Putin's Iran Game Bests Obama
It's much easier to explain why Russian President Vladimir Putin wants a multilateral deal with Iran than U.S. President Barack Obama. The political and economic gains from the removal of United Nations-imposed sanctions are palpable for Russia, while iffy at best for the U.S.
Putin's moves since a framework deal on Iran's nuclear program was agreed upon on April 2 clearly indicate how he plans to develop Russia's partnership with Iran. One is arms sales, as indicated by the recent decision to permit the stalled shipment of S-300 anti-aircraft missiles, and the other is oil deals, as exemplified by a purported oil-for-goods swap.
Neither decision required the lifting of international sanctions against Iran -- these were voluntary restrictions Putin could have ended even without the prospect of a multilateral deal. He's trying to get a foot in the door first, before his Western adversaries start making inroads into the Iranian market, and focusing on areas where Russia is competitive. The potential gains are significant.
Between 1989 and 1991, the Soviet Union signed arms supply deals with Iran worth $5.1 billion. That made Iran one of the Soviet defense industry's biggest clients and, after the U.S.S.R. collapsed, independent Russia's strapped defense industry continued making money in the early 1990s, by supplying tanks, armored personnel carriers and ammunition to Iran. Russia helped the ayatollahs build a tank factory in Dorud and a factory to produce armored personnel carriers in Tehran.
Then the U.S. intervened. In 1995, Putin's predecessor, Boris Yeltsin agreed with U.S. President Bill Clinton that Russia would wrap up all military cooperation with Iran by 1999, in exchange for U.S. promises of defense technology cooperation. The agreement was sealed with a secret protocol signed by Russian Prime Minister Viktor Chernomyrdin and U.S. Vice President Al Gore. Russia, however, was never comfortable with the deal, not least because the U.S. wasn't really interested in helping Moscow to develop its defense industry. After Putin came to power, Russia repudiated the Gore-Chernomyrdin protocol in November 2000.
That didn't result in a return to full-scale cooperation with Iran, though. Iran bought some Russian helicopters and warplanes and used Russia's services in launching satellites, but it no longer saw Russia as a reliable partner and feared it would again be susceptible to U.S. pressure. Those fears were confirmed when, in 2010, Russia went back on a 2007 deal to supply $800 million worth of S-300 missile systems. Although UN sanctions didn't ban the sale of these defensive weapons, my Bloomberg View colleagues Eli Lake and Josh Rogin report that then-president Dmitry Medvedev promised Obama the missiles would not be shipped. Iran sued Russia for damages and defense cooperation between the two countries stalled again.
By reneging on Medvedev's alleged promise, Putin is signaling that the days when Russia listened to the U.S. in arms export matters are over. Iranian leaders now have reason to believe relations between Moscow and Washington are colder than at any time since the late 1980s.
Then there's the oil-for-goods deal, which has been under discussion for about a year and may already have started. It would involve supplies of about 500,000 barrels a day of Iranian oil in exchange for Russian food and industrial goods, bringing back about half of the export volume that Iran lost because of international sanctions. Such a deal wouldn't violate the UN sanctions against Iran, and can circumvent financial sector restrictions imposed by the U.S. and the European Union by using barter. In recent days, Russian officials have said the swap is taking place.
Iran won't confirm or deny the arrangement, possibly because the U.S. is worried about it and stepping up cooperation with Russia in this way could jeopardize the multilateral deal and so delay the easing of international sanctions. Yet Russia's willingness to get involved in the swaps is another signal to the Iranian regime that, while Western nations are still hesitant to rekindle ties with them, Russia is open to big energy deals immediately, even before anything is settled on the nuclear issue.
The benefits to Russia are clear. True, if the oil-for-goods swap takes place, the global supply of oil would increase, putting downward pressure on prices, a negative for a major oil exporter such as Russia. But Putin already has contingency plans in place to survive an oil price of $40 a barrel -- debt-laden U.S. shale producers would suffer more from a further price dip. Their output is already beginning to drop because the current price (just under $60 for a barrel of Brent crude oil) is too low for them to continue investing in new drilling. For Putin, a shale crisis in the U.S. is as desirable as it is for the rulers of Saudi Arabia and Iran. Besides, such a deal would build business ties between Iran and the Russian oil companies that would export its oil, a useful asset for when sanctions are lifted.
Doing more business with Iran wherever possible should also help Putin build a political alliance with a major Middle Eastern regional player, cemented by the strong anti-Americanism in both Moscow and Tehran. As Lynn Davis of Rand Corp. pointed out in a recent paper:
A nuclear agreement with Iran will not change the fact that the Iranian regime, especially Supreme Leader Ayatollah Ali Khamenei and the conservative establishment view the United States as the chief source of global 'oppression.' President Hassan Rouhani and other pragmatic Iranians may aspire to more normal ties with the United States but the Islamic Republic remains a revolutionary state guided not only by its interests of regime survival and maintaining territorial sovereignty, but also expanding its regional influence.
Here, the conservative Iranian establishment's goals may well align with Putin's.
The Russian leader is building on a tactical advantage he has over the U.S. in talks with Iran: He can be the first to begin rapprochement with Iran's leaders, without worrying too much about its compliance with any nuclear deal's requirements. Unlike the U.S., Russia has no obligations to Israel, no domestic opposition trying to disrupt cooperation with Iran, and no risk that without a deal he might be forced into waging a war he doesn't want.
With the capacity of a multilateral deal to stop Iran's nuclear progress so unclear, though, its benefits for Obama are far less obvious than for Putin.
This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.
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