Will Russia benefit from a failed Iran nuclear deal?

Russia might benefit marginally from a collapsing Iran nuclear deal but it does not see it as a positive development.

by
    Russian President Vladimir Putin and Iranian President Hassan Rouhani pose for a photo during their meeting in Qingdao, China, on June 9, 2018 [AP/Alexander Zemlianichenko]
    Russian President Vladimir Putin and Iranian President Hassan Rouhani pose for a photo during their meeting in Qingdao, China, on June 9, 2018 [AP/Alexander Zemlianichenko]

    On May 8, US President Donald Trump announced his decision to withdraw from the Iran nuclear deal and re-impose tough sanction on Iran. This move sent his European allies scrambling to save the deal, while Iranian officials rushed to China and Russia to seek reassurance.

    Meanwhile, some analysts have suggested that Moscow stands to benefit from Trump's decision to leave the Joint Comprehensive Plan of Action (JCPOA) and is much more interested in preserving the US sanctions than lifting them. While there is some truth to these speculations, the reality is much more complicated than that.

    Does Russia benefit economically? 

    The sanctions that remained in place after the adoption of the JCPOA in 2015 completely suited Russian interests as they prevented many Western investors from entering the Iranian economy. On the other hand, they were hardly a barrier for Russian companies to enter the Iranian market.

    As a result, the whole of 2017 and the first quarter of 2018 was a period of unprecedented intense activity for Russian business in Iran.

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    Yet, the Russian government never wanted the full collapse of the deal and the imposition of tougher sanctions on Iran. The secondary sanctions that Trump's decision brought back do not really mean more economic opportunities for Russian companies.

    On the contrary, given its close economic relations and integration with the West, big Russian business will have to start decreasing its presence in the country. The Russian-Middle Eastern Export Center - a company established by Igor Chaika, the son of Russia's general prosecutor - was among the first to pull out; it was supposed to build desalination facilities in Iran. Then Russia's second-biggest oil producer Lukoil followed suit, declaring its decision to put on hold plans to develop projects in the country.

    There are high chances that another Russian oil company Tatneft will follow the example of Lukoil and also withdraw from negotiations with Iranian partners.

    Of course, the re-imposition of tougher US sanction will not necessarily mean that Russian-Iranian economic ties will be cut completely. They will definitely survive, but will be limited to a small number of joint projects such as the construction of the Bushehr and Sirik power plants, as well as some railway developments. State-owned Rosneft might also be compelled to stay in Iran due to political considerations in Moscow.

    However, Iran once again will become a no-go area for major Russian and Western investment, as it was before 2015.

    The impact of sanctions on ordinary Iranians

    Russia will also not benefit from Iran's withdrawal from the oil market. In the short-run, this might cause a temporary hike in oil prices, but Moscow is not really after such a development. Unlike the mid-2000s when Russian energy companies were blindly pursuing higher oil prices, today they are much more concerned about their stability than their constant growth.

    Russia is concerned that rising oil prices could encourage an increase in output by its energy rivals which could in turn boost the development of alternative energy resources and in the long-run shrink demand. That migh actually bring down oil prices permanently - something Moscow definitely wants to avoid

    The Russians are not interested in the further increase of oil prices. Currently, the Kremlin would like to keep them between $65 and $75 a barrel, as this would suit its domestic economic interests and would prevent the market from overheating.

    The potential drop in Iran's oil production coupled with the unfolding crisis in the Venezuelan oil industry might make achieving this task difficult.

    Does Russia benefit politically?

    Trump's decision to withdraw from the nuclear deal undoubtedly pushed Iran closer to Russia. At the same time, the tensions between the US and EU over the JCPOA provided the Kremlin with an opportunity to restore dialogue with the Europeans.

    Both German Chancellor Angela Merkel and French President Emmanuel Macronpaid visits to Russia in the past few months and it seemed that Moscow's status as a signatory of the JCPOA could be used to create a split in the Western anti-Russia camp.

    Russia, Iran jostle for influence in Syria

    Yet, Moscow does not see the collapse of the deal as a positive political development. It hoped that the JCPOA would guarantee that Iran will not become another "hot spot" on the periphery of its post-Soviet space. The deal was meant to guarantee that the US and Israel would not engage in hostile actions or military aggression against Tehran and to help the country stabilise its economy and domestic politics. After May 8, there is an increasing chance of internal or external tensions escalating - about which Moscow is deeply concerned.

    The JCPOA was also meant to end Iran's pariah status and gradually reintegrate it into the international community. This would have allowed Russia to cooperate with the Islamic Republic more actively on regional affairs without the danger of being accused of creating "unholy" alliances.

    The JCPOA would have also allowed the international community to keep Tehran's nuclear programme under control. The Russian government was and still is not interested in seeing Iran acquire a nuclear arsenal.

    It believes that this would drastically change the balance of power in the region which would not be in Russia's interest. A nuclear Iran would stimulate other, less-stable Middle Eastern countries to pursue nuclear programmes which could destabilise the region.

    After the US withdrawal, Moscow does not have many options. It might go back to how it operated under the Obama administration's sanctions regime, when most business between the two countries was done within the space of the grey economy. Business relations back then were heavily dominated by small and medium enterprises which were not connected to Western markets and hence, were not affected by US sanctions.

    Russia can also seek legal ways to avoid the US sanctions through, for example, the oil-for-goods programme (a barter deal that allows Tehran to pay for Russian goods and investments with oil) or the use of national currencies instead of the US dollar to carry out transactions. It could also try to use cryptocurrencies to facilitate trade.

    In the end, Russia will try to do as much as it can within the narrow space the Trump administration has left for Iran on the international scene. One thing is certain, however: Russia is unlikely to abandon Iran in the face of US hostility.

    The views expressed in this article are the author's own and do not necessarily reflect Al Jazeera's editorial stance.

    US pullout from Iran deal: Who will pay the economic price?

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