The founder of one of Iran’s first advertising agencies to focus on social media has some advice for Russian companies, now that their country is also under international sanctions: you will adapt and survive, but it will be brutal.
Ahmad Norouzi, CEO of Click, said it took time to accept that the firm’s multinational clientele was gone for good, but found domestic replacements soon enough. The catch: Annual revenue has fallen from about $2.3 million before sanctions hit again in 2018, to $285,000 today.
Russia is a member of the G20 with an economy seven times larger than Iran. Even so, as an energy-rich nation of some 84 million people, Iran still offers Russia the closest case study of what could happen under the sanctions imposed since the invasion of Iran. Ukraine by Moscow on February 24.
Tehran has been subject to economic bans and sanctions since the 1979 United States hostage crisis, but only since the revelation of a clandestine nuclear fuel program have these become extreme. Twice, in 2012 and 2018, sanctions virtually cut it off from the global economy, costing around 5% and 3.5% of gross domestic product respectively in the two years that followed.
The main lesson, eagerly absorbed by Russian officials, is that the country and its regime survived without having to capitulate on foreign policy. Iran’s experiences could hold more clues for Russia, from industrial-scale smuggling techniques to exploiting sanctions loopholes.
In April, Russia hosted an unusually large Iranian business forum. Late last month, Deputy Energy Prime Minister Alexander Novak visited Tehran to discuss with his counterparts, among other things, ways to trade in local currencies, avoiding dollar exposure American.
A senior Russian public sector official said his colleagues are increasingly drawing parallels with Iran’s experience as a major oil producer under sanctions. At first, life will be difficult, according to the official, who asked not to be named due to the sensitivity of the case. But then the economy will start to grow, much like it happened in the 1990s after the collapse of the former Soviet Union. The penalties, the official added, are not that scary.
If Iran’s experience is any guide, they probably should be. Admittedly, the economy adapted and life went on. But the cost to the country’s standard of living and growth potential was high.
China – the greatest hope of replacing lost markets, investment and technology – was ultimately disappointed, unwilling to tangle too directly with secondary US sanctions. While China was Iran’s biggest trading partner in 2021, trade volume was less than half of the $32 billion recorded in 2018.
Import substitution efforts have been only partially successful. Unable to buy modern aircraft, for example, Iran watched enviously as Russia and neighboring Turkey bought or leased fleets of gleaming new passenger planes to develop successful national carriers that helped expand their foreign trade and their influence.
A $40 billion plan for Iran to buy its own fleet of Boeing Co. and Airbus SE jets, announced after sanctions were lifted following the 2015 nuclear deal – known as the Plan global joint action – died with him. Then-US President Donald Trump withdrew from the JCPOA and reimposed the sanctions in 2018.
The impact on oil production and export was, at the end of 2019, extreme and only started to recover this year as US attention shifted to Russia.
Iraq, with which Iran shares a massive 38 billion barrel oil field, exported slightly less oil than its larger neighbor in 2010. At the end of last year, it exported more than 10 times as much and extracted nearly twice as much oil from their country. shared field – known as Manbooj in Iraq and Azadegan in Iran.
Norouzi’s Click agency, with a clientele of foreign multinationals that left the Iranian market en masse in 2019, was particularly at risk. Those Norouzi has managed to hold on to, including an agribusiness, are struggling to import the raw materials they need to make their products.
“So the digital campaign we had planned for them has been put on hold for the time being,” Norouzi said.
Heavy reliance on China has also increased costs for Iran due to no option to buy goods elsewhere, according to Mahmood Khaghani, former managing director of Caspian Oil & Gas at National Iranian. Oil Co. Sanctions have created vested interests in their continuation. , while powerful Iranian oligarchs profited from the profits to be made in smuggling and monopoly imports, he added.
“Iran has a lot of mineral wealth, gold, copper, iron, and no one knows who is exporting it or making money from it,” Khaghani said. “We have a dark economy and they won’t let it become transparent.”
To be sure, Russia has already made adjustments as it has been the target of US and EU sanctions since its annexation of Crimea in 2014, although it was only this year that these approached the levels seen in Iran. Moreover, there are, of course, big differences between Iran and Russia, a much larger, nuclear-armed nation of 144 million people that stretches from Europe to the Far East. East.
On the one hand, Russia has become much more integrated into the global economy, which means it has more to lose from decoupling than Iran. Consumers will lose easy access to everything from Italian suits to German cars. Already, the country’s important auto industry has collapsed as supply chains for foreign components have stifled. The International Monetary Fund predicts that the Russian economy will contract by 8.5% this year.
Under sanctions, China was key to keeping Iran’s oil exports alive, says Homayoun Falakshahi, senior analyst specializing in Iranian oil and gas at commodity data and analytics firm Kpler. It’s a lesson Russia has already learned for itself, increasing its oil sales to China since the start of the war, he says.
There are, however, areas where Iran’s experience can teach a thing or two.
The first is that while sanctions waivers and high oil prices may neutralize the impact on fiscal revenues, these defenses disintegrate as soon as prices fall.
A second lies in the complex network that Iran has developed to evade sanctions.
Iran stores oil on tankers that turn off their transponders to disappear at critical times, often upon reaching Malaysian waters, according to Falakshahi. There they launder the product by transferring it to other ships that can openly cross the Strait of Malacca to deliver the oil in disguise to Asian markets.
Equally important is the expertise Iran has developed in rotating oil well closures which, if closed for more than a few months, can be permanently damaged.
With much of Russian production in the northern Urals region, where winters can be extreme, this is a more acute problem than in the hot deserts of Iran, where the crude remains less viscous.
“Such a significant reduction in production has never been done in Russia,” says Falakshahi.
These colder temperatures, combined with Russia’s much greater exposure to global supply chains, are likely to create challenges for President Vladimir Putin that even Iran has not faced.