Iran looks to Central Asia in effort to grow exports

Bourse and Bazaar | Omid Rahimi: Over the past year, Iran has faced disruptions in its foreign trade relations following the withdrawal of the United States from the Joint Comprehensive Plan of Action.  Trade with partners like Europe and China has suffered because of U.S. secondary sanctions. In the face of these uncertainties, Iran has adopted a “neighborhood policy” as it seeks to protect trade flows. The policy has been recently expanded to Central Asian states, which serve both as an export market as well as the geographic bridge as Iran seeks to strengthen integration with Russia and China. For the landlocked Central Asian states, Iran is a vital conduit to international waters. In a May 2018 speech, President Rouhani described closer ties with Central Asia as a “fundamental policy.” The policy is now in the early stages of implementation.

At the beginning of December, Tehran hosted two economic summits with Tajikistan and Kyrgyzstan, the first such meetings in two and three years respectively. A week later, an Iranian delegation traveled to Tashkent in an effort to deepen trade ties.

On December 2, a joint commission of economic cooperation was held between Iran and Tajikistan. Iranian energy minister Reza Ardakanian presided over the meeting, which focused primarily on cooperation in energy and transportation projects. Iranian contractors have a history of infrastructure development in Tajikistan, such as the Anzob Tunnel completed in 2015 and Sangtuda 2 hydroelectric power plant. But discussions at the joint commission focused on new projects that would improve Tajikistan’s links to export markets through Iran, and also help support increased bilateral trade, such as the construction of warehouse facilities at Chabahar Port, and the completion of a railway corridor that would link Tajikistan and Turkey through Iran as part of the integration efforts of the Economic Cooperation Organization.

As part of a broader effort to reset political relations, Iran’s President Rouhani made a state visit to Dushanbe in March 2019. Tajik President Emomali Rahmon may soon make his first visit to Iran in six years.

Just a day after the summit with Tajik officials, Iran held a similar high-level commission with Kyrgyzstan. Mohammad Eslami, Iran’s minister of roads and urban development, led the Iranian participation in what was the first commission meeting in three years. The negotiations, which resulted in an extensive memorandum, included a focus on banking ties and transport links.

In the area of banking the Iranian and Kyrgyz officials discussed the establishment of a protocol to ease trade conducted in national currencies among commercial banks. Iranian economy minister Farhad Dejapsand and his Kyrgyz counterpart, Hukan Batov, also discussed the establishment of a joint export bank and export credit agency to help facilitate trade. In the area of transit ties, Iranian and Kyrgyz officials continued dialogue on the use of Iran’s Chabahar port, where Kyrgyzstan has owned land since 2007 following a land swap with Iran, but has yet to develop warehouses or other infrastructure at the site. Iran has sought expanded ties with Kyrgyzstan in recent years. Kyrgyzstan so far is the only Central Asian state to have agreed a 10-year strategic roadmap with Iran—the agreement was signed in December 2016.

A week after the Tajikistan and Kyrgyzstan summits, Iranian industries minister Reza Rahmani led a delegation of over 50 Iranian companies for a two-day business summit in Tashkent, Uzbekistan. Like Tajikistan and Kyrgyzstan, Uzbek companies use Iranian ports to get their goods to global markets. But with a population of 33 million, Uzbekistan also represents a significant potential market for Iranian exporters. Iran’s Zagros Airlines has re-established a direct light between Tehran and Tashkent, after a three-year hiatus. Bilateral trade between Iran and Uzbekistan grew 40 percent in 2018.

Increased trade with neighbors such as Iraq and Turkey has been a key contributor to Iran’s economic resiliency over the past decade, particularly as sanctions depressed exports to markets like Europe and China. In this regard, improved relations with Central Asian states have a strategic importance for Iran in the face of the U.S. “maximum pressure” sanctions companies. Moreover, the Central Asian states will also play an important role in China’s growing sphere of economic influence and as part of the Russian led Eurasian Economic Union, with which Iran has recently concluded a free trade agreement. If the plans discussed by Iran with its Central Asian neighbors are properly implemented, a new pathway for regional economic development will be opened in the medium-term.