has to compete with China over the quality and price of exports to gain a greater share of the entire Russian market.

Last month, Gholam Hussein Shafie, the CEO of the Iran Chamber of Commerce criticized Russia for exporting two billion dollars in exports to Iran. He argued that the uneven volume of trade between the two countries placed Iran in a vulnerable position since it only exports $700 million dollars in products to Russia.

In response, Levan Ezhagaryan, the Russian ambassador to Iran met with Yahya Al-e Eshaagh, the CEO of Tehran Chamber of Commerce to address hurdles and restrictions that have decelerated trade between the two old neighbors. Diplomatically, both countries have enjoyed friendly ties, specifically in regard to Russia’s technical and political support of Iran’s nuclear program, as well as Russia’s opposition to the majority of international sanctions imposed on Iran.

The weekly, Tejarat-e farda published Ezhagaryan and al-e Eshaagh’s full discussion, offering a glimpse into the hurdles that both countries have to overcome. The conversation began with Al-e Eshaagh explaining that the Tehran Chamber of Commerce aims to build stronger economic ties with Russia by the next Iranian calendar year. Before these stronger ties could be established, he conveyed that a functional legal framework should be established between the two countries.

Ezhagaryan welcomed Iran’s enthusiasm, stating that Russia shares the same goal. Both sides agreed that an increased flow of goods and services would allow Iran to reach Central Asian markets through Russia. In addition, Russia would be able to trade with Iran’s neighbors to the south and west more easily due to Iran’s longstanding customs and trade agreements with its neighboring countries.

With regards to international sanctions, Ezhargaryan said these measures had restricted banking and transportation of goods between the two countries, even though “Russia had always treated Iran as a friend.”

According to Al-e Eshaagh, as a result of the Geneva agreement, six European banks and a number of Asian banks have renewed their ties with Iran, while the Russians have hesitated to do so. The Russian ambassador responded that while several Russian trade delegations had visited Tehran, Iranian delegations had not yet reciprocated the visits. Furthermore, he argued Russia had offered to buy oil from Iran through a barter for goods deal, but that Iran had not responded to the offer yet.

When Ezhargaryan inquired as to why the Iranian government had reacted slowly to Russian overtures, Al-e Eshaagh responded that Iran and Russia should form a joint trade committee to establish a formal and mutually agreed roadmap that would permit full implementation of future trade agreements.  He added that both Iranian and Russian businessmen generally do not have sufficient knowledge of each other’s market, and this has posed a great hurdle to the expansion of trade.

The discussion became somewhat contentious when the Russian ambassador added that his country imported up to $80 billion dollars from China every year. He emphasized that Iranian products outshine Chinese ones in quality, especially in the field of petrochemicals. He proposed, however, that if Iran is interested in boosting trade with Russia, it should offer lower prices than China.

The Tehran Chamber CEO answered calmly that Iran’s products are cheaper and better made than Chinese ones. He suggested that Russia expand its economic ties with Iran in order to experience the quality first-hand. In his view, exhibitions and conferences allow for both sides to become well acquainted with each other’s capabilities and strengths. Al-e Eshaagh said Iran can offer Russia engineering and technical services in the field of construction. Currently, Iran has a surplus of 3,000 experienced contractors who are ready to participate in joint ventures between Russia and Iran.

An Iranian delegation is set to visit Moscow in April. As Iran and Russia take steps to build viable economic relations, both sides should assess their own markets in order to better articulate their domestic capabilities to potential trade partners. Since the latest round of international sanctions did not create a wedge between the two countries, Iran expects Russia to recognize its high quality textile exports and cooperate further in the oil and gas sector. At the present moment, Russia remains interested in the potential to boost trade with Iran, as long as the latter is willing to outbid its Chinese competitors.

 

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