Russia’s VTB Bank has opened a representative office in Iran, establishing the first direct Russian banking presence in the Islamic Republic.

Iranian Deputy Minister of Industry and Trade, Alireza Paymanpak, announced the move on Twitter on May 16.

The arrival of VTB in Iran will likely fortify trade and economic ties between Russia and Iran, maritime neighbours who are respectively the most and second most nations in the world. Those ties have grown increasingly wider and deeper ever since Russia was hit with a huge wave of sanctions by the West following its invasion of Ukraine in February last year. Moscow and Tehran have announced bilateral cooperations in trade ranging across multiple areas in including trade transit (there are plans for exponential growth in the amount of Russian cargo reaching the Middle East and South Asia via Iran’s Persian Gulf and Sea of Oman ports), automotive, pharmaceuticals, oil and gas, petrochemicals and tourism.

The US, meanwhile, last week that it has grown more concerned about the expanding military relationship between Iran and Russia, which includes the use of Iranian ‘kamikaze’ drones by Russian forces in the Kremlin’s war against Ukraine.

Iranian officials said the securing of the VTB office in Tehran was partly the result of efforts made by the Trade Promotion Organisation of Iran (TPOI), a body responsible for regulating and promoting Iran’s foreign trade activities.

VTB Bank’s other overseas offices are in China, Italy and Kyrgyzstan, while it has two overseas bank branches, one in China and India.

Paymanpak noted that VTB’s presence in Iran would assist in transferring FX revenues into the Iranian banking system.

In January, the Iranian and Russian central banks, both shut out of almost all of the international financial system, including payments system SWIFT, due to the sanctions, signed a deal to connect their national interbank communication and transfer systems to help boost trade and ease two-way bank transactions.

Per the deal, 52 branches of Iranian banks and four unnamed foreign banks will use Iran's local interbank telecom system, known as SEPAM, to connect with 106 banks using Russia's System for Transfer of Financial Messages or SPFS, the Iranian central bank said.

Iran's Shahr Bank and VTB are involved in a SEPAM/SPFS pilot programme. Other lenders will join the interbank system gradually.