Russia, Iran Defy U.S.’s Kerry With Their Oil-for-Goods Accord

Russia signed an accord that may turn it into the largest importer of oil from Iran, also isolated by international sanctions, in defiance of U.S. threats.

The two countries signed a five-year memorandum of understanding to expand trade cooperation, the Russian Energy Ministry said today in an e-mailed statement. Russia will help organize Iranian oil sales under the agreement including in Russia, as suggested by the Persian Gulf state, the ministry said in a later statement, without elaborating.

The U.S. and European Union are ratcheting up pressure on Russian President Vladimir Putin over his backing for Ukrainian rebels by boosting sanctions against individuals and companies deemed close to his administration. The U.S. is concerned about reports of a Russia-Iran oil deal and such an accord could lead to retaliation, U.S. Secretary of State John Kerry said in April.

The accord covers cooperation in oil and gas, construction of power plants and grids, supply of machinery, consumer goods and agriculture products, according to the ministry’s statement.

There’s a question “how substantive this memorandum is,” Richard Mallinson, an analyst at Energy Aspects Ltd. in London, said by e-mail. “There would be various practical limitations in terms of Iran’s current production capacity, geography and shipping logistics, as well as U.S. sanctions.”

500,000 Barrels

Russia may buy as many as 500,000 barrels of Iranian oil a day in return for goods, the Moscow-based Kommersant newspaper said in January, citing unidentified government officials. That’s about a fifth of Iran’s output in June and half of its exports, according to the International Energy Agency.

The U.S. Congress passed legislation in 2011 to deprive the Islamic state of its largest foreign-revenue earner and pressure leaders to accept constraints on a suspected nuclear weapons program by curtailing Iranian oil exports. The EU also approved an embargo on Iranian oil purchases by its members.

Russia complies with the United Nations, Finance Minister Anton Siluanov said in April. “Our U.S. partners have their own legislation that differs somewhat from the provisions set by the UN and they’re monitoring their own rules,” Siluanov said.

Planned cooperation with Iran doesn’t violate Russia’s international obligations and is important given the current foreign economic realities, Energy Minister Alexander Novak said today in the later statement.

Before it's here, it's on the Bloomberg Terminal.