Not only do Russian and Iranian economic relations have limits based on political-military considerations, but in some ways their major economic interests are in direct competition. For example, in the export of oil and gas, Iran and Russia are competing for pieces of a shrinking pie. Since the signing of the JCPOA, Iran has made no secret of its intentions to increase its oil production to the pre-sanctions numbers within seven months. Assuming Iran reclaims its pre-2012 share of the European oil market, Russia’s share will be reduced by over 10 percent. Similarly, in terms of natural gas, Iran has signed an agreement with Iraq and Syria to build a pipeline from its gas field in the Persian Gulf to the Syrian port city of Tartus; the endgame is to ship the gas to Europe. The Russians are not fond of competition in the natural gas market, as is apparent from their pressure on Bashar al-Assad in 2009 not to sign a contract for a similar pipeline proposed by Qatar.
The energy front is critical to the Kremlin for two reasons. The first and most important reason is that the Russian economy is reliant on revenues from oil and natural gas (they accounted for 50 percent of Russia’s 2013 federal budget). Furthermore, oil prices are a primary concern for Putin’s regime, which relies on subsidies in return for loyalty and support. At this critical point in time when oil prices are low, the Russians are desperate to bring the prices back up. At the same time, it makes no sense for the Iranians to freeze the production of oil. They have just emerged from a strict sanctions regime and are eager to restart their oil sales. Hence, the Iranians emerge not only as competitors of Russia on the oil market, but as saboteurs of Russia’s economic and political stability. The second reason is that Russia has managed to translate the fact that it supplies 30 percent of Europe’s energy into political leverage when necessary. According to a report by the Aspen Institute, Hungarian government officials admitted that their diplomatic support for Russia and opposition to sanctions against Russia are related to its role as an energy supplier. While Moscow could potentially cope with the financial loss of its shares in the European market by looking eastward to expanding energy markets in developing countries like China, it will be much harder for Russia to replace the political leverage that it enjoys due to its control over European energy.
The four aforementioned issues are cited as explanations of why Iran and Russia have cooperated in the recent past and how that cooperation could expand in the future. Yet, it is apparent that even these examples of converging interests contain major divergences that could turn Moscow and Tehran from partners to competitors. Not only is the cooperation between Russia and Iran not as close as many perceive it to be, but it is likely to remain limited in the future.
Ari Heistein is the Special Assistant to the Director of the Institute for National Security Studies in Israel.
Vera Michlin-Shapir is a Neubauer Research Associate at the Institution for National Security Studies in Israel. From 2010 to 2015, she served on the Israeli National Security Council in various research positions. She is a PhD Candidate at Tel Aviv University, writing on Post-Soviet Russian National Identification.