Iran-Russia Seesaw Trade Yet to Reach Full Potential

Iran exported 298,204 tons of non-oil commodities worth $143.46 million to Russia during the seven months to Oct. 22, registering a 96.32% and 63.21% growth in volume and value respectively compared with last year’s corresponding period, Islamic Republic of Iran Customs Administration announced.

This is while Iran’s imports from Russia during the same period stood at 909.328 tons worth $419.39 million, up 1.41% in volume but considerably down by 62.87% in value year-on-year.

An analysis of trade between the two sides during the past 10 Iranian fiscal years to March 21, 2017, shows two-way commercial exchanges reached their highest level of $2.26 billion in the fiscal March 2012-13. Iran exported $498.79 million worth of commodities to Russia that year while it imported $1.76 billion worth of goods.

However, trade began to go downhill after that year until it reached the lowest level of $761.78 million in March 2015-16.

The trend changed after March 2015-16 and mutual trade rose to $1.76 billion the following year (i.e. last year), rising by 131.41%, with Iran’s exports to and imports from Russia at $218.75 million and $1.54 billion, indicating an increase of 26.24% and 162.38% respectively YOY.

Given that this year’s trend in bilateral trade is continuing, total trade would reach close to $1 billion (indicating a 46% YOY decrease), meaning it would go down again after it went up last year.

According to Chairman of Iran-Russia Chamber of Commerce Asadollah Asgaroladi, Iran’s main exported goods to Russia include agricultural products, including dairy, livestock and horticultural products, cans and conserves such as pickles and jams, chocolates and biscuits, flowers, petrochemicals and some raw materials.

Imports include wood, machinery, agro machinery spare parts, paper (reexported from Finland and Sweden), iron and reinforcement bars (reexported from Belarus) and sugar (reexported from Cuba)

   Roadblocks in Bilateral Trade

In an interview with Financial Tribune back in August, Asgaroladi said transportation and transactional problems are the main impediments to bilateral trade.

“In the Caspian Sea, we have small ships with a capacity to carry 1,000 tons of cargo. They are always full and even if they’re not, they are too small to meet our freight transport needs,” he said.

“With trucks, we have problems with the drivers’ visa issuance. Russian truck drivers are granted visas much easily by the Iranian side, but it is not that easy the other way round.”

Another problem with marine and road transportation, according to Asgaroladi, is that the Iranian side does not have enough refrigerated ships and trucks, and since most Iranian exports to Russia are perishable, lack of such equipment damages the products and impacts their quality, which leads to the dissatisfaction of customers.

To make matters worse, he said, Iran has no flights to southern Russian cities such as Astrakhan, Kaliningrad, Saratov and Volgograd, which happen to be the main customers of our products.

“We only have flights to Moscow few times a week. Merchants, whose consumer markets are the southern cities of Russia, have to take their cargo to Moscow and are detained there for at least 7 to 8 hours until they find a flight to their final destination. So it takes about 15 to 16 hours to get the goods to one of the export destinations, whereas a direct flight would take an hour or so.”

On transactional issues, he lamented the fact that Iranian merchants cannot transfer their money easily and even if they can, they have to pay a 5-6% in commission, which is very expensive.

“The Russian side does not buy our products in dollars due to the sanctions they are facing. We trade in euro, or so it has to be. What the Russians do is that they exchange the euro and pay us in ruble. The Iranians then have to exchange the ruble to rial where they have to pay another 5-6% in commission,” he said.

“In these exchanges, Iranian merchants incur losses. This is why our economic players and merchants are reluctant to embark upon exports because it is not as profitable for them as it should be. As a result, our trade deficit is widening.”

   Hope for Boost in Trade With Astrakhan

Iran’s first House of Commerce in Russia opened in the southern city of Astrakhan late last month.

According to Astrakhan’s minister of international and foreign economic relations, the move will strengthen trade links between the two countries.

The new institution is home to 14 chambers of commerce and industries from 14 Iranian provinces that will exhibit their products.

“The house will provide Russian entrepreneurs with a new opportunity to discuss projects and contracts with their Iranian counterparts,” Denis Afanasev also told Sputnik.

“Businesspeople from Astrakhan or elsewhere in Russia wishing to build trade relations with Iran can come to the house, look at the products and choose what they need. Here they can contact the representative of a particular company, conclude agreements on trade and discuss the logistics of delivery.”

He explained that the House of Commerce is aimed at bringing the business of the two countries closer, establishing contacts for logistics, for Russian entrepreneurs to get to know Iranian products and for the Iranians to get to know them.

“I believe this structure will fill a certain niche, that is, it will close a vacuum that exists in business between Russia and Iran, and creates good conditions for increasing trade turnover and cooperation,” he added.

Discussions are already ongoing with Iranian partners about the creation of a Russian house of commerce in Iran, which would further stimulate relations between small- and medium-sized businesses in the two countries.

Iran’s Consul General in Astrakhan Ali Mohammadi told Sputnik that Iran aims to use the new center to better understand the Russian consumer market and increase its exports.

“Our data for the first eight months of 2017 show that the export of goods from Astrakhan to Iran amounted to about $95 million, while Iran exported $17 million to Astrakhan over the same period. Astrakhan’s main item of export was timber ($44 million), followed by grain ($35 million). In third place were seeds and sunflower oil,” he said.