American sanctions against Iran have obstructed the trade of the country with many of its partners. However, the EU recently made a significant step to overcome this obstacle by launching a mechanism called INSTEX. The Eurasian Economic Union is also helping to ease the economic plight of Iran: last year two sides signed an agreement to create a free trade zone which will increase their trade turnover. Gulf State Analytics expert Omid Shokri – on the Iran – EAEU relations, dedollarization and American sanctions on Iran.
- Mr. Shokri, the Eurasian Economic Union and Iran have practically agreed to create a free trade zone. In your opinion, what will it give to Iran? How will this agreement affect the economy of Iran and the countries of the Eurasian Economic Union?
- Iran is under the sanctions. Iran's economy is damaged by sanctions imposed by Trump's administration. Iran is looking for way to play an important role in region and specially trying to take a role in regional organization such as Eurasian Economic Union.
I think this organization will give an opportunity to Iran to increase its relations with its neighbors and to keep peace and stability in the region.
In economic point Iran can increase the trade volume with member-states and to try to export more goods to the members of EAEU. It will try to import goods from these countries. It also wants to use their own currency in instead of using dollar.
- What is Iran ready to offer? What products would Iran like to export to the countries of the Eurasian Economic Union? What products would Iran like to import to these countries?
- Iran holds a potential to export goods to a new market. New markets will help Iranian factories and Iranian private sector to recover their financial position, because their financial position damaged by sanctions imposed by US. I think at a short term Iran will hold the potential to export goods such as food products, fruits, dry fruits, construction materials, and also electronic and mechanical equipment to Eurasian Economic Union.
The price and quality of Iranian goods will be the main question toward Iran. Iran’s good to be competitive with other countries goods to take more share in new market.
And I think this new market holds the potential to help Iran's private sector and the state of Iran to recover its production capacity and also the quality of production.
- In your opinion, can Iran in the future join the Eurasian Economic Union after signing an agreement on the creation of free trade? And also, on what conditions could Iran become a member of this organization?
- Iran's top officials many times expressed their interest to joining to this EAEU and. Iran needs cooperation between organization such as Parliament and Government. to set regulations to play important role in this Economic Union. Because Iran is under sanctions and trying to play the role it played before the sanctions. And it is trying to extend its political and economic influence in Central Asia and other near regions.
- Russia and Iran, trapped in the regular sanctions list of Washington as allies of Syria, are ready to finally close the door to the dollar. As the Russian ambassador in Tehran said, the US currency will not be used in mutual settlements anymore. Only the ruble and the rial, in extreme cases - the euro. In your opinion, what challenges could Iran face?
- Russian ambassador to Tehran said that both counties trying to remove dollar from the trade. They are trying to use their own currencies -rial and ruble. Sometimes they also try to replace euro to dollar. Before Russia and Iran, China tried to use its own currency - yuan in its business relations with other countries. Chine tried to reduce the tendency of using of dollar in economic relations with any country in any part of the world.
Last year Iran also tried to come to agreement with Turkey to use their currencies - rial and lira - in economic relation.
I think using the national currency gives opportunity to Iran and Russia trying to increase their trade volume.
But it should be noted that they have some problem in exporting and importing goods from both countries. The private sector also faces problems in exporting and importing goods from Russia to Iran or from Iran to Russia.
Both countries before using their own currencies tried to solve any problem regarding to business and private companies in both countries. But I think these countries made the decision to use their national currency in middle term or long term. Both countries hold the potential decrease the tendency of making trade in dollar in economic relations. If the success will be in this regard some other countries will also try to use their own currency in business relations with each other. I think that they may face some problem and also will try to solve the problem their national currency could face.
- Please tell us about how Iran overcomes US sanctions? How is Iran struggling with US sanctions? How did the sanctions affect Iran and the Iranian people?
- The first priority for US administration to impose sanctions against Iran's energy sector to decrease Iran's oil export and maybe to drop its oil export to zero. I think it will be a little bit hard to do this in short term.
But in mid-term and in long term it will be possible for US to decrease dramatically Iran's oil export, because at present they have oversupply in market and this oversupply gives the opportunity to US to successful sanctions against Iran's oil export. Iran has some plans to play key role in regional and international energy market. Iran is trying to use energy exchange and potential of private sector in buying and selling of Iranian oil. And also Iran is trying to give a special discount to major oil buyers such as China and India. And also, Iran is trying to search other countries to sell its oil.
Iran is under sanctions faced because of this many problems. Iran's economy damaged by sanctions. We have a very high level of unemployment. There is a major problem to pay money to workers. Factories are closed down due to sanctions. Iran is searching some way in order to overcome sanctions. But in short term we can follow news that broadcast that in a short term people will be affected by sanctions. And as I mentioned there is high unemployment and major factories closed. Workers even protest against the government. As we can see it took place in some provinces of Iran. And workers of Neyshekar Haft Tappe ,Masjed Soleyman, Khozestan Provine, protested for last months against the government. They demanded the government to pay attention to their problem and solve it. We can see such protest in other cities and major factories in coming months and years.
- European countries have established an INSTEX financial transaction mechanism to circumvent US sanctions. Why did the EU go for it? Why Europe is not afraid of the United States? And what are the risks for Europe?
- It should be noted that we have to focus on the trade volume between EU-US and EU with Iran. By the end of 2017 trade volume between EU and US was 610 mln. dollars. And that period the trade volume between Iran and EU was just 14 mln. dollars. Interesting that the trade volume between EU and US was 70 times more that the trade volume between Iran and EU.
It is clear that EU's first priority is to keep its relations with US and economic interest in US.
Some of EU members trying to keep Iran in nuclear agreement but as you can see in INSTEX detail EU has a little potential. But Iran is expecting more. It has a little interest, has a little potential to give Iran what it needs.it can be see INSTEX as a political statement. It is showing that EU will be able to act as the actor in international political system and international market. But I think that this INSTEX will not be in favor of Iran.
- Representatives of the three countries - Russia, India and Iran - signed a cooperation agreement to speed up the organization of the North-South international transport corridor, which will pass from Russia to India through Tehran. And as you know, the project is delaying because of Iran, the Iranians have not yet completed the construction of a railway on their territory. How do you assess the prospects for the implementation of this project? Do you think India and Russia will help Iran with money?
North-South transit corridor is the shortest multimodal transportation road linked Indian ocean and Persian Gulf via Iran and Russia to the Northern Europe. The estimated capacity of the corridor is about 20-30 mln. dollar goods per year. And it reduce the time and cost by about 30 to 40 percent. Russia has invested about $1.2 bln. dollars, India has also huge invested into this project. But the major problem is the calculating this project. As we mentioned the question is the linking a railroad between Astara and Resht in North Iran.
Iran has a problem to supply the required financial resources to complete this project. By January 2018, At the meeting of the Iranian Cabinet under the chairmanship of President Hassan Rouhani it was agreed to receive a loan in the amount of $500 million from Azerbaijan for the construction of the Rasht-Astara railway. Under the decision three years is given for a loan and the construction of the project and seven years for the return of the loan. Earlier, Deputy Minister of Roads and Urban Development Ali Noorzad said that the loan will be allocated at low interest rates - about 2.5 percent per annum.
But sanctions against Iran do cause problems for this and for the completion of other transit projects in any other part of Iran. I have to say that North-South corridor is designed to connect Northern Europe with India and Southern Asia and connect railroad in Iran-Azerbaijan-Russia.
The major problem is the sanctions of the US. Iran also got problems with domestic resources in completing of the required project.
The corridor gives an opportunity to Iran to transport the goods from India west coast to Iran Bender Abbas and one other port to Central Asia states and Russia. This is the best chance for Iran to use this project to export more goods with low transit fee to get more economical and political benefits to this project.
Due to sanctions Iran has a very hard problem to find fine financial companies or fine financial institutions maybe which are interested in this project and Iran with all domestic reserves has a little chance to complete this project according to timeline. As you mentioned according the timeline Iran could complete this project two or three years before. But Iran was not unable to do this by the end of last year. And now the problem is expected to go all 2019 because of the sanctions and because of Iran is unable to find technologies and financial capabilities.