Oil Squeeze on Iran Aids Putin's Power Play in the Middle East

(Bloomberg) -- If President Donald Trump succeeds in cutting Iran’s oil exports to almost nothing, one of the main beneficiaries is likely to be Russia.

The economic blow to Iran will ease the Kremlin’s efforts to rein in Iranian influence in Syria, bolstering President Vladimir Putin’s efforts to project Russian power across the Middle East. Tehran and Moscow were one-time collaborators in the region, but they’ve found themselves increasingly at odds as Syria’s eight-year-old civil war winds down.

In recent months, the two main power brokers in Syria have engaged in deadly clashes, with Russian and Iranian forces and their proxies firing at one another, according to a Russian official and media reports. The relationship between the two countries is tense, three people close to the Russian government confirmed, speaking on condition of anonymity to discuss confidential matters.

Countering Iran will become easier after Trump removed waivers that allowed it to sell oil to countries including China, India and Turkey because the country “will be a lot more squeezed,” said Yury Barmin, a Middle East expert at the Moscow Policy Group research organization.

Sentiment Sours

Since Trump re-imposed sanctions last year, Iranians have been burned by a lack of solidarity from their one-time partners. Tabnak, a conservative news site founded by a former Revolutionary Guards commander, complained in a recent commentary that Moscow hasn’t shown any “serious determination” to stand with Tehran.

Iran’s ejection from international oil market also benefits Russia financially: it’ll be free to resume pumping at full capacity when output curbs agreed with OPEC expire in June, said Dmitry Marincheko, oil and gas director at Fitch Ratings. That will earn it about an extra $6 billion a year, at current prices.

As relations with Iran soured, Russia invested in unprecedented cooperation with its chief rival, Saudi Arabia, inking a joint agreement with OPEC on limiting oil production. That succeeded in stabilizing prices.

Although Moscow and Riyadh have backed opposing sides in Syria, Putin has been trying to persuade other Arab nations to drop their hostility to Syrian President Bashar al-Assad and reintegrate the nation into the Arab League. A smaller Iranian footprint in Syria makes that more palatable to Sunni Gulf states that see Shiite Iran as their primary rival, said Barmin of Moscow Policy Group.

Armed Clashes

Russian troops have been seeking to gradually push the Iranian-backed Lebanese Shiite militia, Hezbollah, out of Syria, and pro-Iranian and pro-Russian detachments have exchanged fire increasingly since late last year, with three armed incidents reported in April alone.

That included one on April 19 in the eastern province of Deir Ezzor in which two Iranian Revolutionary Guards were killed and four Russian military police wounded, according to Turkey’s Anadolu Agency. Far more deadly clashes occurred in January between rival branches of the Syrian military backed respectively by Iran and Russia, Russian newspaper Novaya Gazeta reported.

The conflict is partly over which side mans checkpoints and benefits from it financially, said Rami Abdurahman, director of the U.K.-based Syrian Observatory for Human Rights, which monitors the war through activists on the ground. But it also reflects a much broader standoff, said Nikolay Kozhanov, a Middle East expert at the European University at St. Petersburg, who served as a Russian diplomat in Tehran from 2006-2009.

Different Goals

“Although Russia and Iran are both interested in ensuring the survival of Assad, they have completely different strategic goals and priorities,” Kozhanov said.

Iran sees Syria as a key front in its battle to carve out a dominant regional role and threaten Israel. That runs afoul of Russia’s aim of using its footprint in Syria to advance Putin’s global ambitions while keeping ties to all major players in the region, including Israel, said Kozhanov. Russia has allowed repeated Israeli air raids on Iranian-backed targets in Syria, according to the ex-Russian envoy.

Russian Deputy Foreign Minister Sergei Ryabkov in January denied that Iran was an ally of Russia and said his country was committed to ensuring the “very strong security of the state of Israel.”

Financial Interests

Economically as well, Russia and Iran are competitors in Syria, London-based research group Chatham House said in a March report.

In early 2017, Syria and Iran signed a memorandum of understanding on a phosphate mining concession near the ancient site of Palmyra. But six months later, Syria signed rights over the same mine to a Russian company owned by a Putin ally, Chatham House said.

The U.S. designation of the Islamic Revolutionary Guards Corps, a branch of the Iranian army, as a terrorist organization in mid-April makes it more difficult for Iran to ship oil, and allows Russia to challenge its role as the main supplier of fuel to the Syrian government, said Barmin.

Disagreements could sharpen over which foreign forces should stay in Syria, said Diako Hosseini, director of the world studies program at the Center for Strategic Studies in Tehran, which is affiliated with the Iranian presidential office.

While the two sides continue to cooperate in efforts to engineer a political post-war settlement, there are concerns the tensions could spiral out of control.

In one possible worst-case scenario for Syria, the Russian-Iranian partnership collapses completely and military groups loyal to each side engage in a fight, said Andrei Kortunov, director general of the Russian International Affairs Council, a Kremlin-founded think tank.

“The once-implicit competition between Moscow and Tehran for influence in Damascus would then become explicit,” he said.

--With assistance from Olga Tanas, Dana Khraiche and Stepan Kravchenko.

To contact the reporters on this story: Henry Meyer in Moscow at hmeyer4@bloomberg.net;Ladane Nasseri in Dubai at lnasseri@bloomberg.net;Ilya Arkhipov in Moscow at iarkhipov@bloomberg.net

To contact the editors responsible for this story: Gregory L. White at gwhite64@bloomberg.net, Benjamin Harvey

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