Farhad Parand

A New Level in Iranian-Russian Economic Relationship: Opportunities and Challenges

Date of publication : September 1, 2017 23:29 pm
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Pedestrians pass a Bank Otkritie FC bank branch in Moscow, Russia, on Thursday, Aug. 31, 2017

Within Iran's neighborhood, Russia's big consumer market is one of top priorities for Tehran to develop its economic and commercial ties. Reading economic history of Iran and Russia, one realizes the ebb and flow of bilateral trade performances. Recent deterioration of Russian relationship with some powerful western states and Turkey on Ukraine Crisis and Jet shootdown respectively, has made Tehran and Moscow forge in a more diplomatically and economically cordial terms. As a sign of proof, the heads of states of Iran and Russia held a summit five times over a year ago meaning a friendly relationship in economic affairs. However, a key question is how to turn the current fluctuating cooperation into a strategic one (i.e. sustainable and continuous), when dealing with financial and commercial sectors? This paper will go into detail about opportunities and obstacles to Iran's bilateral trade ties with Russia and conclude the argument with some recommendations for a robust relationship
 
Current Status of Bilateral Economic Ties
 
Iran is Russia's 60th export market and is ranked number 53 for Russian imports. Among Iran's main export goods to Russia are fresh and dried fruit, fresh and canned vegetables, tomato sauce, date, salt and Sulphur, organic chemical goods, plastic goods, medicine, glass, carpet, automobile, goods making out of iron and cement, to name but a few. Iran, on the other hand, imports Russian goods including flat rolling products, wheat, wood, barley, iron, steel, feed grain, coke and semi-cock, coal, sunflower oil, hot rolling bars, newsprint paper, carbon electrode and products of the mixed rolling steels. The chart shows the volume of trade plus balance of trade between Iran and Russia during the past ten years.

 
Iran-Russia Trade Flows and Balance (Value Mio $)
Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2Q 2016
Export 367 349 332 336 370 501 317 296 173 47
Import 863 1370 884 425 759 1631 688 639 517 538
Balance -496 -1021 -552 -89 -389 -1130 -371 -343 -344 -491
Total trade 1230 1719 1216 761 1129 2132 1005 935 690 585
Source: IRICA
 
As the Western-led sanctions has been inflicting increasing toll on Russian economy, Tehran-Moscow newly cordial political relations pave the way for enhancing bilateral economic ties in various sectors. In that regard, successive Iranian governments have been paid their attention to non-oil exports strategy, included in the twenty-year Grand Vision Plan and the 6th Five-Year Development Plan (FY2016-FY2020). Of particular importance is the central role of the neighboring countries including Russia playing in the Iranian exporting grand strategy. What factors enhance the bilateral economic ties varies from geography to culture, to history, to market. Short Caspian Sea corridors, Iran’s overland transit route to East and South Asia, highly fertile soil and good weather conditions in Iran, cultural and historical commonalities between Iran and some ethnic groups in southern Russia and lastly, Iranian rising market for Russian traders are among significant factors the Iranian-Russian economic ties need to take advantage.
 
Existing obstacles to bilateral economic ties
 
In macroeconomic terms, one of the obstacles to economic cooperation between the two states lies within banking sector. Despite some formal agreements, hindrances to financial transactions and credit line, to name but a few, still remain in place. Russian international banks keeping a low profile in Iran along with loose interbank connectivity result in limited bilateral economic ties. In addition, Russia’s quality standard system is not compatible with that of Iran; thus, a strict and complicated procedure should be carried out for any Iranian goods entry into the Russian market. Problems related to insurance and credit lines for Iranian projects as well as lack of tariff preferences between the two states and high rate of customs tariff for Iranian exporting goods are among obstacles in the way of Iranian-Russian trade ties.
 
Shortages of road, sea and air corridors, lack of refrigerated containers for transportation of temperature sensitive cargo, total ban on Iranian vessels to docking at 35 harbors (out of 40 ones) in Port of Astrakhan, irregular schedule for RORO ships in the Caspian Sea and discriminatory practices against Iranian vessels and temperature sensitive cargo in particular, at the Russian harbors are among the challenges Iranian traders are facing in the Russia’s market.
 
Unfortunately, the following factors, as yet, have hindered the Iranian businessmen success in Russia’ market: the low diversity of exported merchandise to Russia, the low-quality and expensive Iranian products in some cases and the incapability of competing with other foreign products in Russia’ market, inappropriate packaging of exported products, Iranian businessmen’s shortcomings in proper marketing, communication and holding exhibitions as well as lack of full awareness and understanding of Russian market’s needs and tastes.
 
Measures for Expanding Economic Cooperation
 
A series of measures is taken to improve economic relations between the two countries. These measures are as follows:

- Holding the first industry, trade and investment workshop between two countries in September 2014;
- Export Guarantee Fund of Iran (EGFI) and Export Insurance Agency of Russia (EXIAR) signed an agreement in-principle on November 30, 2014 in Tehran;
- Iranian minister of industry, mine and trade and Russian minister of economic development signed a cooperation agreement on November 30, 2014 in Tehran;
- Iran’s Veterinary Organization and Russia’s Federal Service for Veterinary and Phytosanitary Surveillance signed an agreement in November, 2014;
- Holding 12th Iran-Russia Joint Commission meeting in November, 2015;
- Trade Promotion Organization and Islamic Republic of Iran Shipping Lines signed an agreement of launching regular shipping lines in Caspian Sea on June 6, 2015;
- Zero or low tariff for products such as pistachio, fish, shrimp, cabbage and raisin;
- Issuing the export permit of dairy, livestock and aquatic products to Russia’s market;
- An agreement on facilitating the issuing of visas was signed;
- Documents were signed to create green corridor between the two countries. 

Suggested Strategies to Enhance the Trade Volume between the Two States

- Negotiation with Eurasian Union to reduce the customs tariff;
- Establishing the joint Iran-Russia bank for investment and export financial support;
- Codification of a comprehensive marketing plan and mass media advertising in the two countries to increase the businessmen and manufacturers’ understanding of the potentials of the two countries;
- Strengthening the sea lanes, roads and air lines between the two countries to increase bilateral trade;
- Setting up a railway link between the two countries;
- Strengthening the legal infrastructure between the two countries;
- Establishment of Caspian Economic Cooperation Organization between the Caspian littoral states;
- Surpassing merchandise trade and moving towards using the whole economic cooperation methods;
- Holding conferences and seminars to introduce investment and export capabilities;
- Granting freight transportation and insurance subsidies to reduce the finished cost of products exported from Iran to Russia. 
 

NB: This article first appeared at "Russia-Iran Partnership: an Overview and Prospects for the Future", co-published by IRAS and RIAC.
 
 

Farhad Parand, a commercial counselor of Iran's embassy to Russia, is the senior fellow at IRAS.

 
 
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ID: 3322
Author : Farhad Parand