Thursday, 19th July 2018

Iran: Russia and China may hold key to Iran bypassing US sanctions

Iranian envoy Ali Akbar Velayati arrived in Moscow on 11 July, carrying a verbal message from Rahbar (Supreme Leader) Ayatollah Ali Khamenei and a written one from President Hassan Rouhani, both addressed to President Vladimir Putin. From the Russian capital Velayati was due to head to Beijing to convey Tehran’s message to President Xi Jinping. Putin’s Syria envoy Alexander Lavrentiev was due in Tehran on 18 July. More such trips can be expected given that Iran’s relations with both powers are taking on an ever more critical role as the Islamic Republic tries to limit the damage of the revived United States sanctions programme, which is due to take effect early next month.

“The present situation is very sensitive; the world is under the influence of a rebel as the president of the US. Thus, the collaborations get more and more necessary,” Velayati said in Moscow, the Farsnews agency reported.

China and Russia were signatories to the Joint Comprehensive Plan of Action (JCPOA), along with the European Union, France, Germany, the UK and US. It is up to the remaining parties to keep the nuclear deal alive after President Donald Trump pulled out (GSN 1,059/1). There is little doubt the European governments and their corporates would like to continue trading with Iran, but it hard to see how a mechanism can be created which would provide an adequate shield for companies wary of US fines and other sanctions. The Islamic Republic’s authorities know their companies and citizens would dearly love to maintain ready access to European goods and services, but Iranian officials appear unimpressed by the proposals made by Brussels. There are differing views in Tehran about the wisdom of placing too much hope on Beijing and Moscow, but hardliners in particular feel they may not have any other good options.

“Iran has now gone back to the situation it was in before, where it realises that it really can’t rely on the West and it has to turn to Russia and China and it has to ensure that both Russia and China stay on board in order for it to be able to manage,” said King’s College London Centre for Science and Security Studies fellow Dina Esfandiary, co-author with Georgetown University’s Ariane Tabatabai of the recently published Triple Axis: Iran’s Relations with Russia and China.

There are, however, complications, particularly with Russia. Tehran and Moscow are both close allies of President Bashar Al-Assad in Syria and have worked alongside each other in keeping his regime in power (GSN 1,062/16). But that alliance of convenience is coming under pressure from other regional powers with whom Russia now likes to maintain cordial relations. Its more recent ally of convenience, Israel, is determined to use any influence it has in the Kremlin to drive a wedge between Moscow and Tehran. From an Iranian perspective, relations with Russia have historically been far from reliable – the two countries fought each other several times over the centuries and Persia was often an unwilling arena for the Great Game rivalry between the Russian and British empires. More recently, some in Tehran have suspected Moscow of deliberately dragging its feet on some major deals, including the Bushr nuclear reactor development and supply of the S-300 missile defence system.

Relations with China are more straightforward, being focused on more straightforward commercial interests and lacking the historical baggage that clouds relations with Moscow. There have been indications that the US expects Beijing to remain a significant customer for Iranian oil, not least because National Iranian Oil Company is prepared to offer its crude at a hard-to-turn-down price.

Other Asian trading partners appear to be taking a more cautious approach. Japanese bank Mitsubishi UFJ Financial Group recently announced it would no longer handle any transactions involving Iran. There have been mixed signals about South Korea’s willingness to take Iranian crude once US sanctions come back into force.

Iranian envoys have been travelling to other corners of Asia in recent weeks, including Malaysia and Indonesia, to shore up economic and diplomatic links at this critical juncture. Tehran is to some extent trying a carrot and stick approach – warning India that it will lose unspecified “privileges” if it starts to cut Iranian crude imports and buy oil from Saudi Arabia and elsewhere instead. (India is also suspected of foot-dragging over investment at the Chabahar mega-port scheme.)

That cold war staple barter trader is also back on the agenda. Barter might allow Iranian traders to avoid deals involving US dollars. MP Assadollah Qarehkhani recently told local media that the Majlis-e Shura-ye Eslami (parliament) had set up a special committee to deal with such transactions.

Iran has looked east in the past and there are many avenues across Asia that might be worth exploring (GSN 1,016/1). But it is the bigger Asian economies that offer the greatest hope for Tehran as it tries to piece together a new system of international links.

Standing in Iran’s favour this time is the lack of supporters for Trump’s anti-Iran drive. Whereas in the past major Asian economies were happy to impose sanctions to prevent Iran gaining a nuclear weapon, they now tend to feel that Tehran has adhered to its side of the nuclear bargain – whatever its nefarious activities in Iraq, Syria, Lebanon or Yemen. According to Esfandiary, Asian powers may end up acceding to US demands, but they won’t do so voluntarily. That “means that ultimately they’re going to look for loopholes and ways to go around the embargo and that’s a very different scenario” from previous sanctions regimes. She concludes: “Iran will not be as isolated as it was in 2010”. But neither will its economy emerge in the best of health.

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