Iran and Russia have finalised an agreement to conduct trade using their local currencies instead of the U.S. dollar, according to reports from Iran's state media on Wednesday.

The agreement, which was formalised during a meeting between the governors of the central banks of both countries in Russia, now allows banks and economic actors to utilise infrastructures, including non-SWIFT interbank systems, for transactions in local currencies.

Both Iran and Russia, currently subject to U.S. sanctions, find significance in this move as it offers an alternative to traditional financial channels, allowing for more flexibility in their economic relations.

Free Trade Agreement

Additionally, members of the Russian-led Eurasian Economic Union (EEU) signed a comprehensive free trade agreement with Iran on Dec. 25.

This permanent agreement supersedes a temporary pact in force since 2019, contributing to a noteworthy increase in mutual trade.

Trade between Iran and the EEU rose to $6.2 billion in 2022, up from $2.4 billion in 2019.

The Eurasian Economic Union, comprising Armenia, Belarus, Kazakhstan, Kyrgyzstan, and Russia, stands to benefit from the new deal.

It eliminates customs duties on nearly 90% of goods and establishes a preferential regime for almost all trade between Russia and Iran.

Avoiding Sanctions

In a geopolitical context, both Iran and the EEU are gaining prominence for Russia amidst Western sanctions related to the conflict in Ukraine.

These sanctions have constrained Russia's foreign trade routes, leading to a search for alternative markets beyond Europe.

Furthermore, Iran's importance for the Kremlin has grown, with military cooperation expanding.

In November, Iran finalised arrangements for Russia to supply Su-35 fighter jets, Mi-28 attack helicopters, and Yak-130 pilot training aircraft.