Assessing the economic threat posed by the anti-Western axis
, Russia’s president, and Ebrahim Raisi, his Iranian counterpart, have several things in common. Both belong to a tiny group of leaders personally targeted by American sanctions. Even though neither travels much, both have been to China in recent years. And both seem increasingly fond of one another. In December they met in the Kremlin to discuss the war in Gaza. On March 18th Mr Raisi was quick to congratulate Mr Putin for his “decisive” election victory.
Russia and Iran have little choice but to sell to China. In contrast, China is only subject to restrictions on imports of Western technology—it does not face finance bans or trade embargoes. Thus it can, and does, buy oil from other countries, which gives it the upper hand in negotiations. China gets Russian and Iranian supplies at a discount of $15-30 on the global oil price, and then processes the cheap hydrocarbons into higher-value products.
Limited trade between Iran and Russia means they lack common banking channels and payment systems. Despite government pressure, neither, the global interbank messaging system) or Mir is widely used by Iranian banks. Efforts to de-dollarise trade led to the creation of a rouble-rial exchange in August 2022, but transaction volumes remain low.
Iran and Russia’s bureaucracies have relatively little experience of working with one another, and the amount of investment required is daunting: the Russia-backed Eurasian Development Bank estimates it to be $26bn in Iran and Russia alone. Mustering such funding, in two countries not known for investor friendliness, would be hard at the best of times, let alone under sanctions. Still, the idea is gaining traction.
In other areas, China has become a competitor to Iran. Until recently, the Islamic Republic’s sizeable manufacturing base was a source of resilience. The country could take advantage of a devalued currency to sell nuts and toiletries, says Esfandyar Batmanghelidj of Bourse & Bazaar Foundation, another think-tank. Its hope, in time, was to climb the value chain, exporting air-conditioning units and perhaps even cars. China is dashing such dreams.
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