Iran Signs Free Trade Agreement With Eurasian Economic Union in Move That is Healthy for Iran, Russia and Pakistan
Iran has just signed an agreement to enter a three year provisional free trade agreement with the Eurasian Economic Union (EAEU). According to EAEU official Tigran Sargsyan,
“The temporary agreement stipulates an effective dispute settlement mechanism, including arbitration… It also creates a joint committee of high-ranking officials and establishes a business dialogue”.
The EAEU’s current members are Russia, Belarus, Armenia, Kazakhstan and Kyrgyzstan, while the bloc has existing free trade agreements with Vietnam, Uzbekistan and Moldova. Aside from Vietnam other ASEAN states including Indonesia and Thailand have been in early level discussions about the possibility of a free trade arrangement with the EAEU, while Serbia and Turkey have also considered joining. Russian Energy Minister Aleksandr Novak has said that Iran could become the sixth full member in the future. Today’s Iran-EAEU free trade agreement will function as a test to determine the viability of long term Iranian membership of the trading bloc. Novak stated,
“The move to enter into a temporary agreement making for a free trade zone to be set up between Iran and the Eurasian Economic Union, which is currently at an advanced stage, will obviously trigger further development of our bilateral trade and expansion of investment cooperation”.
While many will see EAEU membership as a further means for Iran to create new economic partnerships away from regions whose financial and commercial structures are subservient to a hostile United States, in the long term, it means far more to Iran than a means of skirting increasingly ridiculous sanctions from Washington in the light of the US withdrawal from the JCPOA.
For Iran, EAEU membership represents a new opportunity to expand its economic horizons beyond its current Middle Eastern partners. In this sense, just as Iran has a long history of ‘thinking east’ in terms of economic connectivity and cultural exchange, today’s EAEU presents Tehran with a modern cooperative model to expand its peaceful economic interactions to greater Eurasia. Beyond this, with proposals to integrate Pakistan into the North-South Economic Corridor, Pakistan and Iran could cooperate in order to form two unique and mutually complimentary road corridors.
The North-South Transport Corridor is a joint initiative of nations who have built and continue to expand shipping and road links between South Asia, Northern Eurasia and Europe. The map below shows the basic route which begins with a shipping lane between India and Iran’s Chabahar Port on the Gulf of Oman, before travelling north through Iran to the Caucasus and into Russia, while also linking up with existing rail routes from Iran into Central Asia and west into Europe via Turkey.
While countries as diverse as Russia, Iran and Azerbaijan have embraced the North-South Corridor as a means of creating greater opportunities for economic enrichment through joint cooperative efforts, in India, the project has been sold as a rival to China’a One Belt–One Road. This has been the case even though the North-South Corridor is vastly more limited in its geographical expanse vis-a-vis the global Chinese project and perhaps even more crucially, the other partners in the North-South Transport Corridor do not share India’s zero-sum vision of the project.
In particular, India is keen to present the North-South Transport Corridor as a rival to the China-Pakistan Economic Corridor linking China to the Indian ocean via a large road and rail network whose western terminus is Pakistan’s Gwadar port.
Pakistan’s Ambassador to Azerbaijan recently announced that his country is interested in linking up with existing routes along the North-South Transport Corridor. This gives Pakistan the opportunity to link the China-Pakistan Economic Corridor (CPEC) with the North-South Transport Corridor, which would serve the long term strategic interests of the wider region, in terms of linking Pakistan’s Gwadar Port on the Arabian Sea with Iran’s Chabahar Port on the Gulf of Oman.
Under such a scenario, goods from China would enter Pakistan via newly built road and rail routes and could then travel in one of two directions. First of all, goods could travel south through Pakistan to Gwadar where from there they could go in multiple directions including into Africa, Europe via the Suez Canal, or the wider Middle East via the Gulf of Oman/Chabahar and the Persian Gulf. Alternatively, goods could travel north into Central Asia and ultimately into Russia via Pakistan. This second option was proposed by geopolitical expert Andrew Korybko in early 2017 when he wrote,
“The enhanced trade relations that were mentioned above [see full piece] can only occur if Russia and Pakistan are connected to one another through CPEC, no matter how indirectly due to the geographic distance between them and Moscow’s reluctance to officially endorse this trade route in order to preserve its strategic “balancing act” with India. The second part of this conditional implies that the private sector needs to drive these two countries’ CPEC connectivity since the Russian state isn’t going to do so because of delicate political reasons, which thus allows one to envision three possible solutions, all of which are inclusive of one another and could in theory exist concurrently.
The most probable of the three is that Russia could connect to CPEC via the Central Asian state of Kazakhstan, which his already a member of the Moscow-led Eurasian Economic Union and through which a lot of bilateral trade already traverses. Furthermore, the Eurasian Land Bridge between East Asia and Western Europe is expected to pass through this international corridor as well, so it’ll probably be easiest for Russia and Pakistan to trade across this route by linking up at CPEC’s Urumqi hub in China’s Autonomous Region of Xinjiang.
Considering that Xinjiang’s capital city is located closer to Russia’s southern Siberian border than to CPEC’s terminal Arabian Sea port of Gwadar, there’s also the chance that a more direct north-south trade route could be established between Russia and Pakistan via this avenue. After all, Russia’s “Pivot to Asia” (which is officially referred to as “rebalancing” in Moscow’s political parlance) isn’t just international but also internal, and it aspires to develop resource-rich Siberia just as much as it aims to chart new international partnerships. With this in mind, there’s no reason why southern Siberia couldn’t one day be connected to CPEC via the nearby Urumqi juncture.
Lastly, Russia’s already building a North-South Transport Corridor (NSTC) through Azerbaijan and Iran in order to facilitate trade with India, so the opportunity exists for it to simply use this route’s overland transport infrastructure to reach Pakistan in the event that the Iranian terminal port of Chabahar is ultimately linked with nearby Gwadar. Even if that doesn’t happen, then there’s still nothing preventing private Russian businessman from using Chabahar or even the more developed port of Bandar Abbas as their base of operations for conducting maritime trade with Gwadar or Karachi. This would in effect make India’s “brainchild” the ironic basis for Russian-Pakistani economic relations”.
Both Pakistan’s willingness to embrace the North-South Corridor, thereby integrating it into CPEC which itself forms a crucial artery of One Belt–One Road and Iran’s eagerness to become a member of the EAEU, could help to speed up the process of wider inter-connectivity between China’s Pacific Coast, the Middle East and Russia’s wider economic sphere in northern Eurasia.
If all of these existing links became inter-connected, one would see Gwadar taking on the adding function of becoming Central Asia and Russia’s gateway to the wider shipping routes of the Indian Ocean, while Chabahar would act as a parallel route for goods from both CPEC and the wider Indian Ocean, into the Caucasus, Russia or the Middle East.
Iran’s membership in the EAEU would help to expedite this process as the routes from Iran into Armenia and finally, into Russia would all constitute a single market. Were Turkey to join the EAEU, this would make transcaucasian trade into Turkey and the wider Mediterranean region all the more simple, as it would also allow Iran to act as a conduit between the Caucasus and Turkey, thus avoiding the politically prickly issue of direct trade from Armenia into Turkey. Turkey and Armenia’s mutually healthy relations with Iran, means that Tehran could be a physical arbiter of trade between two nations with historically (and currently) poor relations.
Over all, a strong and southward looking EAEU will help to strengthen both Iran-Pakistan relations through enhanced South Asian-Northern Eurasian trading networks, while also helping to facilitate the smooth transport of goods along One Belt–One Road from the Pacific into the Middle East, western Eurasia and further south into Africa along Indian Ocean maritime belts.