Russia is considering a deal to shovel $1.5 billion to Iran each month, according to an analysis of recent negotiations by the Jamestown Foundation, a think tank that specializes in Central Asia. The Iranian and Syrian foreign ministers were in Russia this week to discuss the latter country’s civil war, but the Iranian FM also met with Vladimir Putin to discuss trade possibilities. Jamestown reports:
Informed sources in the Russian government have confirmed that Moscow is in the process of finalizing an agreement to buy half a million barrels of Iranian crude a day, while Iran will buy Russian goods in exchange. At present, Iran exports only a million barrels a day as a result of United States and European Union sanctions aimed to curtail its nuclear program.
For perspective, such a deal between Russia and Iran could increase Iran’s oil exports by 50 percent, up to 1.5 million barrels a day (the peak of Iranian oil exports since the 1979 revolution was about 2.5 million barrels a day). The concessions from the Geneva deal were estimated by the Obama administration to be worth $6 or 7 billion (it might be more). This would send Iran that kind of value every four months.
This deal makes zero economic sense. Russia doesn’t need to import crude oil, since it has huge oil and gas reserves of its own; it doesn’t even have facilities that can import that much oil from Iran (let alone excess refining capacity) and it doesn’t really have a manufacturing economy that could send Iran $18 billion worth of useful goods a year. Thus, a source tells Jamestown, “The deal with Iran will not be simple barter—it will involve money—and since Russia did not undersign Western anti-Iranian sanctions, we are not obliged to wait for them to be removed.” Russia, of course, does have one mighty manufacturing sector: weapons.
In order to make this deal work, the report speculates, Russia will have to use a trick it did during the Cold War, when it “imported” illegal oil from Iraq during the Iran–Iraq War in exchange for sending Saddam Hussein weaponry — that Russia-bound oil actually went straight to Soviet friends that needed oil, such as India.
While it’s not clear how the loosening of Western sanctions in the Geneva deal affected this deal, it will be a huge boon to the Iranian economy regardless. Iran’s prospects have been recovering since the six-month agreement between Iran and the major powers was reached in November, and an oil deal like the one discussed will shred a lot of . Jamestown goes on to report that this deal could even be problematic for certain Russian interests: The oil and all the kickbacks probably can’t go through the major Russian oil companies, for fear of triggering Western sanctions on the firms involved. Instead, it will have to go through minor firms that are closely held by the security elite. The larger Russian economy certainly won’t benefit from boosting Iranian oil production and exports, since it needs oil prices to stay high — but all of this goes to show that such a deal is about a strategic alliance between Iran and Russia that’s devastating to Western interests and aims.