Moscow Considers Borrowing From Tehran’s Economic Model to Weather Sanctions

Executive Summary:

• As Russia suffers under Western sanctions, Kremlin propagandists have turned their attention to Iran and advocated studying the Iranian experience of living under sanctions including Iranian scientific innovation and economic development.
• Russian officials have sung the praises of the Iranian leadership since the beginning of the Kremlin’s war in Ukraine—partially due to Iran providing Russia arms—despite criticism of the state of the Iranian economy from pro-Kremlin think tanks.
• Russia’s orientation toward Iran has grown more ideological as Tehran continues to supply Moscow’s war machine. This may lead to the Kremlin copying aspects of Iran’s economic model despite its shortcomings.

On September 9, the Valdai Discussion Club, a Moscow-based think tank, published the report “Neither East Nor West: How the Iranian Economy Handles Sanctions.” The report analyzes the several waves of sanctions imposed on Iran and concludes that the country did not cope well with overcoming their consequences. The authors note, “It turned out to be impossible to simultaneously maintain the exchange rate and inflation, as well as meet the needs of socially vulnerable population groups. … Administrative measures had the opposite effect” and led to inflation of no less than 40 percent per year (Valdai Discussion Club, September 9). Since the beginning of Russia’s war against Ukraine, some Kremlin propagandists have called for turning to the Iranian experience of living under sanctions. In 2022, several publications appeared trying to analyze the Iranian economy “if projected on Russia” to understand how much of Tehran’s experience could be applied in Russia (Рlusworld.ru, August 1, 2022). Overall, the authors of such articles drew optimistic conclusions that “solving complicated issues stimulates development.” Under sanctions, Iran was able to conduct scientific research and even make breakthroughs—albeit “on a limited scale” (Еurasianet, January 23, 2023). Despite the Valdai Club report, Russia’s continued economic deterioration has caused some in Moscow to look at other countries’ experiences under sanctions, primarily Iran, for a potential model to better combat degradation.

The Valdai experts claim that “government interference in the [Iranian] economy prevented it from adapting to the shocks of the sanctions through market mechanisms.” The authors point to some Iranian successes, including the production of gas turbine engines, refinement of oil, and introduction of nanotechnology in medicine. They admit, however, that “gray schemes and industry successes cannot guarantee long-term economic growth.” The experts see the main problems in the economy’s  statist nature and the serious influence of Islamic religious principles (Valdai Discussion Club, September 9). The Valdai report, however, claims that the Kremlin does not need an objective analysis of the Iranian model and is not prepared to accept expert criticism. As Iran provides Russia with more ballistic missiles and other military hardware, Moscow’s orientation toward Tehran has begun to stray from being pragmatic to ideological (Euronews, September 8).

Not all Russian officials share such skepticism. In 2023, State Duma Chair Vyacheslav Volodin declared that “Russia and Iran are in favor of a fair world order” and proclaimed that the two countries’ relations “are reaching a new level characterized by the strengthening of mutual trust and the deepening of practical cooperation” (Duma.gov.ru, January 23, 2023). Since then, the habit of singing the praises of the Iranian leadership has manifested itself at various levels of the Russian government. For example, earlier this year, Russian Deputy Interior Minister Igor Zubov called Iran “a model of fortitude,” with propagandists citing the smuggling of foreign aircraft into Iran as an example of this resilience (Рarstoday.ir, May 27; Тourdom.ru, July 2). Beginning this school year, the Russian Education Ministry introduced a study of Iran’s economy into schools, framing the country as a “strategic partner” of Russia (Istories.media, September 9). Given this formulation and the general trend toward the degradation and ideologization of education in Russia, it is unlikely that Iran’s economy will be studied from a pragmatic perspective (see EDM, September 9).

Demands for changes in the assessment of the Iranian economy have even been present at the Valdai Club. Also on September 9, the Valdai Club held the presentation and discussion “How to Fight Sanctions: The Iran Experience.” Unlike the report itself, several different assessments of the “Iran experience” were voiced during the event. The main conclusion from the speakers was that “the development of the Iranian economy may be termed relatively successful.” Sumbula Sultanova, executive secretary of the Russian-Iranian Business Council, even cited the statist character of the Iranian economy as a positive factor in the matter of resisting sanctions. In her opinion, “the timely adjustment of the economy by the state permits Iran time and again to remain on course” (Valdai Discussion Club, September 9). Similar conclusions correlate with internal Russian processes as more and more Kremlin “experts” are convinced that the leading “role of the state in the economy is vital” (Rossiiskaya Gazeta, September 13, 2023).

Meanwhile, whether Iran itself is in a hurry to help Russia economically is unknown. Independent analysts note that the trade turnover between the two countries, which increased after the start of the war, fell by almost 20 percent in 2023 as Iran reduced its purchases of Russian wheat. Gazprom’s multibillion dollar investments in the  Iranian oil and gas sector have not yet paid off, as there has not been much development with this funding in the oil and gas sector, and the construction of the Rasht-Astara railway has not yet been launched (Carnegie Politika, May 22). Infrastructure along The North-South transport corridor, essential for transit from the Indian Ocean through Iran to Russia, remains underdeveloped. Moscow may be required to fund most of that developments, though it is running low on funds due to the war in Ukraine (Carnegie Politika, June 8, 2023; see EDM, September 12).

Some analysts note that Iran serves as a symbol that “Russia cannot be isolated,” even though Tehran does not provide Moscow with significant economic assistance (Carnegie Politika, May 22). As more of the world turns its back on Russia, Iran remains one of the few countries willing to strengthen relations. Despite criticism from Moscow experts, the Kremlin seems inclined to invest more in the Iranian economy and potentially copy its model in an effort to mitigate Russia’s growing international isolation.