By the time Russia invaded Ukraine a year ago, Iran over many years had gotten well used to being the world’s most sanctioned nation. The invasion, of course, sparked a Western economic backlash against Moscow, the extent of which was unprecedented, meaning Iran now found itself the second most sanctioned country.

The onslaught of sanctions against Iran’s maritime neighbour over the Caspian Sea called for some quick, evasive action from the Kremlin. Officials under Vladimir Putin, who found a sympathetic ear when he visited Tehran in July last year, were not slow in consulting with Iranian counterparts on methods and schemes for working around sanctions, and sanctions evasion was very much the focus of the Russia-Iran relationship for the first few months of the Ukraine War. But as the year progressed, it became menacingly clear to the Ukrainians and their allies that Iran was also supporting Russia in another way—it was providing the Russian Army with kamikaze and other military drones that were taking a toll on Ukrainian civilian as well as military targets.

By last week, it was reported that G7 member states were discussing whether to sanction companies in Iran—as well as in China and North Korea—for providing Russia with parts and technology, such as microchips, that have dual-technology military purposes.

Analysts at the US Defense Intelligence Agency, meanwhile, were making the case that Iran was emerging as a global leader in the production of cheap and lethal military drones and was using the war in Ukraine as a shop window for its technologies. Iran was no longer just a regional drone player in the Middle East—it should, they said, be seen as Moscow’s most significant military backer in the war. The extent of Iran’s potential weapon provision was also indicated by a recent Al-Monitor report that quoted an Iranian military intelligence official as saying: “Our power has grown to levels where China is waiting in line to buy 15,000 of our drones.”

Iran is thought by US intelligence officials to have supplied three models of drone to Russia, namely the Shahed-131 and 136 single-use kamikaze drones, used by Moscow as a cheaper alternative to cruise missiles, and the Mohajer-6 multi-role drone, which can be used for intelligence gathering and can carry a missile payload. The US Defense Intelligence Agency has made it clear that Iran appears to be “committed to resupplying” Russia with drones, though Tehran denies claims it is building a military drone production facility in Russia, in Tatarstan.

Dozens of Russian Su-35 fighter jets could be part of Moscow's "thank you" to Tehran (Credit: Rob Schleiffert, cc-by-sa 2.0).

There are indications that so pleased is Moscow with the Iran military cooperation that it is prepared to deliver Tehran Su-35 fighter jets by the end of March. The provision of Russian military helicopters is also widely expected.

Could Iranian ballistic missiles already be going the other way? An analysis by Can Kasapoglu—a non-resident senior fellow at the Hudson Institute and director of the Security & Defense Research Program at EDAM—published by National Interest on January 6 cautioned: “Taking advantage of Russia’s growing reliance on low-cost Iranian weapons amidst its stumbling campaign in Ukraine, Iran is now set to procure dozens of Russian Su-35 aircraft. While some Western assessments tend to downplay the gravity of the acquisition, claiming that it would not drastically alter the airpower balance in the Gulf, the Su-35 would give an unprecedented boost to Tehran’s control over the Iranian airspace. Such a capability development effort is particularly dangerous as the regime is moving closer to a nuclear bomb.

“More importantly, the ambitious barter of Russian Su-35 fighters in return for Iranian drones, and probably ballistic missiles, manifests a grim calculus for the West. Contemporary military transactions between Tehran and Moscow have unveiled a new geopolitical episode. Washington and its allies are now facing a more aggressive and hostile axis than ever.”

As two ‘pariah’ regimes that are not for bending, Iran and Russia have in the past year backed each other politically, with the regular refrain that foreign powers should not interfere in a country’s internal affairs. With major unrest spreading across Iran’s towns and cities following the September death of 22-year-old Mahsa Amini while in the custody of Tehran’s morality police, the White House even served a warning that there were signs Russia was training Iran in how to suppress demonstrations, drawing on the Putin administration’s years of experience in brutally crushing all opposition that manifests on the streets.

What’s known for sure is that Iran is working with Russia in space technologies—a Russian rocket has already been used to put an Iranian satellite into orbit, prompting claims Moscow was leasing it to spy on the battlefield in Ukraine—the automotive industry, aviation, petrochemicals, pharmaceuticals and the interlinking of their electricity grids, while the two countries in January hooked up and integrated their interbank communication and financial transfer systems.

In January, it was reported that Russia has overtaken China as the top foreign investor in Iran, thanks to $2.7bn of spending on two oil projects in the western Ilam province. But all is not going smoothly in hydrocarbons when it comes to Iranian and Russia cooperation—there are reports that sanctions on Russia are hindering and stalling a flagship Iranian gas development project, namely South Pars Phase 11.

Another difficulty for Iran is that as it grows closer to Moscow and refuses overtures designed to tempt it back into relaunching the 2015 nuclear deal, or JCPOA, with the Western and other major powers—a JCPOA revival would provide Iran with waivers on sanctions in return for a guaranteed curbing of Tehran’s nuclear development programme—economic sentiment on its markets sours and there are painful consequences. On February 20, the Iranian rial (IRR) for the first time ever crashed through the 500,000/$ barrier. Last August, it was trading at around 300,000/$.

In trade, turnover between Russia and Iran in 10M22 hit $4bn, surpassing the turnover posted for full year-2021, according to figures provided by the Federal Customs Service (FCS) of Russia. Russian exports to Iran were up 27% y/y, while imports from Iran moved up by 10% y/y. So, trade is not massive, but there is fair potential for a substantial expansion given how Russia, in many ways barred from Western markets, has turned so very much to the South and East. A full-fledged free trade agreement between Iran and the Moscow-led Eurasian Economic Union (the EEU trade bloc groups Russia, Belarus, Armenia, Kazakhstan and Kyrgyzstan) might not be far away.

A big challenge for Russia is developing trade routes via which it could efficiently reach many of those Eastern and Southern markets that Putin sees as a major part of Russia’s economic future.

Last November brought an interesting small news item when it was announced that Russia’s United Shipbuilding Corporation (USC) is to build four sea-river container/MPP (multipurpose) ships, or “boxships” that will travel between Russian inland ports along the Volga River and the Volga–Baltic Waterway in the north, and Iran’s Caspian Sea ports in the south, steaming distances of up to 4,500 kilometres.

That, however, is just a segment of a far bigger picture—the grand ambition is for Russia to be linked to the Middle East, India and other far-flung markets via rail links that would traverse Azerbaijan and Iran to reach the latter’s Persian Gulf ports and sole oceanic port—Chabahar on the Sea of Oman (Indian Ocean)—under the International North South Transport Corridor (INSTC) project. It could also link to other routes connecting to Russia via Central Asia.

A big test of how committed Russia is to INSTC will be how fast on its feet it turns out to be in providing financing and perhaps engineering to address the weakest link in the corridor, namely the lack of a railroad to negotiate swampy and rocky terrain between Astara, Azerbaijan, and Rasht near the southern coast of the Caspian Sea in northern Iran.