Thursday, 3 August 2017

Russia and Iran sign $2.5B deal

Sanctions backfire: Russia and Iran sign $2.5B deal, as U.S. legislates itself out of a lucrative market

Wade Shepard

Tue, 01 Aug 2017 19:36 UTC

Iranian President Hassan Rouhani (R) meets with Russian counterpart Vladimir Putin.

Russia and Iran signed a $2.5 billion deal on Monday to start up a much-needed rail wagon production operation. The agreementwas forged between the Industrial Development and Renovation Organization of Iran (IDRO) and Transmashholding, who is Russia's largest rail equipment supplier. The two sides will set up a new joint venture, which will be 80% owned - although completely funded - by the Russian partner.
Iran is currently in the midsts of what could be called an infrastructure building bonanza. Emerging from decades of sanctions which left much of the country's transportation infrastructure descending into proverbial ruins, Iran has embarked upon a near complete rebuild of its highway and rail networks. The country is expected to add on 15,000 kilometers of new rail lines in the next five years alone - a rapid expansion which is going to require 8,000-10,000 new wagons each year.

Reinvigorating the transport sector is a key part of Iran's vision to leverage its geographic position to become a vibrant hub of trans-Eurasian trade
which plugs nicely into China's Belt and Road Initiative and Russia's continued economic activity in the post-Soviet neighborhood. Iran is also a core partner, along with Russia and India, in the emerging North-South Transport Corridor, which seeks to create a multimodal trade route that would cut the lead time between cities on the west coast of India and St. Petersburg in half, and has also worked out its territorial squabbles with Russia over the Caspian Sea. 

Comment: In fact, China has been involved in Iran's infrastructure boom, bigly. Funny how U.S. sanctions only pushes countries like Iran, China, and Russia together. Add Syria to that list. And Iraq... We suppose that's what the U.S. considers "winning". Well, so be it. 

Tossed in the same boat by U.S. sanctions, this agreement to produce rolling stock for Iran's new railways is 
the latest in a string of deals that show Tehran and Moscow's growing partnership. Seemingly setting aside a longstanding sentiment of distrust and competition, which resulted from various military fracases throughout the Soviet period, Iran and Russia have recently beenestablishing economic and strategic partnerships on many fronts, including energy, infrastructure development, and military aid - along with being on the same side of the Syria crisis. According to the speaker of Iran's parliament, Iran has also given Russia priority in any industry it wants to invest in. 

Comment: Would you look at that! Old enemies becoming newfound friends. Same goes for Russia and China. If only the U.S. could try to grok the concept, they might actually start winning. 

Trade between Russia and Iran doubled over the course of 2016, with the sale of military equipment - such as MI-17 helicopters and various rocket systems - being some of Iran's most sought after acquisitions. Russian oil and gas companies are also moving into Iran, with Gazprom recently being given the contract to develop the Farzad B gas field
It is estimated that the bilateral annual trade between the nations will soon spike to over $10 billion - which would be up from a paltry, sanctions-induced $1.68 billion in 2014.

Beyond the buying and selling of Persian rugs and commercial airplanes, companies from the United States simply cannot get in on the spoils of a rapidly emerging Iran, as the country maintains its sanctions for Tehran's reputed support of terrorism and its human rights record - sanctions which have recently been intensified. The U.S. also holds a large amount of influence over the actions of European firms in Iran, with companies like France's Total, an oil and gas provider, reportedly needing U.S. approval before entering the market
These are moves which leave everything wide open for Russia.

In this era of mass-cross border trade and investment, the way that countries gain leverage and influence over each other is via increased economic activity and joint development projects. In this fray,
 the imposers of sanctions essentially take themselves right out of the game and leave everything on the table for their rivals to accumulate additional wealth and powerChina knows this; Russia knows this. Putin probably owes the U.S. congress a thank you.
8/2/2017 Update: This agreement was originally reported as an MOU. It was an actual deal.
I'm the author of Ghost Cities of China. Traveling since '99. Currently on the New Silk Road. Read my other articles on Forbes here.

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