Azernews.Az

By Sara Rajabova

The two sanctions-hit countries - Iran and Russia - are devising new strategies to win immunity against U.S. and Western sanctions.

In this regard, the methods, such as using currencies of a third country, as well as national currencies during trade transactions, oil-for-assets barter deal, as well as oil and gas swap are regarded as possible scenarios for productive cooperation.

The economic and trade cooperation between the long-time allies began to strengthen after the Iran nuclear agreement, which provided ground for removal of the international sanctions on the Islamic Republic.

Russian trade representative in Iran Andrei Lugansky has recently said it is necessary to use the currency of third countries which receive Iranian oil, in a bid to develop economic relations between Russia and Iran.

He said Iranian banks have many currencies from third-countries, including Chinese yuan, South Korean won, Japanese yen, and others, because Iranian oil and petrochemicals are supplied to these countries. Lugansky added that, however, they are not supplied to Russia, noting that Iranian banks have few rubles to convert rials into rubles to purchase goods.

Commenting on the issue, Kamran Dadkhah, a professor of economics at Northeastern University in Boston, Massachusetts told AzerNews that such an arrangement would be detrimental to Iran.

“It is true that, currently, there is an abundance of oil on the international market and, perhaps, it will remains so in the near future," he said. "But oil is a precious commodity; Iran should insist on receiving dollars for its oil. Being restricted to local currencies, which may be accepted only in the country of origin, would restrict Iran to buying commodities and goods that are not needed or have low quality.”

Iran and Russia are also working to create a joint bank and carry out their transactions in their national currencies. Lugansky noted that establishment of the Russian-Iranian bank would be very useful.

Speaking on this issue, Dadkhah said the usefulness of the Russian-Iranian bank will depend upon its charter and organization. “If it operates on the basis of international banking rules using international currencies (the dollar and euro), it would be acceptable. But if it is under the influence of Russian authorities, then Iran should avoid it,” the expert warned.

The two countries have agreed on an oil-for-goods swap worth $1.5 billion per month under which Russia would buy up to 500,000 barrels per day of Iranian oil in exchange for Russian equipment and goods.

Lugansky has recently said an oil-for-assets barter deal between Iran and Russia is still in force, but low oil prices are preventing them from implementing the arrangement.

Oil prices have slumped from $100 to under $50 per barrel since summer 2014, primarily as a result of global oversupply.

Dadkhah believes that, in general, barter trade will be disadvantageous to the weaker partner, in this case Iran.

“Let us recall that during the sanctions period, Iran-China trade resulted in Iran buying low quality products from China; even former Iranian President Hashemi Rafsanjani pointed this out. When oil prices were high, Russia was happy to take oil in exchange for assets. But now oil is over-supplied on the international market. It is not profitable for Russia to continue. Should oil prices go up again, they would be willing to again barter. But this shows how vulnerable the weaker trading partner is,” the expert said.

Moreover, Russia and Iran also plan oil and gas swaps. Iran’s Deputy Petroleum Minister Amir Hossein Zamaninia has recently said that under the arrangement, Iran would take delivery of Russian oil, gas and their derivatives in the Caspian Sea for use in northern provinces, and deliver the same amount of the products to Russia’s customers in the Persian Gulf.

Dadkhah considered that Iran must not be engaged in such an agreement, as it will not be beneficial for the country.

“Such deals always benefit the economically or politically stronger party: in this case, Russia. Iran should avoid such deals. Iran should rejoin the global economy, establish trade relationships with as many countries as possible and deal only in international currencies: the dollar or the euro,” Dadkhah said.

Russia was the 18th major importer of Iranian non-oil goods during the previous Iranian calendar year, which ended on March 20, with imports and exports totaling $296.509 million and $667.18 million of non-oil goods to and from Iran, respectively, according to the Iran Customs Administration.

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Sara Rajabova is AzerNews’ staff journalist, follow her on Twitter: @SaraRajabova

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