Iran and Russia are traditional allies, so it should come as no surprise that as Iran continues to come in from the cold as sanctions are lifted, they would look to further develop their economic and political ties. In the latest initiative, Russian banks are at the forefront of a drive to enter Iran’s banking system. Crucially, Iran recognises after the years of sanctions that its banking sector is, in some aspects, deficient and is looking to Russia to introduce a broad range of financial products for both retail and commercial clients, to assist in its overhaul and redevelopment.
It has been reported that their respective central banks have been in talks about further cooperation and that as many as a dozen Russian banks are looking at entering the Iranian banking system. Historically there have been close ties between them, both in terms of trade and commerce as well as interbank cooperation. Sanctions put pay to those initiatives, but that is beginning to change. In recent years, bilateral trade has been conducted in either dollars or euros utilising intermediaries such as the UAE.
A by-product of the sanctions has seen many Iranian organisations conducting their trade through a network of overseas subsidiaries but there is evidence that this is beginning to change as business looks to return to Iran in a post sanctions world.
Unsurprisingly there is a desire for future trade between these nations to be either in the Iranian rial or the Russia ruble. The removal of the reliance on the dollar and the euro would circumvent the need to rely on the European and American central banking systems.
The entry of Russian banks into the Iranian market would clearly assist in this process of de-dollarisation, allowing Iranian companies to buy Russian goods in rubles and it is felt that the move can be reciprocated in terms of the Iranian rial in Russia.
Currently there is one Iranian Bank operating in Russia, which is used for the import and export of goods including food produce. Although the trade between the two nations is less than 1% as a proportion of Russian international trade, the launch of these banking initiatives is seen as opening the flood gates for a rapid growth in trade between the two nations.
The ongoing intransigence in the US, in terms of lifting sanctions against Iran, has created a climate of fear within Europe that, should they trade with Iran, there might be still be serious repercussions. It remains to be seen how long this reluctance continues, but in the meantime Russia and Iran will rapidly develop the financial infrastructure to support the growth of their bilateral trades requirements and in non-dollar terms.