Iran Signs Free Trade Agreement with Russian-Led Eurasian Economic Union
On May 20, 2015, Eurasian Economic Union (EEU) gave its initial approval to sign a free trade agreement with Iran. Russian representative to the EEU, Andrew Slepnev called Iran, Russia’s and the EEU‘s ‘‘‘Key partner in the Middle East.‘ The EEU may be expecting that current sanctions on Iran will be lifted soon after the June 30 deadline for the current nuclear negotiations and is likely looking to position itself for robust economic relations thereafter. The proposed free trade agreement was approved by all EEU members, Russia, Kazakhstan, Belarus and Armenia. (Kyrgyzstan is set to join the EEU in the near future). An Armenian official noted — perhaps hopefully — that this agreement could increase the likelihood that Iran would use Armenia and Russia as an export route for its oil and gas. He noted that the agreement could reduce transport costs for Iran, making such a route more viable than one traveling through Turkey. (It was also announced on May 21 that the EEU will sign a free trade agreement with Vietnam the week of May 25.)
As an official entity, the EEU came into effect on January 1, 2015, after an initial treaty signing seven months prior. The union acts primarily as a trading bloc, enabling the free movement of goods, capital, services and people and is similar in structure to the European Union (EU). Further, all current member states participate in a Collective Security Treaty Organization, which acts as a mutual defense alliance, although this group is not automatically joined by new members. The EEU is an attempt by the Kremlin to put back together a formal structure resembling the Soviet era. President Putin has stated that his goal is for the eventual membership of all former Soviet states, excluding Estonia, Latvia and Lithuania.
Iran has also been taking steps to reach out to China, likely in an effort to facilitate business arrangements that might be expedited in a post-sanctions environment. At the beginning of April 2015, Iranian officials traveled to China to talk with CNPC and Sinopec about developing its existing oil and gas fields. By putting the pieces in place early with Russia and China, Iran may be seeking to ensure a diversified array of foreign economic partners in order to protect its economy from what could, otherwise, quickly become an over-dependence on Western investment and capital — which is also lined up to enter Iran in the event that sanctions are lifted. Iran likely realizes that Chinese and EEU investment would be far less likely to “snap back,” should sanctions be re-imposed by the West due to compliance-related concerns.