Russia and Iran have officially entered an agreement to connect their interbank payment systems. Iran’s Shakr Bank and Russia’s VTB Bank will lead a project to link 158 banks and facilitate payments, investments, and other shared projects, including transport. “If this works in practice, the two countries will catch their breath since both are cornered”, says sanction expert and lawyer Sebastiaan Bennink.

“Transport projects will also benefit from this development”, he adds. “The two countries have found new and very interesting markets for their combined efforts, and easier transactions will be beneficial for all”, Bennink highlights.

Just practical solutions

It has become apparent that the Western sanctions on Russia were targeting its economy. No matter their effectiveness-the Russian economy is currently galloping, overturning downturn forecasts; Russia needed to find alternatives to survive the strike. Iran and the corridor leading to India, the well-known International North-South Transport Corridor (INSTC), were some of the first focal points of Russian diversification attempts.

However, Russia is not the only state sanctioned by the West. Iran has been under US sanctions for decades, and while the EU could theoretically still trade with the Central Asian state and develop business, it does not. On the contrary, it is currently tightening its foreign and economic policy towards Iran.

In this context, “both countries are just looking for practical solutions”, says Bennink, “since both are somewhat marginalised from the world”. However, this does not mean they must recognise each other’s sanction regime. The same applies to India, which does not recognise the sanctions imposed on the two states and sees fruitful opportunities in connecting its supply chains with Iran and Russia.

India will also benefit from the joint Russo-Iranian development since it could result in seamless freight flows to and from Moscow. International payments and their processing always cause headaches for logistics. This will not be the case anymore for Russia and Iran, and, respectively, India, which sits on the Southern end of the INSTC.

“Apart from easier payments”, continues Bennink, “a connected interbank system could pave the way for easier Russian investments in Iran”. In general, all kinds of economic transactions between the two states will be facilitated.

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