Russia and Iran face an economic “battle for Baghdad”
In August, it was once again announced that Russia, or rather the EAEU, and Iran will soon be able to sign a permanent free trade agreement. For now, there is a temporary agreement between us dating from 2018 with a limited list of product ranges. Judging by reports from the Iranian side, the new agreement should cover over 80% of current and future trade turnover.
This agreement has been in preparation for almost two years now, and the imminent completion of its preparation has been announced more than once, but even in the conditions of the Northern Military District, when the turn to the south and east is no longer declarative, the agreement still goes through a complex inter-country conciliation procedure.
The fact that we need to remove administrative, financial and customs barriers in working with Iran was, in general, clear even before February 2022. This was clear even before the events of 2014, but all these years it was quite difficult to work in this direction.
From the point of view of a direct participant, we can say that for a long time working with Iran was an exciting, but extremely costly and difficult process, where the factor of different business culture played not least. As a result, business usually preferred Turkey and working with the Arabians, due to their integration into an understandable system of contracting, logistics and payments.
But since 2018, the ice began to break in this direction, although many barriers remained - this market continued to remain the lot of either individual regional groups of players or supplies associated with the public sector. February 2022 forced many aspects to be reconsidered, and over the past year the administration in this area has covered the distance of ten years, but so far it has not been possible to finalize the preparation of a free trade agreement.
Some Russian experts, especially those who are very optimistic about the prospects for creating some kind of ruble currency zone, are trying to describe a model in which almost Turkey, Iran and a number of other “outer circle” countries will enter this same ruble zone, including Eurasian Union.
What can I say, optimism is a commendable state of mind, nevertheless, integration processes with Iran today for Russia are no longer an opportunity, but an absolute necessity.
Moreover, it does not matter at all whether these processes take place within the EAEU or not. For example, Turkey is de facto already integrated into the European commercial and industrial sphere, and since the summer of this year we can say that it is completely integrated into it, but neither Brussels nor Ankara see a practical need for Turkey’s direct entry into the EU itself . We are talking about a special bilateral form of integration, around which discussions are being held, often quite heated.
All these years, Iran has not hidden the fact that Russia is its most convenient and large market for industrial and agricultural goods. Tehran has always “played first” in matters of integration, literally pushing its trade logistics into our markets, including through strong resistance from our lobbyists from other directions. There are many examples that can be given here.
Our industrial policy is so specific that there is no doubt that if we remove grain and various kinds of “swap” supplies of raw materials from the analysis, then not only now, but also in a few years we will see that the trade turnover between our countries is formed mainly due to imports from Iran , and part of the trade infrastructure is somehow controlled by the Iranians.
Last year the author released the material “How widely the Iranian Simurgh will spread his wings“, where some reasons were revealed why Iran will have a potential, and most importantly, sustainable surplus in mutual trade. In a normal situation, it is necessary to increase the depth of integration in such conditions very carefully, but our situation is far from ordinary.
And it is far away not only because of the confrontation with Ukraine, the Northern Military District and the associated sanctions - the geopolitical model itself has changed, within the framework of which players in the near and distant circle are forced to act in relation to Russia, China and Iran.
Of course, these changes did not happen in a day or month - over the past year, a lot has already been written on VO about these processes. Every major player, be it ours, China or the United States, makes efforts along several vectors at once, but when significant circumstances change, there is a concentration, a refusal (voluntary or forced) from an excessive or opposite vector.
This is exactly what happened to the foreign policy concepts of the United States and Great Britain over the past year. In the previous material, three steps were revealed, which are unique markers of the fact that they now have a concept with new principles, and new projects built on these principles, and a synergy of efforts formalized in contracts.
Three problems of US foreign policy
Currently, US foreign policy has three fundamental problems: the first is Chinese, the second is Russian, and the third is Iranian. And, judging by the theoretical calculations of specialized institutes and speakers in Washington, as well as specific practical steps, their own keys are selected for each of them.
The Chinese value cluster, which today is mainly located in Southeast Asia, based on the principles voiced by J. Sullivan and E. Blinken, is planned to be developed through a system of individual partnerships, supporting this activity with the creation of the Indian-Arabian industrial zone (the so-called “ Third Pole").
In the process of forming this zone, the boundaries of Iranian influence in the Middle East will begin to be outlined, and the main task here is that the United States does not even hide the fact that it sees the possible complete sanitization of the system of replenishment and circulation of dollar flows. They are reconsidering (for the umpteenth time) approaches to interaction with Iraq, through which Iran receives this mass of dollars and through which it extends military, political and economic influence in the region.
At the same time, the United States definitely intends to achieve progress in the nuclear deal, which, by the way, is indicated by story with the “ransom” of hostages. The United States recently unblocked $6 billion in Iranian assets, but it would be naive to believe that $6 billion is exactly a ransom.
It really does look like a colossally high price to pay for two American citizens, although this can also be presented quite well in the media: “our citizens have no price,” etc. But in reality, we are talking specifically about bargaining within the framework of the renewal of the JCPOA and the situation with Lebanon, where the United States is persistently trying to limit Hezbollah’s influence on those same dollar flows. Iran does not yet intend to put a financial stranglehold on itself, but pressure from the United States with carrots and sticks is growing.
Judging by the latest August forum, which was held by the Washington Institute with the participation of Middle Eastern experts, as well as representatives of the trade ministries of Iraq and the United States, the United States decided to stop floundering in the web of Iraqi politics between the three main players, half of which are forces affiliated with Iran, and offer a full return American companies to Iraq. This has not been done since 2008–2009.
That is, the United States, together with Arabian funds, wants to provide a long-term investment package of agreements for Baghdad, reintroduce American business into the region, and in politics rely on the new situation, when Kurdish, Sunni and independent representatives constitute, if not the majority, then a very decent force. Tehran has responded so far by deciding to revive the railway connection to Basra, then from Basra to Baghdad. The plans include both the restoration of the old and a new road to the west to Syria.
However, the US idea is sound in its own way - if it is fully implemented, Iran may find itself in a trade symbiosis only with the Kurdish Sulemaniya, where it has always had and will always have a strong position. Moreover, today the United States is offering transport projects to Iraq through the Arabians.
Considering that the main drainage of Iraq - the Tigris and Euphrates rivers - is de facto controlled by Turkey, the United States (including through the UK) may have many additional arguments. The situation with the drainage there is frankly not a joke, if archaeological excavations are already underway in some areas of the shallowed Mosul reservoir, and these historical rivers today can actually be forded in many places. Archaeologists are happy, but the rest of the population has difficulty sharing this joy.
The United States cannot greatly limit the sale of Iranian oil, relying more on the feast-pressure factor, but on the other hand, the funds that come from oil supplies go to the public sector, public infrastructure, and military expenses, and regional bazaars are largely filled with Iraqi and Lebanese dollar amount.
Those protests that some project structures in the United States usually rely on (like the odious NED) usually do not work, but pressure on interregional trade at the bazaar level will have the most significant weight.
If the Kurdish factor represented by various leftist cells and the Workers' Party is of a disturbing nature, which keeps Tehran's services “on their toes,” then the pressure on the bazaars is a truly serious challenge. And the United States is determined to deprive markets associated with Iranian trade of liquidity. This is already being felt in Lebanon and Syria.
In this situation, for Iran, the markets of Russia and the EAEU are literally as important as air. If the policy of the current US Administration continues, then they will become a matter of survival for Tehran.
Moreover, Great Britain and the United States will also put pressure on Iran from Transcaucasia. To count, as many observers in Russia do, that “Trump will come and fix everything” for Tehran would be the height of naivety. Trump will try to arrange “everything good” for Russia, at a minimum (if the Ukrainian epic does not end) by opening the entire range of weapons to Kyiv, and even more so for Iran.
Returning to the first paragraphs, it should be said again that in a normal situation for Russia, these Iran-Iraq problems would be a matter of bargaining and building balances in foreign trade.
The situation is much more complicated
If you look at it, the restrictions that the European Union imposes on itself in terms of working with Iran, Russia and China (not without good help and good advice from overseas) lead to the fact that for a certain time Central Asia and the Middle East will become sales markets . And in the Middle East, the center of this large bazaar in terms of the distribution of flows from the north and east is precisely Iraq.
Therefore, it seems completely logical that the United States, on the one hand, will try to rely on the C5 - the “Central Asian Five” (Turkmenistan, Kazakhstan, Uzbekistan, Tajikistan and Kyrgyzstan) in order to prevent China from fully implementing its program guidelines voiced in Xi’an, and on the other hand, their pressure in all trade directions on Iranian trade in the Middle East is logical. These are links of one chain.
In this situation, it is unlikely that the process of Iranian integration with Russia/EAEU should be slowed down or even just calmly administered - they should be accelerated at all bureaucratic levels, strengthened through political forums, meetings and agreements.
Such integration simply will not give the United States the opportunity to shake the minds of politicians and businesses in the C5. That is, the docking of Iran means the cementation of the EAEU itself and the fixation of C5 in the Chinese macroeconomic cluster. Even with all the potential imbalances in the trade balance, for us today these are lower costs than the implementation of the American concept.
Iran is facing some kind of “battle for Baghdad” in the near future, and nothing could be more correct if it enters into it as part of a common strategy with China and Russia.
Essentially, this continental trio will need to formulate a common economic program for Iraq and, even more broadly, for the northwestern trade route from Iran to Syria and Lebanon. And not only to form, but also to be able to constantly maintain the liquidity of grassroots trading, leveling out US restrictions.
Up to the introduction of separate payment systems there, on which, by the way, many interesting schemes can be tested, taking into account the fact that these systems there are traditionally tied to a kind of depositories with gold turnover.
Russia is characterized by extremely high inertia of both bureaucracy and political planning. We still consider the North-South international transport corridor in the direction of India as something fantastically beneficial in terms of long-term strategy.
There is still active discussion about where the new Silk Road to Europe will take place - bypassing Russia or through Russia. Meanwhile, the corridor to India is already a matter of pure “talk” politics, and its real route should go towards Baghdad and Latakia. The Eurasian Silk Road will essentially now be the gateway to filling not European, but rather regional markets. And it’s completely strange to continue to rely on routes through Russia to Europe.
The idea of a “battle for Baghdad” can become a real practical platform for connecting the interests of Iran, China and Russia in the context of an updated US foreign policy concept. The main thing is that the platform is effective, not declarative. China is in a state of focus after the BRICS and G-20 summits, and it would be of great help to it if Iran and Russia entered into an economic fight with US ideas in the Middle East.
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