Is Russia Becoming The New Iran?


Now that a nuclear deal has been reached with Iran, it appears that the nation may finally come in from the cold. Is Russia taking on the mantle of international pariah?

Maxim Trudolyubov has written a soul-searching piece in The New York Times, exploring the idea that as Iran is being rehabilitated in the eyes of the international community, Russia is going the other way.

Pros And Cons Of Tail Risk Funds

tail risk fundsEditor’s note: This article is part of a series ValueWalk is doing on tail risk hedge funds. The series is based on over a month of research and discussions with over a dozen experts in the field. All the content will be first available to our premium subscribers and some will be released at a Read More

Iran coming in from the cold

Some Russians like the Iranian system, others hate it, but recent developments have made many question whether Russia is becoming the new international pariah.

Many Russians admire how Iran deals with the international community, and its insistence on developing nuclear power despite worldwide opposition. Tehran’s response to economic sanctions was also noted in Moscow, where Putin and his supporters have managed to keep ordinary Russians on side despite economic hardships provoked by Western sanctions on Russia.

Lots of Russians are defiant of sanctions and willing to show that they will not be cowed by economic adversity, much like Iranians were. Putin claims that Russia will face down the West and prosper, perhaps by pivoting to the East.

Russia played key role in nuclear deal

Russia in fact played a prominent role in negotiating a deal with Iran, and foreign minister Sergey Lavrov focused on the talks without letting other conflicts, such as Ukraine, cloud the discussion. Russia’s role was key, and President Obama himself recognized Moscow’s contribution to the deal.

“Putin and the Russian government compartmentalized on this in a way that surprised me,” he said. “We would have not achieved this agreement had it not been for Russia’s willingness to stick with us.”

When it comes to profiting from the economic bonanza of a huge new market for consumer goods and technology, it seems unlikely that Russia will be able to compete with the West. The deal could in fact hurt the Russian economy and increase Moscow’s isolation.

Western nations better placed to profit from lifting of sanctions

Investors do not feel comfortable pouring money into the country given the Kremlin’s record of reneging on contracts, and look elsewhere. Russia is also suffering a brain drain due to Putin’s style of government, writes Trudolyubov.

European countries have been sending delegations including corporate representatives in order to strike business deals in Iran. “Even in the past couple of weeks we have approved more than $2 billion in projects in Iran by European companies,” said deputy economy minister Mohammad Khazaei, according to Reuters.

Many people in Iran are hoping for a wave of new consumer goods, and officials are planning huge projects to modernize the country’s infrastructure. Some hardline elements may want to develop nuclear weapons at all costs, but the ruling politicians have gained the chance to improve the standard of living of ordinary Iranians.

Plans for the acquisition of up to 90 aircraft per year from Boeing and Airbus have already been announced. Other deals are sure to follow assuming Iran fulfills its side of the bargain. Iranian and Western interests could merge, a feat which seemed unthinkable until fairly recently.

Russia may benefit in the energy sector and the arms trade, although the UN arms embargo will not be fully lifted for 5 years. As Iran grows economically, Russia may find itself suffering. Businesses that used to operate in Russia may move to Iran, and investors may now look to Tehran instead of Moscow.

Russian support necessary to preserve international influence?

Putin supported the Iran deal because he feared that disrupting negotiations would make Russia even more isolated. Putin’s aggression in Ukraine, military brinkmanship with NATO and his at times comic public appearances mean that he may soon take Mahmoud Ahmadinejad’s role on the world stage.

To maintain his influence, Putin may have decided to support the Iran negotiations. He recently revealed plans for a “united front” against the Islamic State, which was intended to portray him as an influential, proactive world leader. Although Putin may want to convince Russians that he still wields considerable international clout, there are more pressing concerns.

As Trudolyubov says, Russians are more concerned about “how and on what terms our country stays in the game.” With millions of Russians falling back into poverty as a result of the recent economic struggles, it may significantly affect their quality of life.

For others who may be slightly more comfortable, the concern is that “it seems as though we are proudly and foolishly marching into the position hastily being vacated by Iran.”

After years of economic growth driven by energy exports, and the associated rise in the standard of living of Russians, could Putin’s foreign policy lead to years of misery?