Russia And Iran Extend Trade Ties With Rials, Rubles And Bank Branches

Banking links between Russia and Iran appear to be expanding rapidly, with the Central Bank of Iran now saying two Iranian banks are planning to open offices or branches in Russia.

It comes just days after it emerged that VTB, Russia’s second-largest bank, had opened a representative office in Iran – becoming the first Russian bank to establish a permanent presence in the Middle East country.

Mohsen Karimi, the Iranian central bank’s deputy governor for international affairs, did not name the Iranian institutions involved or say when their Russian offices might open, but said “We hope to announce news of the inauguration of the representative office and branch in Russia for at least two Iranian commercial banks in future,” in comments carried by Iran’s Press TV, adding that “Some good developments are taking place.”

The economic ties between Russia and Iran have been flourishing in the wake of the international sanctions imposed on Russia as a result of its invasion of Ukraine in February 2022. Iran has a long history of coping with sanctions imposed by the U.S. and has skills it can pass on to Moscow in terms of dealing with the restrictions. It also has little to lose by seeking to bypass the trade limitations imposed on Russia.

The authorities in other nearby countries have had to tread a more cautious line. In late March, the Central Bank of the United Arab Emirates withdrew a license it had issued just a year earlier to Russia’s MTS Bank.

In another sign of the growing trade links, the Iran Chamber of Commerce (ICC) has said it hopes to open a trade office in Russia later this year. Speaking this week at a meeting in Kazan, capital of the Tatarstan region of Russia, ICC chairman Gholamhossein Shafei said “Setting up a business office in Russia is our top priority” and added that it hoped to open it “this year to meet the needs of increased trade exchanges”.

Switching currencies

These developments come alongside official efforts to develop new trade payment systems which bypass the U.S. dollar.

In January, Central Bank of Iran governor Mohammad Reza Farzin announced that direct communication had been set up between Iranian and Russian banks. In July last year, Iran and Russia began to take steps to reduce the use of dollars in their bilateral trade, by launching a trade settlement system using their own currencies. The two sides have also discussed using cryptocurrency as another alternative.

The policy of reducing dollar-based trade appears to have been a success. Russia’s deputy prime minister Alexander Novak said during a press conference in Tehran earlier this week that Russia and Iran were now conducting 80% of their bilateral settlements in their national currencies, the rial and the ruble.

“The work that was done purposefully to switch to national currencies has yielded results,” he said.

The two countries have also discussed using other currencies to settle their trades, including the Chinese yuan. “Our banks are working in this direction,” Novak added.

Alongside the growing financial links, Iran has become a critical supplier of military equipment to Russia during its war in Ukraine, providing drones and ammunition to Moscow’s forces. Transport links are also being developed – Russia has offered support for a 162km freight rail line to Iran’s border with Azerbaijan at Astara, as part of efforts to improve north-south infrastructure links.