Trade trumps defense in Russo-Iranian partnership
Russia and Iran’s new 20-year treaty strengthens economic ties but lacks formal military obligations, reflecting shifting regional priorities.
In a nutshell
- The treaty prioritizes economic cooperation over military commitments
- South Caucasus geopolitics is at the heart of developments
- The north-south corridor offers economic potential but faces challenges
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On January 17, Russian President Vladimir Putin hosted his Iranian counterpart Masoud Pezeshkian in Moscow to conclude a Treaty on Comprehensive Strategic Partnership. It is the first bilateral treaty between the two countries since 2001. Given the pivotal role Iran played during the initial phase of Moscow’s full-scale invasion of Ukraine – supplying Russia with drones and other weapons – some believed that the new treaty might include heightened military cooperation. That, however, did not occur. This absence of a mutual defense clause provides important insights into relations between the two regimes going forward.
Designed to last for 20 years, the treaty entailed a total of 47 clauses, covering a wide range of issues, from energy, finance and counterterrorism to combating money laundering and organized crime. Although presented as a breakthrough in relations, the pact fell short of a formal military alliance, featuring no security obligations from either party. While Russia and Iran remain locked in a strategic alliance of sorts, it no longer has much of a military component.
Although the notorious Shaheed drones were crucial in the early stages of the war, Russia has since enhanced its own ability to produce drones, including domestic production of Shaheeds. Additionally, North Korea has joined Russia’s war effort as a partner that not only provides much-needed artillery and shells but is also sending its own soldiers to die in the Ukraine “meat grinder.”
Cooperation on trade via the South Caucasus
Relations between Russia and Iran going forward should be understood in a different context, one that captures the geostrategic importance of the South Caucasus. The standoff over Nagorno-Karabakh, an ethnic Armenian exclave within Azerbaijan, long kept regional geopolitics frozen. As long as the Armenian armed forces protected the self-proclaimed Republic of Artsakh, and as long as Russia acted as Armenia’s protector, vital rail and road links fell into disrepair.
The short war that was waged by Azerbaijan in September 2023 brought about a major transformation. With support from Turkey, Azeri forces routed both the Armenian forces and the Russian peacekeepers that had been stationed around Nagorno-Karabakh. The outcome was a fundamentally new playing field.
Although the Kremlin is keen to stay on good terms with both Turkey and Azerbaijan, doing so presents a serious obstacle to its parallel ambition of building tighter relations with Iran.
One consequence was a renewed focus on the Zangezur Corridor, a Soviet-era rail connection that links Azerbaijan proper with Nakhichevan, an Azeri exclave wedged in between Turkey and Armenia. While the benefit to Azerbaijan is obvious, it is also of major interest to Turkey, which may use it to gain direct access to markets in Central Asia, bypassing Iran. As the route crosses the southern part of Armenia, reviving it raises serious questions about Armenian sovereignty.
For Russia, which stands as guarantor of the ceasefire agreement, this prompts questions concerning which side to favor. While the Kremlin will be keen to stay on good terms with both Turkey and Azerbaijan, doing so presents a serious obstacle to its parallel ambition of building tighter relations with Iran. And although the Zangezur Corridor is only a minor piece of the puzzle, it highlights the prevailing trend of building infrastructure that supports movement on an east-west axis, excluding Russia and Iran.
Facts & figures
Competing Eurasian transit routes
The main driver in this trend has been the lavishly funded Belt and Road Initiative rolled out by Chinese President Xi Jinping in 2013. Its purpose in a regional context is to allow Chinese goods to flow across Central Asia and onward into Europe. In the early days, Russia was slated to host a northern route, and to receive substantial investment to upgrade its infrastructure, but its war against Ukraine led to its exclusion.
All effort has instead been focused on the Trans-Caspian International Transport Route that traverses Kazakhstan. Also known as the Middle Corridor, it crosses the Caspian Sea from the port of Aktau in Kazakhstan to Baku in Azerbaijan and continues into Georgia and onward to Turkey. Over the past decade, the volume of cargo flowing along this route has increased sixfold. The growing importance of Azerbaijan as a producer of both oil and gas exported along the same route further excludes Russia and Iran from the lucrative businesses of transporting energy and Chinese cargo to Europe.
The growing importance of Azerbaijan along the same route further excludes Russia and Iran from the lucrative businesses of transporting energy and Chinese cargo to Europe.
The Russia-Iran treaty signed in Moscow in January was a last-ditch effort to rescue any hopes for an alternative layout of key transport infrastructure, one that runs on a north-south axis, linking Russia with India via Iran. Known as the North-South Transport Corridor, this project has long been in the works. At its core is seaborne traffic across the Caspian Sea and land-based road and rail links across the South Caucasus. A first agreement was signed between Russia, Iran and India in 2002. Compared to the legacy route via the Suez Canal, it offers all parties substantial savings on transport costs.
Fossil fuels in focus
Viewed against this background, it was unsurprising that the most important news that emerged from the Russo-Iranian agreement was that Russia plans to start pumping natural gas to Iran to make up for its lost markets in Europe. At a joint press conference after the meeting, President Putin announced that the plan would be to start with a modest 2 billion cubic meters (bcm) per year, with a target of 55 bcm at full capacity. This would equal about half of the capacity of the four Nord Stream pipelines that were designed to carry gas from Russia direct to Germany, three of which were destroyed in September 2022.
With Nord Stream out of commission, and with Ukraine having shut down all transit of Russian gas via its territory, Gazprom is in dire need of new markets. The question is how Iran fits into this picture. The country does after all have the second-largest gas reserves in the world, after Russia, and like Russia it could be a major exporter.
Read more about the South Caucasus
- New masters in the South Caucasus
- The fallout of Azerbaijan’s victory over Armenia
- Azerbaijan extends its influence beyond the South Caucasus
Iran is looking to Russia as a supplier of gas – and has already been importing gas from Turkmenistan – because American sanctions have impeded Tehran’s access to foreign investment and modern technology. With aging infrastructure that is increasingly incapable of meeting even domestic demand, the outcome has been frequent power outages that cause widespread disruptions across households and industry.
Talks with Russia on energy cooperation began in earnest in July 2022, when the National Iranian Oil Company signed a memorandum of understanding with Gazprom. Worth an estimated $40 billion, the deal included a pledge by the Russian energy giant to assist in the development of the Iranian Kish and North Pars gas fields, together with six oil fields. The Russian side was also invited to take part in the completion of ongoing projects to produce liquefied natural gas and in building export pipelines for gas.
In June 2024, the two sides signed a further memorandum on the supply of Russian pipeline gas to Iran, leading to the latest agreements. Although the mutual interest in realizing these plans is beyond doubt, the pending question concerns what possible routes are being considered.
Scenarios
Unlikely: Iran’s prospects improve in the near-term
In July 2024, Iran’s minister of oil, Javad Owji, said he expected that his country would receive up to 110 bcm of gas annually via a Caspian Sea pipeline. As it is highly doubtful that such an ambitious project will materialize, the more likely option is an overland route.
When President Putin suggested that gas exports to Iran could begin with a modest 2 bcm annually, he was likely referring to an existing pipeline through Azerbaijan with a current capacity limit of only 2 bcm. Although it is possible to increase capacity by adding new compressors and boosting stations, according to Iranian energy expert Dalga Khatinoglu it would still not reach more than 10 bcm per year. Reaching President Putin’s goal of 55 bcm annually seems highly optimistic if not unrealistic.
Further questions concern financing for infrastructure upgrades inside Iran to accommodate increased flows of gas from Russia to India and other markets in South and Southeast Asia. Since the West will not lift its sanctions on Iran any time soon, and a crippling military strike from Israel may still be in the cards, the outlook for Iran’s development in the short term is rather gloomy.
Likely: Second best will do for Russo-Iranian trade and export prospects
Promoting the North-South Transport Corridor is a long-term commitment from both Russia and Iran – one that is based more on geopolitics than on the pursuit of economic rationality. From this perspective, the project presents the participants with tangible benefits. Although such upsides are a clear case of second best compared to a scenario of global reintegration of their economies, both countries face a future where the second best is the only realistically available option.
The most obviously interested party is Russia. While desperately searching for new gas export markets, it also wants a transport corridor that will not be easy for Western powers to interdict. Completing the North-South Transport Corridor offers access to both the Persian Gulf and the Indian Ocean. The former would be via the Iranian port at Bandar Abbas, which is strategically located at the Straits of Hormuz, and the latter via the Indian port at Mumbai.
Iran’s interest lies not only in securing Russian short-term assistance in reviving its energy complex. In the longer term, Tehran wants to emerge as an energy hub, selling Russian gas to countries regionally and beyond. Part of this vision is Iran’s enhanced cooperation with Turkmenistan, to provide added outlets for that country’s massive reserves of gas, and with Pakistan, to build a pipeline for gas to that market.
The upside for India is less obvious. Having been involved in the project since its inception in 2002, New Delhi opted to withdraw in 2009, following pressure from Washington. Based on its recent warming of relations with Russia, including emerging as the largest buyer of Russian oil, India may still be cajoled into joining, but that is an iffier prospect.
Possible: North-south project emerges if Russia controls Georgia
The main challenge for all participants rests in the fact that long-term opportunities are being decided by short-term developments in the volatile politics of the South Caucasus. A scenario where the north-south corridor becomes a reality depends heavily on Russia’s ability to claw back its lost status as regional hegemon.
If it succeeds, Moscow may not only be able to convince Azerbaijan to participate, it may also upgrade overland links from Iran via Armenia and Georgia, tempting India with access to the Black Sea. While this would lay the groundwork for longer-term commitments to the north-south corridor project, it hinges on Russia retaining control over Georgia.
Less likely: Georgia frees itself of Russian influence and boosts east-west trade
The alternative scenario depends on the Georgian opposition finally toppling the Moscow-leaning regime in Tbilisi, ending Russian influence. If this happens, it will bring a tighter alliance between Georgia and Armenia and greater regional leverage for the West. As Azerbaijan and Turkey would be only too happy to join in boosting east-west trade flows, losing Georgia would mean that Russia can forget about its plans to realize the north-south corridor. And Iran would be left to its own devices.
Given the size of the long-term stakes, however, Russia will probably go to great lengths to preserve its puppet regime in Georgia. The longer it manages to ignore the fading street protests, the more likely it will be to succeed. Realizing the north-south corridor would still be a long slog, but it would at least remain an opportunity.
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