Russia evades world's sanctions with lessons learned from Iran: 'An alliance of convenience'

July 21, 2023 at 19:21 PM EDT

Iran and Russia have recently been subjected to a new round of U.S. and international sanctions due to illegal actions and, in response, have attempted to subvert them.

This week, the U.S. imposed new sanctions on Russia and entities based in other countries in an effort to continue limiting Moscow’s access to finances and products that support its invasion of Ukraine.

Companies based in Kyrgyzstan, the United Arab Emirates and Serbia are all facing penalties for helping aid Russia’s war.

"They're making their alternative web of alliances in the world," former Ambassador to Poland Daniel Fried said. "With the exception of China, Russia's friends are the world's outcasts, generally speaking. Iran is certainly helping Russia. It's an alliance of convenience."

Iran has helped Russia with its war efforts by supplying drones. The two countries are also trying to ease the economic pressure that sanctions have caused and recently linked their banking systems.

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"You see the Russians beginning to pick up on some of the tactics perfected by the Iranians, as well as continue to deepen their political, economic and security ties with Tehran," said Behnam Ben Taleblu, a senior fellow with the Foundation for Defense of Democracies. "Iran has a master class in sanctions busting that it's helping to teach the Russian Federation at the moment."

Iran’s largest source of revenue is from oil exports. Since the U.S. reimposed economic sanctions, Iran has turned to illicit trafficking to maintain that revenue. Its output has hit a new high despite the additional pressure.

"While these sanctions remain on the books, the problem here is that they're not being actively enforced. This lack of active enforcement, coupled with a very public desire for diplomacy and de-escalation with Iran, is encouraging more risk tolerant actors to buy more Iranian oil," Taleblu said.

Iran disguises its ships by renaming them while at sea. It changes identification codes to evade international tracking systems. It has also conducted discrete ship-to-ship transfers to covertly deliver its oil to tankers owned by other countries, including China and Syria.

"Iran already had a diverse, illicit shipping network," Taleblu said. "Iran has also had a large illicit money laundering network in place to help bring back some of that revenue. So, it’s an adapting adversary."

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Iran’s shadow banking system has given cover to sanctioned Iranian entities to disguise business with foreign customers. The U.S. recently announced sanctions against that financial network.

"Iran continues to thumb its nose at U.S. sanctions, at our allies, and continues to work to undermine the state of Israel and abolish it," Rep. Mike Lawler, R-N.Y., said.

"We need to be very unified, along with our allies, in pushing back vociferously against actions that Iran is taking, whether it is producing and disseminating petroleum or whether it is trying to undermine the sanctions that have been put in place."

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The U.S. first sanctioned Iranian oil imports in 1979 in response to the Iran hostage crisis. Since then, additional restrictions have been added and lifted as Iran has attempted to work around the next move by the U.S. and allies.

"You have to constantly tinker with it, because any time you put a rule in place, which is what a sanction is, then people try to figure out what the holes are and how to work against it," said Rep. Jared Moskowitz, D-Fla. "I think the sanctions on Russia with what's going on in Ukraine and the sanctions on the Iranian regime are both equally important."

Iran’s response to sanctions has been aggressive. According to the U.S. Navy, the regime has harassed, attacked or seized nearly 20 internationally flagged merchant vessels in recent years. Its threats at sea have gone on even longer.

"These are threats almost as old as the Islamic Republic itself. Iran has long seen oil as a weapon, and it's often threatened for more than one to two decades now that if it can export oil, no other state in the region would be able to peacefully export oil," Taleblu said.

Despite the regime’s efforts to impact the oil market, sanctions are still having an impact. Inflation sits at around 40%. It also has a trade deficit of $6.5 billion for non-oil trade. The country’s currency has also weakened.

"If they weren't working, both countries wouldn't continue to ask them to disappear," Moskowitz said. "We should continue to keep up the pressure with sanctions on Iran and let it run its course."

Russia’s economy has had its own struggles. Its GDP dropped by 2.1% in 2022, according to the Organization for Economic Cooperation and Development. The OECD predicts Russia’s economy will shrink another 2.5% this year.

"These sanctions are intended to apply primarily economic pressure and force behavioral change," Lawler said. "In the case of Russia, I don't think they anticipated the unified blowback that would come from their invasion of Ukraine"

Experts believe while Iran and Russia have found ways to avoid sanctions, the pressure is still mounting on their economies.

"You will never be 100% effective. That's the bad news. The good news is you don't have to be. You don't have to be airtight in your sanctions. The purpose of sanctions is to cause economic stress. You can be imperfect and still cause economic stress," Fried said. "Cheating doesn't mean the sanctions don't work."