Russia will seek to exploit common interests with Iran

Analysis

Moscow was supportive during Tehran's years of isolation, and since 2014 it has seen parallels with its own position in a world it believes is unjustly dominated by US interests. This sense of common cause is enhanced by military cooperation on Syria and a shared antipathy to Sunni extremism.

Relations are smoothed by the lack of substantive areas of divergence and of ambitions to encroach on each other's spheres of influence.

Convergence on Syria

Russian and Iranian views of a desirable outcome in Syria are similar, but not identical. Both countries have backed Assad since the outbreak of hostilities in 2011, and since last year, the Russian air force has provided cover for Iranian-backed ground forces.

Their level of commitment to Assad personally may differ. Tehran does not appear willing to pressure Assad to step down as long as his government faces no imminent military threat.

By contrast, Russian Prime Minister Dmitry Medvedev has indicated that Assad is not essential to Moscow, while Foreign Minister Sergey Lavrov said on May 4 that "Assad is not an ally for us... in the sense that Turkey is an ally for the United States".

Some commentators interpreted the partial withdrawal of Russian combat aircraft from Syria in mid-March as a signal to Assad that, although Moscow had secured territorial gains to bolster his position at peace talks, it would not back an open-ended campaign to recapture the whole of Syria (see RUSSIA/SYRIA: Moscow seeks rewards for force reduction - March 16, 2016).

Iran's oil resurgence

In mid-February, Russia and Saudi Arabia tentatively agreed to freeze oil output at January levels. They were joined by Kuwait, Qatar and Venezuela, but Iran refused to participate, citing the need to increase its market share after years of debilitating sanctions.

In mid-March, the Russians backed Iran's bid to increase production and enjoy exemption from a production ceiling freeze.

A meeting of oil producers in Doha on April 17 failed to reach a definitive agreement. Iran reiterated that it could consider a freeze only after production reached 4 million barrels a day.

Russian Energy Minister Alexander Novak said later that it was additional Saudi conditions that obstructed a deal.

The prospect of increased Iranian gas exports will alarm Russia's Gazprom principally if they go in a westward direction, potentially taking some of the company's market share in Europe.

Economic opportunities

A sanctions-free Iran offers Russia -- itself under Western sanctions because of its 2014 annexation of Crimea and intervention in the conflict in eastern Ukraine -- opportunities to exploit its cordial relations with Iran to boost economic and trade ties (see IRAN: Syria partnership will deepen Russia ties - November 24, 2015).

Trade

Bilateral trade turnover currently amounts to approximately 1.0 billion dollars a year, down from 1.5 billion in 2014 (itself a 30% fall on 2011 levels). Work is under way on a rail link via Azerbaijan, to augment the Caspian shipping route.

Russia is keen to accelerate imports of fruit, vegetables, meat and dairy products to compensate for lost suppliers in Turkey and the West, a result of Moscow's own import bans. Officials plan to speed the passage of Iranian goods by creating a 'green channel' system. In the other direction, Russia food exports to Iran mostly consist of wheat (see RUSSIA: Kremlin seeks new suppliers to replace Turkey - December 17, 2015).

Loans and investment

Russia hopes to move into the Iranian oil and gas sector, but its capacity to source modern technologies will be constrained until sanctions preventing it from making such purchases are eased. Tehran is likely to look instead at investors among Western energy majors.

Russian investors are likely to have more success in infrastructure projects, rail construction in particular.

On April 18, Russian Deputy Finance Minister Igor Storchak reported that a loan agreement worth 5 billion dollars, pledged by President Vladimir Putin when he was in Tehran in November, was in its final stages. The Russian government is expected to issue the first tranche of 2.2 billion dollars by end-2016.

Nuclear cooperation

Moscow provided assistance to Iran's nuclear programme right up to the limits imposed by sanctions. The Russian-build Bushehr plant is up and running, and Moscow has expressed willingness to build several more.

Russian assistance is likely to increase now that Iran is able to pursue a legitimate nuclear programme (see IRAN: Nuclear deal will give Russia ties limited boost - August 12, 2015).

Defence sales

With money to spend on modernising its armed forces, Iran is attracting interest from Russia's cash-strapped arms industry.

In April, Russia confirmed that the first deliveries of S-300 surface-to-air missiles had taken place.

The two countries have discussed other arms sales, as well as repairs to Iran's submarine fleet and combat aircraft. Tehran is said to be considering the more advanced S-400 missile, and to be keen to acquire T-90 tanks and Su-30 fighters. An added sweetener might take the form of technology transfer to allow the Iranians to assemble tanks and jets themselves.

However, Moscow is not prepared to offer discount prices or credit even to friendly states, and Iran will have to tailor its shopping list to lower-than-expected post-nuclear deal revenues in light of low oil prices and enduring European concerns about violating those sanctions still in place (see IRAN: Military will keep asymmetric advantage in Gulf - December 15, 2015).

Neighbourhood politics

After the Soviet Union broke up in 1991, Iran began building economic ties with the states that emerged, particularly in the Caucasus and Central Asia. However, it quietly acknowledged that these states remained within Moscow's orbit and refrained from intrusive political engagement.

In the Nagorno-Karabakh conflict of the early 1990s, Iran's sympathies were more with Armenia than Azerbaijan, the only Shia-majority state in the former Soviet Union (see ARMENIA / AZERBAIJAN: Caucasus standoff - March 8, 2016).

Iran maintains good relations with Armenia, and both collaborate with Russia on gas and electricity.

In Tajikistan, which has strong Iranian connections, Moscow and Tehran collaborated successfully to bring about an end to the 1992-97 civil war.