The second half of September and early October were marked by a number of high-profile meetings between high-ranking Russian and Iranian officials. In September, Secretary of the Russian Federation Security Council Sergei Shoigu met with Iranian President Masoud Pezeshkian, who stressed that relations between Tehran and Moscow would develop in “a continuous and lasting way.” In early October, Russian Prime Minister Mikhail Mishustin visited Iran, where he met with the country’s President Masoud Pezeshkian and Vice President Mohammad Reza Aref. During that meeting, the main subjects of the discussion were strengthening cooperation in Eurasia, including the ongoing development and expansion of the North-South transport corridor. Finally, President Vladimir Putin met with his Iranian counterpart twice in October: first in Turkmenistan on October 11, and then in Kazan during the BRICS summit at the end of the month. Intensification of the Russo-Iranian contacts could lead to the closing of a natural gas-related “mega-contract” (for now referred to as a “strategic agreement”) between the two countries. Under such an agreement, Moscow would be able to supply Iran with 300 million cubic meters (mcm) of natural gas per day through a prospective pipeline under the Caspian Sea. In return, Iran would become a “regional gas hub”, attracting much-needed Russian know-how and technologies denied to it by the West. Crucially, this agreement could potentially open up a range of other large joint projects, ranging from transportation and nuclear energy to security and other arrangements.
A Partnership of Necessity
Russia’s interest in Iran`s resource-rich yet chronically underperforming non-renewable energy sector was first clearly spelled out in 2012. However, the relationship only truly blossomed after 2022, when Russia’s war of aggression against Ukraine led to the collapse of its diplomatic and economic ties with the West. Faced with international sanctions and the severing of its gas contracts in Europe, Russia turned to Iran. In 2022, the National Iranian Gas Company (NIGC) and Gazprom signed a memorandum on strategic cooperation pledging to expand partnership in the realm of natural gas. In the following year, Iranian then-Minister of Petroleum Javad Owji voiced Tehran’s determination to pursue a number of joint projects with Russia’s state-run Gazprom gas giant, cumulatively worth $40 billion. Words translated into deeds in the summer of 2024, when the NIGC and Gazprom signed a 30-year deal. The deal marked a sea change in Russo-Iranian relations; then-President Ebrahim Raisi called it “a masterpiece of energy diplomacy that could create the preconditions for an economic revolution and ensure energy security for the region with the help of Iran,” as well as a way for both countries to offset “cruel sanctions” imposed by the West. From the Russian side, Deputy Prime Minister Alexei Overchuk went further, tying the agreement to global geopolitical shifts where non-Western countries and international groups—such as BRICS, the Shanghai Cooperation Organization, and the Eurasian Economic Union—were set to play a far more visible role.
While many aspects of the deal remain hidden from the public, the available economics of the agreement are puzzling. Specifically, it has been reported that Russia plans to sell natural gas to Iran at one-fourth the price it charges China via the Power of Siberia pipeline. This price is comparable to the artificially-subsidized price of gas in Russia’s domestic market and also roughly the same as the price it charges Belarus for Russian gas. In other words, it appears that Russia—much like the USSR, whose foreign economic policy was frequently driven by ideology rather than economic sustainability—may be about to engage in a financially unprofitable deal to satisfy its geopolitical ambitions.
What Russia Really Wants
In pursuit of an allegedly unprofitable deal, Russia may be pursuing two strategic objectives. First, it seems to safeguard its geopolitical considerations and aspirations. Having decisively broken with the West, Russia recognizes the need for stronger relationships with its partners in the East and the Global South. These concerns are shared by Tehran, which shares a decidedly anti-Western outlook in its foreign policy. For Moscow, access to Iran`s natural gas reserves—thought to be the second-largest in the world, behind Russia’s own—could bring Russia`s idea of establishing a “gas OPEC,” where Russia could play the key decision-making role, closer to reality. Incidentally, this idea dates back to the Soviet days, when the USSR appealed to the Shah of Iran to form a similar arrangement but was rebuffed. The proposed alliance was revived in 2007, when Putin described the notion of a gas OPEC at a speech in Munich as an “interesting idea.” Following the Russian invasion of Ukraine in 2022, Russia tried to revitalize the idea once more, approaching Kazakhstan and Uzbekistan and offering them positions as stakeholders in a prospective gas hub in Turkey. At the time, Russia`s Central Asian partners chose not to engage with the Kremlin in this initiative. However, Iran—suffering under the weight of Western sanctions and seeking to expand the limited options in its foreign relations—turned out to be much more accommodating.
On energy diplomacy, it is clear that the Iranian market on its own—saturated with cheap domestic natural gas and offering few opportunities for profit—is a matter of much smaller interest to Russia and its energy giants. Instead, access to the Iranian market is probably viewed in Moscow as a means of fostering greater energy cooperation with Iran’s neighbors. Indeed, Pakistan and India are each much larger and more lucrative from an economic point of view. In order to export to these countries in an economically feasible way, the Iran-Pakistan gas pipeline must be completed first. This is where Gazprom, with its expertise in pipeline construction, could play a critical role. Having already completed a trans-Caspian pipeline between Russia and Iran, it would then be relatively simple for Russia to export a steady supply of energy to Pakistan, reaping enormous profit in the process.
On the other hand, jumping into the Iranian market and offering natural gas at a massive discount could also be viewed as an attempt by Russia to influence China to strengthen energy ties with Russia—persuading Beijing to approve the “Power of Siberia-2” pipeline project, which was reportedly turned down by China`s political leadership. According to the Kremlin’s experts, Russia’s decision to enter the Iranian market, even at an initial loss, is a warning to Beijing that Russia has alternative markets in Asia and will proceed with them unless the Power of Siberia-2 pipeline is approved. On top of that, Moscow and Tehran’s cooperation in the energy sector could be expanded to other domains such as nuclear energy, an area where other Russian companies’ value proposition—notably Russian state-run nuclear provider Rosatom—is similar to what China could offer.
Outlook and Implications
Clearly, the emerging natural gas alliance between Moscow and Tehran is only a piece in a much broader picture which reflects growing integration between non-Western actors. These sentiments were clearly visible in a statement by the Iranian President, who, commenting on the Russo-Iranian gas agreement, stated, “Iran, Russia and China could stand up against U.S. unilateralism via international entities such as the SCO and the BRICS.” This statement can be interpreted in two ways. First, Russia, Iran, and China are expected to expand and proliferate their ties in the realm of energy operations, as well as other areas. It is likely that the three nations will devote greater resources toward the construction of new major infrastructural and transportational arteries linking them, with the lion’s share of such construction undertaken by China. Second, the China-dominated SCO—rather than the Russia-proposed BRICS, which has little prospect of attracting geopolitically neutral or Western-aligned countries such as Kazakhstan or Saudi Arabia—is increasingly referred to as an alternative to Western institutions, both in the context of security and financial relations. This once again clearly points to China`s expanding economic influence, as well as its security-related ambitions. How Russia reacts to this displacement—and whether it accepts it or attempts to retain greater influence for itself—could determine the nature of its relationship with Iran in the years to come.
The views and opinions expressed in this article are those of the authors and do not necessarily reflect the views of Gulf International Forum.
Issue: Energy & Environment
Country: Iran