The July 14th agreement on Iran’s nuclear program with the P5+1 will prove fruitful for Russia in the immediate future. Sanctions-relief on Iran has provided Russia a greater opportunity to do business with the Islamic Republic. Russia has already signed lucrative deals with Iran in the past 12 months. In November 2014, Russia signed a multi-billion dollar agreement with Iran to build two nuclear reactors at the Bushehr nuclear power plant. In addition to constructing the facilities, Russia will sell nuclear fuel for the reactors.
The economic benefits of the relationship also cover areas of military cooperation. Russia has signed an agreement to sell and transfer Russian military equipment to Iran in the future. This includes the continued transfer of the controversial S-300 anti-missile defence system. Russia understands that Iran’s military is out-dated and is in urgent need of modern weapons, so taking advantage of the continued mistrust on military matters between the West and Iran means Russia will continue to have an advantage in this sector. Similarly, Russia has made headway in selling space technology, investing in oil and gas drilling, exporting pipeline construction and railway development in Iran.
On the other hand, Russia is set to lose out on the gradual entrance of cheap Iranian oil and gas to the world energy market. The already low price of oil and gas has battered the Russian economy intensely, with prospects of cheap Iranian oil gushing the market significantly reducing the revenue of Russia’s main export to the world. An increase in natural gas exports from Iran to the region will put downward pressure on gas prices, reducing Europe’s dependence on Russian gas. According to energy market analysts, it would take Iran approximately one year to increase its oil and gas production capacity. To prepare for this, Russia has taken a couple of measures to mitigate the consequence by signing a twenty-billion dollars barter arrangement, where Russia buys up Iranian oil in exchange for Russian goods and services. In effect, this would mean Russia could hoard surplus oil from the world energy market until prices rise.
Geopolitically, the nuclear accord is likely to empower Iran as a regional power, allowing it to execute its foreign policy with fewer constraints from the international community. Russia and Iran stand to gain from cooperating with each other on regional issues, like keeping Syria’s Bashar al-Assad in power, whilst uniting in opposition to Saudi Arabia’s actions in the region. Russia has substantial concerns for Saudi Arabia’s support for Sunni radicalism in the region and its potential of entering Russia’s troubled Caucasus region. It would also be a symbolic sign of protest against Saudi Arabia’s effort to reduce global oil prices, which has undermined Russia’s economy.
Lastly, Russia’s further cooperation with Iran ensures that it will retain a foothold in the region, influencing Middle Eastern diplomacy from a non-western approach. In sum, Russia is set to gain from the nuclear accord, albeit with an impact on Russia’s energy market.