While the world was consumed by the war in Gaza and the emerging crisis around free passage for shipping in the Red Sea, a less-noticed but significant development saw Iran and Russia draw closer.
On December 25, Tehran and the Russian-led Eurasian Economic Union (EAEU) signed a free trade deal. The agreement followed Iranian President Ebrahim Raisi’s visit to Russia in that month where the two sides, among other topics, also discussed Gaza and the development of the International North-South Transport Corridor, which runs between the signatories.
The agreement is significant, as it tightens ties between two Eurasian powers bent on reshaping the Western-led global order. The timing is indicative of a broader alignment between Tehran and Moscow — a development not seen in the 16th century, when they cooperated to push back against the expanding Ottoman Empire.
The war in Ukraine has served as a major boost to bilateral ties. If before 2022, there were strong Russian reservations about arming or supporting Iran diplomatically, after the outbreak of the war in Ukraine, Western sanctions pushed Russia to reconsider its traditional stance. This then, is a marriage of convenience between the world’s two most-sanctioned nations.
The West will watch the free trade agreement very closely. It forms part of the Kremlin’s attempts to re-orient its trade and investment away from the West toward Asian countries. Indeed Russia’s commercial ties with its Asian neighbors have skyrocketed (though that is partly attributable to significant sanctions evasion.)
This shift in the patterns of Russia’s trade largely accounts for the relative stability of its foreign trade and its ability to withstand Western sanctions. It is critical in enabling the Kremlin to continue its war-fighting efforts against Ukraine.
Russia-Iran trade turnover is also rising at some speed. In 2022, it increased by 20% to $4.9bn, with further growth anticipated. The two sides have also aggressively pushed for the use of national currencies, and discussed the potential for a gold-backed joint cryptocurrency, which could allow a shift away from the US dollar.
This approach is problematic, however. The dollar remains the currency that the rial and ruble use as a tool to ascertain the true value of products traded between them. The banking systems of the two countries have likewise increased cooperation in an effort to evade the SWIFT payments system by integrating Russia’s Mir Payment System into the Iranian version — Shetab Banking System.
In 2022, Russia was Iran’s largest foreign investor, particularly in oil projects. The Bushehr nuclear power plant and the Sirik thermal power plant were other two key joint ventures, although Iran has concerns over the slow pace of Russian investment.
They are also making significant progress on the INSTC transit links, which aim to connect the Gulf, Indian Ocean, and Russian ports in the coming years. In 2023, Russia indeed pledged to invest in the construction of a 100-mile section of the $650m-plus Rasht-Astara railway. Its proponents argue the completed route could one day rival the Suez Canal.
Russia’s war of aggression on Ukraine has been good news for Iran, which has made the Kremlin dependent in ways that seemed unthinkable before 2022.
Emblematic of this swiftly developing partnership is news that the Islamic Republic has developed a new 900-mile-range attack drone for Russia to be used against Ukraine. Tehran is also reportedly close to supplying Moscow with surface-to-surface ballistic missiles, while it is also expected to provide Iran with the newest fighter jets Su-35, and Mi-28 attack helicopters as well as pilot training (although Iranian claims that the deal was imminent have proved wrong.)
This evolving partnership indicates a shift towards a more chaotic global system of international relations against the US-led order. It fits into their ideas of “regionalism” whereby the US and its democratic allies are largely shut out from large parts of the Middle East, the Caucasus, and the Caspian Sea.
While not yet seeking a formal alliance (although they discussed a Grand Interstate Treaty on January 15), both countries value a transactional relationship and seek to make this the norm for a multi-aligned world. Iran’s pragmatic policy includes diversifying relations, as seen in its rapprochement with Saudi Arabia, North Africa, and other Gulf states, as well as even occasional diplomatic engagement with the EU and the US when it comes to the discussions on sanctions.
Russia and Iran also disagree on some key issues. When Russia courted the Gulf countries in July by supporting the claim of the UAE to three Gulf islands also claimed by Tehran, the Iranians were furious. Historical animosity still haunts their relations, and it is unclear how long their close cooperation might last if the animosity between the West and Russia subsides.
But that seems unlikely and for now, both have good reason to pursue closer long-term relations.
The Russo-Iranian alignment, paralleling Moscow’s ties with other Eurasian and Middle East powers, signifies a major shift in global dynamics. The war in Ukraine, Sino-US competition, and China’s rising influence in the Middle East will likely further solidify the rogue-state cooperation between Tehran and Moscow.
Emil Avdaliani is a professor of international relations at European University in Tbilisi, Georgia, and a scholar of silk roads.
Europe’s Edge is CEPA’s online journal covering critical topics on the foreign policy docket across Europe and North America. All opinions expressed on Europe’s Edge are those of the author alone and may not represent those of the institutions they represent or the Center for European Policy Analysis. CEPA maintains a strict intellectual independence policy across all its projects and publications.
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