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The Russian Foreign Minister, Sergey Lavrov has been in Tehran holding talks with his Iranian counterpart, Abbas Araghchi, as well as with the Iranian President, Masoud Pezeshkian. Much of these discussions revolve around resolving bottlenecks at the Rasht-Astara railway route, which is part of the INSTC network between Russia and the Middle East. Construction work to complete this is underway with Lavrov keen to ensure there are no delays. Moscow is financing part of this route.
In addition, Lavrov is preparing with Iran the final details for the implementation of the much-vaunted Free Trade Agreement between the Eurasian Economic Union (EAEU) and Iran, which should be ratified at the Intergovernmental Agreement on Free Trade between members of the Eurasian Economic Union and Iran. “We expect an intergovernmental agreement between members of the Eurasian Economic Union and Iran on free trade to come into force in the very near future,’ Sergei Lavrov said.
In addition, there is also consensus required to elevate Iran’s status within the EAEU to that as an Observer nation. Lavrov said about the EAEU-Iran FTA that “This will surely drive up trade turnover throughout our space with our Iranian neighbours. Despite sanctions restrictions, our trade demonstrates positive dynamics. Last year trade turnover grew by more than 13%. There is every reason to suppose that this trend will persist.”
Iran’s Ambassador to Moscow Kazem Jalali has previously said that the FTA with the EAEU would be implemented later in 2025, after which 87% of all goods would be tax exempt.
Iran is a major oil producer, with output reaching 2.7 million barrels per day. It also holds the world’s second-largest natural gas reserves. Ongoing collaborations with Russia are enhancing energy security and export potential, especially in new gas fields. In addition to energy, Iran’s manufacturing sector, including petrochemicals, automobiles, steel, military equipment, and cement, plays a key role, with the petrochemical industry thriving despite sanctions. Agriculture remains a crucial sector of Iran’s economy, as the country is a leading producer of cereals, fruits, vegetables, and livestock. Key agricultural products include wheat, rice, and barley, although challenges such as water scarcity affect production.
The trade volume between Iran and EAEU countries reached about US$6.8 billion in 2024, while Iran is also a member of BRICS and the Shanghai Cooperation Organization (SCO), a major political, economic, and security bloc that includes China and Russia, offering preferential trade opportunities.
China remains Iran’s largest trading partner, boosting the country’s trade prospects in Asia. Iran has entered into several bilateral free trade agreements with neighbouring countries, including Iraq, Afghanistan, and Turkey, focusing on energy, agriculture, and manufacturing products, which helps mitigate the impact of international sanctions.
Russia and Iran have also signed a “Comprehensive Partnership Agreement” which covers a raft of trade and investment understandings looking ahead for the coming 20 years.
Part of the process of agreeing Iran’s Free Trade Agreement with the EAEU and with Russia is to manage the impact. Suddenly reducing previous tariffs to zero on 87% of all products can have a serious impact on domestic markets in Iran and throughout EAEU members – Armenia, Belarus, Kazakhstan, Kyrgyzstan and Russia, where suddenly cheaper-to-produce products can wreak immediate havoc on what had been partially or wholly protected industry sectors. These discussions with Iran will be based on timeframes for compliance with specific dates set for different industry categories to comply with the FTA. Both Iran and Russia have important auto and electrical manufacturing industry for example, which both Tehran and Moscow will not want to be suddenly damaged by immediate cheap imports. In addition to this, there are ‘rules of origin’ requirements which mean that an agreed percentage of a product must be made in Iran to qualify for the proposed tariff reductions. Iran has strong trade and investment ties with numerous countries, and the same applies to the EAEU members. Clearly, there is a lot of detailed work to be done – hence Lavrov’s visit to direct this – and the processes still to be verified and agreed by the Foreign Ministries and their respective Trade & Industry Ministries to agree industry sector by sector compliance and the smooth transition to what should be an effective trade boost for all parties concerned.
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