Publication: Eurasia Daily Monitor Volume: 2 Issue: 38

Despite differences between Russia and the United States over Tehran’s nuclear ambitions, Moscow nonetheless continues to move towards boosting economic ties with Iran.

Moreover, the Kremlin remains keen to strengthen its partnership with Tehran. At a meeting in Moscow with the visiting Secretary of the Iranian National Security Council, Hasan Rouhani, on February 18, Russian President Vladimir Putin reiterated his readiness to develop cooperation with Iran. Putin also accepted an invitation to visit Tehran later this year.

For years, the Kremlin has resisted U.S. pressure and declined to limit ties with Iran. In March 2001, Putin and Iranian President Mohammad Khatami signed a cooperation treaty. Subsequently, in October 2001, Moscow and Tehran signed framework agreements for $300-400 million a year of Russian military supplies to Iran, including spare parts for Russian-made weapons, new fighter jets, and possibly air defense, ground-to-ground, and anti-ship systems.

Russia has other interests in Iran apart from the controversial Bushehr nuclear project. The fifth meeting of a bilateral inter-governmental commission on economic and trade cooperation, held December 14-17, 2004, discussed oil and gas, energy, nuclear power, transportation, and financial cooperation between Russia and Iran.

Both sides expect a $2 billion trade turnover in 2005. Russia and Iran also plan to sign a contract on supplying five Russian-made Tupolev-204-100 passenger planes to Iran this year.

Russian officials have hailed the South Pars offshore gas field development project as an exemplary example of multilateral cooperation. South Pars phases 2 and 3, developed by Russian gas giant Gazprom, French Total, and Malaysian Petronas, are already operational and are expected to eventually produce 2 billion cu. feet per day of gas on top of 80,000 barrels per day of condensate.

South Pars is due to be developed in up to 30 phases over 25 years. The South Pars gas field is located near the border between Qatari and Iranian waters in the Persian Gulf. It is estimated to contain around 812 trillion cubic feet (14 trillion cubic meters) of gas, equal to seven percent of the world’s proven reserves and roughly 50% of Iran’s.

Russia’s Finance and Economy Minister, Viktor Khristenko, has also highlighted the importance of the Sangtudin hydropower venture. “This is a promising project for Iran, as a consumer of electricity, and for Russia and Tajikistan,” he said in December 2004.

Russia has been discussing with Iran and Tajikistan a plan to jointly construct the Sangtudin hydropower station in Tajikistan. Last September, Tehran and Dushanbe concluded an agreement to launch a joint venture to build the 670-megawatt Sangtudin plant.

Iran would bear 51% of the total construction cost, estimated at about $500 million. Forty-nine percent of the project is to be funded by Tajikistan and other countries, including Russia. Moscow has pledged $100 million for the project.

However, the project has been split in two. On February16, Russia and Tajikistan signed an agreement on setting up the Sangtudin GES-1 joint venture, in which Russia received a 75% stake (Itar-Tass, February 16). Russia and Tajikistan would jointly build Sangtudin-1, a 670 MW plant for $250 million, while Iran would help Tajikistan build Sangtudin-2, a 220 MW plant for $180 million.

Russia and Iran have long discussed restoring a rail link between the two countries within the framework of the North-South transport corridor agreement. Russia is trying to make the North-South transport connection a viable alternative to existing Red Sea routes. An alternative transport link from Asia to Europe — from Mumbai, India, to the Caspian port of Olya in the Astrakhan region via Bandar Abbas in Iran — is expected to bring Russia billions of dollars in revenues.

In May 2004, railway executives from Russia, Iran, and Azerbaijan met in Moscow and agreed to build the Kazvin-Resht-Astara rail link connecting the three countries. Gennady Fadeyev, head of the state-run Russian Railways Company (RZD), pledged to build a $100 million, 340-kilometer rail link connecting Russia to the Persian Gulf via Azerbaijan and Iran.

Russia estimates that the link would be able to handle some 20 million tons of freight per year, hence becoming a rival of the Suez Canal. The route would be an alternative transit corridor between Asia and Europe. Russia estimates that the annual trade turnover through the corridor could reach $10 billion per year, with Russia and Iran becoming the main beneficiaries.

Russia, India, and Iran signed an agreement on the development of the North-South corridor in September 2000. In March 2002, President Putin signed into law a bill ratifying a trilateral agreement on the development of the North-South link. Freight from Southeast Asia would travel the corridor from the Indian Ocean through the Persian Gulf, where it would be loaded onto trucks and trains in Iran. The cargo would then be shipped across the Caspian Sea into Russia then forwarded to Western Europe.

Earlier in February 2005, a first shipment of goods went through the Olya port. Some 1,500 tons of chemicals were funneled from Turkmenistan to Ukraine (Regnum, February16).

However, the project has inspired some skeptical coverage by the Iranian media. No one needs the North-South corridor, commented on February 9. The project has been seriously hindered by a lack of funding, as well as missing security guarantees for freight funneled through the corridor, the website argued.