Orbeli Center

Political and economic significance of Iran’s cooperation with EEU

Armen Israyelyan Iranologist, PhD in Philology
Date of publication : July 21, 2019 12:02 pm
Share/Save/Bookmark
 
The nuclear deal signed between Iran and the “5+1 Group” entered into force after a few months of the Eurasian Economic Union (EEU) agreement. This opened a wide range of opportunities for economic cooperation with Iran and the West.
 

The nuclear deal signed between Iran and the “5+1 Group” entered into force after a few months of the Eurasian Economic Union (EEU) agreement. This opened a wide range of opportunities for economic cooperation with Iran and the West.
Experts who were skeptical about cooperating with EEU, mentioned, that after the nuclear agreement, that although the cooperation with the Eurasian Economic Union has not been one of Iran’s foreign political priorities Iran’s true national strategic principles have been foreign policy diversification. Iran did not underestimate the cooperation with EEU, and started to negotiate actively with this newly established structure.  
Iran’s favorable geographical position, strategic highways, transit importance and railway terminals including their ports enable it to connect the east to the west and the north to the south.
While implementing foreign trade, Iran equally underlines development of both land, rail and sea roads, and considers the following corridors for joining the regions of Europe, Russia, South Caucasus, the Caspian Sea, Central Asia and the Persian Gulf: [1]
   Name of the Corridor Direction
“North-South” Bandar Abbas ⮀ Astara⮀ Azerbaijan
⮀  Astrakhan ⮀ Russia ⮀ Finland
The Persian Sea - Black Sea     Iran ⮀ Armenia ⮀ Georgia ⮀ Bulgaria ⮀ Greece
Bandar Abbas – Almaty     Turkmenistan (the Sarakhs border) ⮀ Uzbekistan ⮀ Kazakhstan
Istanbul-Almaty”     Turkey ⮀ Iran ⮀ Turkmenistan ⮀ Uzbekistan ⮀ Kazakhstan
Chabahar – Turkmenistan     Chabahar port (Sistan and Baluchistan, the Gulf of Oman) ⮀ Zahedan ⮀ Mashhad ⮀ Sarakhs ⮀ Turkmenistan  
China-Mediterranean Sea     China ⮀ Kazakhstan ⮀ Turkmenistan ⮀ ⮀ Iran ⮀ Iraq ⮀ Syria ⮀ Mediterranean Sea
Iran’s rail network is about 10 thousand kilometers, and they are planning to expand it up to 25 thousand kilometers, currently 750 kilometers is under construction [2].

Picture 1: Iran’s Rail Network
The deepening of economic ties with Central and Eastern Asian countries is one of the main priorities of Iran’s foreign policy. The Shanghai Cooperation Organization (SCO) is of primary importance for the Islamic Republic of Iran from a political and security perspective. In recent years, Iran has been making special efforts in joining the organization.
The cooperation with the Eurasian Economic Union the economic component is important for Iran. Iran will try to enter the Shanghai Cooperation Organization as a full member, which many of these are EEU members. In this regard Iran expects Russia’s support.
Although Iran has a land and sea border with Armenia and Russia, also EEU members, it is linked to Kazakhstan with a rail line. (Iran-Turkmenistan-Kazakhstan railway opened in 2014) [3] Considering the economic trade between the above mentioned countries the overall cooperation is still rather weak.
Moreover, Iran has set high customs duties for certain products in order to support local producers. Every year in Nowruz, the IIR spiritual leader, instructs the executive, legislative and judicial bodies to carry out such activities within the framework of “Resilient Economy”, which will support local producers, production of Iranian goods and will promote trade. For instance, in 2018, the Government of Iran banned foreign goods in the list of products purchased for state institution needs [4]. Despite the restrictions, imports required for the organization of a production is highly encouraged. In this regard, the IIR Ministry of Trade, Mines and Production runs a flexible policy: when the demand for any of the products grows in the country, the Government temporarily permits its import. The opposite process also happens: when a good produced in Iran has a wide consumption, its export is temporarily prohibited. For instance, the export of egg, day-old chicks, silk and a number of other products from Iran were banned from January 1, 2019 and the ban on the export of tomatoes and paste was taken off from January 10-Fabruary 19 [5].
Based on the above, prohibiting the import of a product in Iran, it should be noted, that the process is regularly reviewed. Hence, organizations trading with Iran should follow Government decisions and in case of any demand, can quickly sell their goods in Iran.  
Despite the restrictions, Iran has set preferential terms of trade with Turkey, Belarus, Uzbekistan, Kyrgyzstan, Cuba, as well as with Bosnia and Herzegovina.
On May 17, 2018, after signing of an agreement aimed at forming a free trade zone between Eurasian Economic Union and Iran and after the ratification of the participating countries’ parliaments, Iran will continue its cooperation with Belarus and Kyrgyzstan within this agreement’s framework [6].
There is hope that the efficient economic cooperation between Iran and Turkey will be an example for EEU members. Based on the treaty on “Preferential Trade Regime”, Turkey has the right to export 125 kinds of goods and Iran has 140. Recently, Iran and Turkey have been negotiating on Iran’s initiative so as to revise the goods list [7].
General overview and product structure of Iran’s Foreign Trade
According to Iranian calendar, the New Year starts from March 21 and now it is 1398 in Iran. In April 2009, Iran’s Trade, Industry and Mines Ministry published the trade results of 1397, by summing up the economic year (from March 2017 to March 2018). Based on this logic, the results of the March 2018-March 2019 will be published by March 2020. Iran’s export in the Iranian year of 1397 (now on 2017-2018) amounted 44 bil. 310 mil. US dollars, which has decreased by 5.7% compared to the last year. At the same time, the imports totaled 42 bil. 612 mil. US dollars, which has decreased by 21.7% compared with the previous year.
Exports
Having rich oil and gas reserves, Iran conducts most of the budget expenditures on oil revenues. If in 2018, budget dependence on oil was 40%, then in the budget of 2019 it would amount to 67 % [8]. Although Iran’s President Hassan Rouhani was gradually reducing the oil dependency on the budget, after American sanctions on Iran, Rouhani’s government failed to fully implement the programs aimed at making the economy more competitive and promoting the export of Iranian goods.  
In commodity structure, the first 5 exported non-oil products are:
  Name of Product       Cost (US dollars )
  Gas Condensate   4 bil. 953 mil.
  Natural Gas   1 bil. 924 mil.
  Propane   1 bil.710 mil.
  Oils   1 bil. 456 mil.
  Methanol   1 bil. 350 mil.
The first 10 major export markets are:
   Country    Exports results   
  China   9 bil. 218 mil.
  Iraq   8 bil. 961 mil.
  United Arab Emirates     5 bil. 955 mil.
  Afghanistan   2 bil. 927 mil.
  South Korea   2 bil. 568 mil.
  Turkey   2 bil. 369 mil.
  India   2 bil. 43 mil.
  Pakistan   1 bil. 247 mil.
  Indonesia   787 mil.
  Oman   729 mil.
It is noteworthy, that the shares of the first 5 markets forms 67% in Iran’s foreign trade (exports). Only Russia is involved in the list of the EEU member states first 20 countries, ranking the 14th place with 281 mil. US dollars result. Azerbaijan ranks the 12th place with 411 mil. dollars result and Turkmenistan ranks the 13th place with 400 mil. dollars result.
Exports results according to group of countries
  Countries group   Export results  
 Organization of Islamic Cooperation (OIC)   54 bil. 619 mil.
  Persian Gulf Cooperation Council   (PGCC)               20 bil. 920 mil.
  Economic Cooperation Organization (ECO)   17 bil. 879 mil.
  Association of Southeast Asian Nations (ASEAN)   4 bil. 864 mil.
  Commonwealth of Independent States (CIS)   4 bil. 188 mil.
  European Union (EU)   1 bil. 161 mil.
 

Picture 2:  Structure of Iran’s Foreign Trade. Exports and Imports of Non-oil Products. 
Imports
In the commodity structure, the first five imported products are:
  Product name Cost (US dollar)  
  Fodder (corn)   2 մլրդ. 90 մլն.
  Rice   1 մլրդ. 608 մլն.
  Automobile parts for motor vehicle production      1 մլրդ. 380 մլն.
  Soya   1 մլրդ. 161 մլն.
  Soya cavity   651 մլն.
From an import viewpoint, the following countries occupy the top ten in Iran’s foreign trade:
  Country   Cost / dollar
  China   10 bil. 315 mil.
  United Arab Emirates     6 bil. 567 mil.
  Turkey   2 bil. 617 mil.
  India   2 bil. 595 mil.
  Germany   2 bil. 472 mil.
  Switzerland   2 bil. 105 mil.
  South Korea   2 bil. 50 mil.
  Russia   1 bil. 343 mil.
  Holland   1 bil. 159 mil.
  Italy   1 bil. 145 mil.
Import results of 2018 based on the group of countries
  Group of countries    Imports results    
   European Union (EU)   9 bil. 85 mil.
   Organization of Islamic Cooperation (OIC)   6 bil. 696 mil.
   Persian Gulf Cooperation Council (PGCC)   5 bil. 921 mil.
   Economic Cooperation Organization (ECO)   3 bil. 72 mil.
  Commonwealth of Independent Countries
 (CIS)
  1 bil. 721 mil.
   Association of Southeast Asian Nations (ASEAN)     1 bil. 674 mil.
After the Presidential election in Iran in 2013, when Hassan Rouhani was elected as a president, the relations’ regulation and deepening of economic ties with the neighboring countries were declared as the IIR foreign policy priority. In recent years, they have managed to deepen economic ties with neighboring countries.
The following result has been registered in foreign trade between Iran and the neighboring countries (from March 2017 to March 2018)
Country Exports / dollar Imports/  dollar Totall
  United Arab Emirates   5 bil. 955 mil.   6 bil. 567 mil.   12 bil. 522 mil.
  Iraq   8 bil. 961 mil.   59 mil.   9 bil. 20 mil.
  Turkey     2 bil. 369 mil.   2 bil. 617 mil.   4 bil. 986 mil.
  Afghanistan   2 bil. 927 mil.   11 mil.   2 bil. 938 mil.
  Russia   281 mil.   1 bil. 343 mil.   1 bil. 624 mil.
  Pakistan   1 bil. 247 mil.   330 mil.   1 bil. 578 mil.
  Oman   729 mil.   433 mil.   1 bil. 161 mil.
  Azerbaijan   411 mil.   21 mil.   431 mil.
  Turkmenistan   100 mil.   9 mil.   410 mil.
  Kuwait   253 mil.   12 mil.   265 mil.
  Qatar   225 mil.   10 mil.   235 mil.
  Kazakhstan   131 mil.   87 mil.   218 mil.
  Armenia   159 mil.   23 mil.   182 mil.
  Bahrein   12 mil.   1 mil.   13 mil.
  Saudi Arabia   0,1 mil.   0,3 mil.   0,4 mil.
Exports: Studying the trade turnover between Iran and EEU member states in 2018, we see that it is rather low: Iran imports more than exports to Eurasia.
EEU member states’ share in Iran’s foreign trade:
  Country   Cost / dollar
  Russia   264 mil.
  Armenia   143 mil.
  Kazakhstan     121 mil.
  Kyrgyzstan   28 mil.
  Belarus   2 mil.
Imports
  Country   Cost / dollar 
  Russia   1 bil. 139 mil.
  Kazakhstan      79 mil.
  Armenia   22 mil.
  Belarus   21 mil.
 Kyrgyzstan   7 mil.
The cooperation with the Eurasian Economic Union has both economic and political significance for Iran. It should be mentioned first of all, that the EEU is the first international organization, with which Iran has signed a treaty. This is especially important for Tehran, who before joining the World Trade Organization (WTO), considered the cooperation with the EEU as a test for such kind of models.
When the issue of cooperating with EEU was being discussed in the IIR Mejilis, the parliament of Iran approved the trial of a three-year cooperation with the Eurasian Economic Union, after which Iran can become a permanent member as a result of negotiations.  
Actually, the probation period is necessary for both Iran and the main members of the EEU, because when two sides were negotiating, the US had not yet finished with the nuclear agreement, the US sanctions against Iran weren’t restored and Iran didn’t perform its part of the commitment under the nuclear agreement.
Touching upon the economic factors, Iranian goods have a competitiveness problem: regardless of the fate of the nuclear agreement could have had on Iran, it could of had serious problems exporting goods to Europe, as the Iranian goods are not competitive both in quality and in cost compared for example with Turkish goods. Therefore, the EEU market gives Iran an opportunity to export and to catch investments.
Iran, being an oil and natural gas exporting country, is enticing for the EEU. Various mechanisms are connected with the sale of oil under the sanctions towards Iran. Oil production in EEU countries is about 634 mil. tons annually, with the world’s 14.5% share. In total, gas production has totaled about 745 mil. cubic meters. It ranks the second place in the world’s gas production and in electricity production the EEU ranks in 4th place, with about 1bil. 255mil. KW hours electricity being produced annually. The value of agricultural products in the Union is 123.9 mil. dollars, accounting for 5.5% of the world’s agricultural production [9].
The political component of the cooperation between Iran and EEU, will give Iran an opportunity to further deepen cooperation with the Shanghai Cooperation Organization (SCO). Joining the SCO is one of the main foreign policy priorities of Iran over the last decades.

Although Iran and Europe arranged to continue their economic cooperation after Washington’s withdrawal from the nuclear agreement, European Companies gradually withdrew from Iran after the recent actions applied on Iran by the US.
In reality, both the economic and political significance of EEU grew for Iran. The prospect of cooperating with Iran raised some concerns for some members of the EEU, but as mentioned by the EEU Board Chairman Tigran Sargsyan during the EEU intergovernmental council session: “The sanctions applied to Iran create additional opportunities for EEU members, especially for Armenia” [10].
What refers to the Iran-Armenian cooperation within the EEU framework, is a “remarkable” a message made by the Iranian side during the conference held in Yerevan. Particularly, Mohammad Hossein Farhangi, the Deputy of the IIR Mejilis, referring to the integration of the northern provinces of Iran to the regional economic projects, stressed the importance of the Tabriz-Armenia highway construction. He said that after the highway construction it will be possible to reach the RA border from Tabriz within an hour [11].
After the nuclear agreement signed between Iran and “5+1”, Armenia could not find its place in the Iranian market. Another issue is that the nuclear agreement lost its significance too quickly; but if we recall the active contacts between Iranian and European companies in 2015, we will record, that not having any direct land border with Iran, Georgia was quite ahead of Armenia with its initiative and recorded tangible economic results in a short period of time.   
Lastly, from an infrastructural point of view Russia and Kazakhstan, which are both EEU members, are in a better position, Armenia’s advantage is having a land border with Iran. Therefore, we should take steps, modernize the infrastructures connecting with Iran, renew the agreements between “Meghri” and “Aras” free trade zones, work actively with Iran’s state and private sections and familiarize Armenian and Iranian businessmen with cooperation opportunities and legislation within the EEU framework.
[1] https://www.mehrnews.com
[2] https://www.radiofarda.com
[3] https://www.youtube.com
[4] https://www.isna.ir
[5] http://tpo.ir/index.aspx
[6] http://www.eurasiancommission.org
[7] https://www.mehrnews.com
[8] https://www.icana.ir
[9] http://www.irna.ir
[10] http://www.primeminister.am
[11] https://www.tasnimnews.com/
ID: 3851