Iran, in the shadow of the war with Israel, has closed a deal with the union ruled by Russia

• Moscow has long been a key trade and investment partner for Iran, and the new agreement deepens their strategic relationship.
• Iran is strengthening cooperation with the Eurasian Economic Union, opening its economy to imports from the bloc and lowering average tariffs from 20 percent to 4.5 percent.
• Tehran is also trying to strengthen its position as a potential logistics hub for Eurasia through the expansion of the North-South corridor and Russian support.

In May 2018, Iran signed an interim free trade agreement with the Eurasian Economic Union (EAUG), which entered into force at the end of 2019. Although it was originally scheduled to expire in October 2022, a special protocol was signed in Tehran in March of the same year, extending its validity for another three years.

On May 15, 2025, the transition period ended and a permanent trade agreement was concluded. This agreement introduced a simplified import regime for goods from the EAEU countries to Iran and significantly reduced the average customs duty—from 20 percent to 4.5 percent. According to Alexei Overchuk, Deputy Prime Minister of the Russian Federation, this agreement could save Russian exporters approximately $300 million annually in shipping fees.

The new agreement provides for tariff reductions on 90% of all traded product categories, which is expected to increase trade between Iran and the Eurasian Economic Union to approximately $12 billion in 2030. For comparison, according to official data cited by Reuters, at the end of 2024, trade between Russia—by far the largest economy in the Eurasian Economic Union—and Iran increased by 16% year-on-year, reaching $4.8 billion. At the time, Russia was the third-largest grain exporter to Iran. It is worth noting that Iran has been playing a significant role in supporting Russia's war effort in Ukraine since 2022, particularly through the supply of aerial drones (Shahid, or Geran in the Russian version).

According to Iranian Minister of Oil and Gas, Mohsen Paknejad, the concluded agreement should contribute to further growth of trade exchange as early as 2025 – to the level of USD 6 billion.

Potential benefits for Iran

Iran is counting on tangible benefits from rapprochement with the Eurasian Economic Union (EAU). It's worth noting that this is the first initiative in decades in which Tehran is opening its economy to the inflow of goods from third countries . This stems both from the current sanctions regime imposed by Western countries – particularly severe after 2011 – and from its growing dependence on China, which in recent years has become a key recipient of Iranian crude oil. According to the U.S. Energy Information Administration (EIA), in May, Chinese refineries processed nearly 90 percent of all Iranian crude oil exports.

Also worth noting is the so-called International North-South Transport Corridor (NSTC), which has the potential to position Iran as a key logistics hub in the Eurasian region . The project's primary goal is to connect India's ports on the Indian Ocean via Iran and the Caspian Sea with Russia and its port in St. Petersburg. The land variant envisions a route through the Caucasus, Armenia, and Azerbaijan.

Although the initiative was launched in 2000 (with the ratification of the founding agreement by India, Iran, and Russia), it is only now gaining real significance. Tehran hopes the project will support limited foreign sales, primarily for companies in the agricultural, industrial, and energy sectors, which could benefit from reduced export costs. An additional benefit is the potential to attract foreign capital necessary to expand road, rail, and maritime infrastructure. India has declared multi-billion investments in the expansion of Iran's port in Chabahar.

The third category of benefits for Tehran is the possibility of at least partial escape from international isolation and the US sanctions regime, which Iran has been subjected to – to varying degrees – since the Islamic Revolution in 1979. Participation in the EAUG and the transport corridor project provides a unique opportunity for Iranian companies to establish partnerships, including joint ventures, exchange know-how, and – most importantly – transfer technology. The latter is essential for the modernization of key economic sectors such as energy, processing, and transportation, which, due to years of backwardness, have significantly hindered the country's development.

Iran and Russia: Strategic Partners or Casual Passengers?

Russia and Iran have long cooperated strategically, the latest manifestation of which is the free trade agreement with the Eurasian Economic Union (EAU). However, this relationship, somewhat exaggeratedly described as an alliance, has revealed serious cracks during the Iran-Israel war. This is evidenced, for example, by the official stance of the Russian Foreign Ministry on Israel's recent attack on Iran. Sergei Lavrov warned Tehran of the possibility of a prolonged conflict, while simultaneously declaring the Kremlin's neutrality and a clear lack of willingness to actively engage in military action .

Similarly, the Shanghai Cooperation Organization (SCO), led by Russia and China and including Iran, merely issued a statement stating that its member states "express serious concern" over the escalating tensions between Iran and Israel and "strongly condemn the military attacks carried out by Israel" on Iranian territory. However, these declarations were not followed by any action.

Russia's stance contrasts with that of China, which, in a similar situation – an open conflict between India and Pakistan this spring – provided Islamabad with military support at the end of April.

Due to the ongoing war in Ukraine and its own technical limitations, Russia may have been unable to support Tehran. Moscow's behavior can also be partially explained by growing dissatisfaction with the current structure of trade flows with Iran. Deputy Prime Minister Alexei Overchuk emphasizes that the main beneficiaries of the new trade agreement will be Russian producers of food, paper, metal structures, and radar equipment. Only the latter category indicates ties to the Russian arms industry, which had been counting on significant contracts with Iran in the first half of 2025, as reported by Arkady Mil-Man of the Institute for National Security Studies in Tel Aviv, among others. However, the expected orders did not arrive.

Russian industry, which largely relies on state procurement, operates in a war economy. This makes it crucial to find new markets to ensure that the eventual end of hostilities in Ukraine doesn't lead to a serious economic crisis. Recent tensions in the Middle East have given the Kremlin hope for increased arms exports to conflict-torn countries and to maintain high energy prices. Iran, at least for now, has shown no interest in increased purchases.

There have been speculations that crude oil, crucial to the Russian economy, could reach prices as high as $100 per barrel, for example, in the event of a potential closure of the Strait of Hormuz , through which over 20% of global oil trade flows. However, neither scenario has materialized, and therefore a sharp increase in the value of Russian-Iranian trade is not expected .

The opportunistic nature of Russia's foreign policy towards Iran is also reflected in the awareness that Tehran will not become a viable trade alternative to Moscow's Western partners in the foreseeable future. Current trade volume between the two countries remains relatively low, significantly lagging behind Russia's trade with China, India, and Turkey.

This relationship appears different from Tehran's perspective. Russia remains a major investor in Iran , with Russian state-owned enterprises implementing strategic projects in the energy sector (including the construction of a joint nuclear power plant) and transportation (expanding railway infrastructure).

In the latter area, despite the difficult economic situation related to the war in Ukraine, Russia decided at the end of 2024 to grant Iran an export loan for the expansion of the Rasht-Astara railway line. Furthermore, over 95 percent of bilateral trade transactions are now settled in national currencies, which is part of a broader process of de-dollarization, in this case forced by American sanctions. It can be assumed that direct interbank cooperation will also gain importance in the near future.

Thus, Russian-Iranian relations seem to be teetering between strategic partnership and calculated caution . Their future will depend not only on shared economic interests but also on the willingness of both sides to take real political risks, something that, apart from declarations, is still lacking.