Russia Is Prepared to Sell Iranian Oil as Its Own

The Iranian Foreign Minister Mohammad Javad Zarif and the Syrian Foreign Minister Walid Muallem have flown to Moscow on the same plane this week to meet their Russian counterpart, Sergei Lavrov, to discuss the situation in Syria and the Geneva II peace conference due later this month. Zarif also met with President Vladimir Putin to reportedly discuss an unprecedented deal to barter Iranian oil for Russian goods. Informed sources in the Russian government have confirmed that Moscow is in the process of finalizing an agreement to buy half a million barrels of Iranian crude a day, while Iran will buy Russian goods in exchange. At present, Iran exports only a million barrels a day as a result of United States and European Union sanctions aimed to curtail its nuclear program. Western-imposed banking restrictions have also severely hampered Iran’s ability to freely use its oil revenue. China is currently Iran’s biggest oil buyer, taking in some 420,000 barrels of crude a day in exchange for other goods. If the oil deal with Russia goes ahead, Iran may extend its shrunken oil exports by 50 percent and collect some $1.5 billion in extra revenue a month. This may undermine Western sanctions, which may have forced Iran to consider permanently constraining its nuclear program in the first place; while Russia may become Iran’s main oil buyer (https://www.kommersant.ru/doc/2384617).

Of course, unlike China, Korea and India, which have traditionally imported Iranian oil for domestic consumption, Russia is one of the world’s biggest oil producers and exporters. Russia does not need Iranian crude, its refineries are not designed to use it, and Russia does not have import facilities to handle Iranian crude from the Gulf—its oil ports are exclusively exporting facilities. Moreover, it is hardly feasible for Russia to offer Iran some $18 billion worth of needed goods a year to barter the oil, since Russia mostly exports oil, natural gas and metals itself. A Russia government source has explained: “The deal with Iran will not be simple barter—it will involve money—and since Russia did not undersign Western anti-Iranian sanctions, we are not obliged to wait for them to be removed.” Russia may sell the Iranian crude in the Asia-Pacific region to “increase its presence and influence in this growing market.” (https://www.kommersant.ru/doc/2384617).

Moscow has performed similar deals in the past: During the long and bloody Iran-Iraq war of the 1980s, Russia was sending the Iraqi dictator Saddam Hussein massive amounts of weaponry and receiving large amounts of Iraqi crude in exchange. The Soviet Union did not need this crude and could not physically import it (same as Russia today), so the oil was sold to other customers, primarily India—a Cold War ally. Today, Russia may again take Iranian crude, rename it “Russian” and sell it as its own. Tehran will receive part of the proceeds in cash and part in Russian goods. This could effectively breach the US-led trade and financial blockade and make Tehran less inclined to make serious concessions on its nuclear program. The US administration has expressed concern about Russian plans to “buy Iranian crude,” but Russian foreign ministry officials told journalists: “We told the Americans it is none of their business; we may buy any amount of Iranian oil and sell Iran any goods we choose.” Russia it not breaching any mandatory United Nations sanctions by buying Iranian crude and selling Iran goods, the officials noted, while the unilateral Western oil and financial sanctions against Iran “are illegitimate” (https://www.kommersant.ru/doc/2384617).

Furthermore, Moscow is insisting that Tehran must take part in the Geneva II talks on Syria without any preconditions and that Washington does not have veto power to prevent Iran from participating. During a joint press conference in Moscow with Iranian Foreign Minister Zarif, Lavrov insisted, “The UN Secretary General is solely responsible for inviting participants to Geneva II, and Iran will inevitably have a leading role in settling the Syrian crisis” (https://voiceofrussia.com/news/2014_01_16/Russia-concerned-about-attempts-to-narrow-membership-of-Geneva-conference-4601/). Russia and Iran are the two major backers of the Bashar al-Assad regime in Syria and seem to be closely coordinating their positions with Damascus. The possible deal to buy Iranian crude in exchange for Russian goods was reportedly reached in principle during talks between Putin and Iranian President Hassan Rouhani last September in Bishkek, Kyrgyzstan, on the sidelines of the Shanghai Cooperation Organization summit (https://www.kommersant.ru/doc/2384617). While meeting Putin this week in Moscow, Zarif announced that Iran hopes Putin will visit Tehran “very soon,” confirmed that Rouhani is very pleased with talks on the phone with Putin “several days ago,” and that “we [Iranian authorities] are ready to fulfill all that has been agreed with you [Russia]” (https://www.interfax.ru/news/352025).

The Russian companies that will handle the oil bypassing Western sanctions and the banks that will handle the revenue and channel it back to Tehran may expect hefty discounts and under-the-table kickbacks. Most likely, those involved will be not Russian oil majors, since there is a threat that the US may slap sanctions in revenge, but smaller entities closely connected to Kremlin insiders and the Russian security services (the “siloviki”). In fact, a dramatic increase in Iranian oil exports may sway the world price of oil lower—to the overall disadvantage of Russia’s oil majors and the national budget. But when special Kremlin-connected interests are involved, overall national interests take a backseat.

Anatoly Chubais, former deputy prime minister, privatization tsar in the 1990s and liberal politician also known to be well connected to Putin, commented that he did not know the particulars of the possible oil deal with Iran, but that “this is a political, rather than an economic decision.” According to Chubais, “Iran and Syria are the greatest Russian geopolitical triumphs in the last 10–15 years” and “victory may come with a price.” Russia forced the Barack Obama administration to abandon plans to militarily punish the al-Assad regime for using chemical weapons against the opposition and imposed on the West its opinion that Tehran must be appeased to make progress on its nuclear issue—a view shared by many in Moscow (https://ria.ru/world/20140116/989533840.html#ixzz2qYai6nqk). Apparently the Obama administration is increasingly seen in Moscow as an easy pushover. The White House may fret and protest if Russia acts as a semi-criminal “fence” (a buyer and seller of stolen goods) of sorts that pushes Iranian crude on the world market, but is not inclined to do anything drastic because it badly needs the support of Putin—the victorious and dominant world politician who has seemingly triumphed over Obama time and again.