By Madeleine Moreau for Global Risk Insights
The announcement by President Vladimir Putin to lift the ban on the sale of sophisticated air-defense systems to Iran has sparked intense political backlash. The US and Israel have both strongly condemned the Kremlin’s decision, wary of Iran’s increasing military strength in light of the recent, albeit fragile, nuclear deal.
Security concerns aside, however, the deal between Russia and Iran underscores several key emerging political risk trends. The deal pertains to both nations’ strategic visions in a post-sanctions world, the most important being the desire to reopen economic relations with Iran before foreign competition raises the threshold for easy investment.
Russia’s decision to lift the ban on the sale of advanced weaponry to Iran comes after having delayed the transaction for eight years following Iran’s agreement to purchase the highly sophisticated S-300 air-defense missile system in 2007. The delay was largely due to increasing Western pressure on the Russian government to adhere to international sanctions policy against Iran.
Russian officials today say the deal has been reinstated because Russia “did not receive major sums that were due” back in 2007, and also because positive developments in nuclear negotiations with the West warrant improved economic relations with Iran. Foreign Minister Sergei Lavrov tells Reuters: “We see no need to continue doing this given progress in talks on Iran’s nuclear program and the absolutely legitimate nature of the forthcoming deal.”
The US and Israel, however, have heavily criticized the deal for the security risks it poses for regional stability.
The ability of Iran to deter an aerial assault on its nuclear facilities, if it were to push forward in making an atomic bomb, could be a real possibility upon acquiring the S-300 missile system. In return, this could affect how Iran calculates the risks of proceeding with its nuclear program.
Iran’s reaction to such criticisms has been mixed. President Hassan Rouhani has said Iran’s “big military power” would be used for “deterrent” purposes only, stressing that the S-300 is strictly for defensive purposes.
At the same time, Iran’s defense minister suggested just after Russia’s announcement that Russia, China, India, and Iran form a group to “oppose NATO,” further raising concerns for Iran’s motives behind the weapons deal.
A deal of mutual opportunity
Beyond security concerns, the sale of the S-300 represents a potential harbinger of future investments with Iran. At a time when Russia is being economically slighted from sanctions over violence in Ukraine, the government is likely to continue to seek out investment opportunities with Iran before foreign companies take advantage of its market potential.
According to the World Bank, even amid sanctions, Iran’s economy ranks among the top 20 in the world. The lifting of sanctions on Iran could spur a race to tap into its profitable petrochemical and raw materials manufacturing industries.
Russian member of parliament Andrey Klimov underscores this urgency: “We don’t want to be last in the list of new participants in new trade and scientific programs. We don’t want to be after the E.U., France, or after our friends from the United States.”
In addition to lifting the ban on weapons sales, Russia also unveiled plans last week to engage in an “oil-for-goods” deal with Iran estimated at $20 billion. Under the agreement, Russia would supply grains, equipment, and construction materials to Iran in exchange for crude oil. Iran is the third largest buyer of Russian wheat, and the two nations have been in talks over the deal since early 2014.
While increasing relations between Russia and Iran are likely to be mutually beneficial, in a post-sanctions world Iran’s resurgence also poses a cost to Russia’s oil-driven economy.
If and when sanctions on Iran are lifted, the added supply of Iranian oil to the regional market is likely to drive down the price of petroleum, threatening Russian oil profits. In addition, European countries could turn to Iran as an alternate supplier of oil, decreasing the wedge Russia has on the European market.
Future Russia-Iran relations
The nuclear deal between Western nations and Iran is likely to have an impact on future relations between Russia and Iran, but unlikely to threaten future economic ties between them.
In the past, Russia and Iran partnered in standing together against the West. As Iran looks to ease tensions with the US and Europe during the nuclear negotiations, Russia is likely to experience a sense of urgency in maintaining strong ties with its old ally.
Lifting the ban on the sale of weapons could be seen as a first step in this direction for Russia, in terms of staying ahead of the West and holding on to a level of political and economic power in the Middle East.