Venezuela as Iran's Latin American ally

 

The selection of the ultra-conservative Ebrahim Raisi as the new president will strengthen the Islamic Republic's alliance with revolutionary governments around the world, such as Venezuela.

Iran has had mostly cordial relations with Venezuela for many decades. However, relations soared to their highest level during Mahmoud Ahmadinejad’s presidency. Ideological alignment between Ahmadinejad and the then-president of Venezuela, Hugo Chávez, paved the way for developing diplomatic and economic relations between Iran and Latin American countries ever since. Other left-leaning governments in the region, such as Brazil, Argentina, Ecuador, Bolivia, and Uruguay, also expanded their ties with Iran in the 2005-2013 period.

Iran’s foreign policy and, by extension, its priorities started to change in 2013, albeit for a brief period. Based on his presidential campaign promises, Hassan Rouhani made an effort to de-escalate tensions with the United States and improve business ties with European and Asian (especially Middle Eastern) countries. The more “liberal” approach under Rouhani made high level of trade exchange possible with countries that are not politically aligned with Iran. Trade with Brazil, as Iran’s top trading partner in Latin America, for example, continued under the right-wing government of President Jair Bolsonaro (since 2018). Another example is Chile. Tehran and the government of Santiago headed by the former president Michelle Bachelet, re-established full diplomatic relations after 36 years in 2016, signalling Iran's attempt to have expanded and balanced relations with more Latin American countries.

With the reimposition of sanctions by the United States starting in 2017, strategic relations between Iran and Venezuela have once again became prominent. Moroever, Iran’s political relations with Cuba have remained friendly for decades. Iran's policy in the coming years will be a strong continuity of this alignment.

 

Venezuela at the core of Iran's economic relations with Latin American countries

In the first week after the presidential elections in Iran, Venezuelan President Nicolás Maduro, Cuban Miguel Díaz-Canel and Bolivian Luis Arce were the only Latin American presidents who congratulated Ebrahim Raisi. Such a position is linked to the history of relationship between Iran and these countries. During the last two decades, Venezuela, Cuba, Bolivia plus Nicaragua are the countries in Latin America that have had high-level interactions leveraged by public sectors on both sides. Taking into consideration the diversification of cooperation, Venezuela undoubtedly is a special case among all Latin American and Caribbean countries.

The volume of investments by Iran’s manufacturing sector in Venezuela began to spike in 2005 and economic ties were mainly based on long-term infrastructure development projects. This was mainly a result of the relatively good and stable economic situation in both Iran and Venezuela.

In the decade that followed, Iran’s investments in Venezuela appeared in the form of establishing joint construction companies (such as Kayson) and oil companies (such as Sadra). The transfer of technology, particularly in the field of agroindustry, was another field of cooperation. In addition, Iran and Venezuela established joint companies to manufacture tractors and automobiles, including Veniran Tractor and Venirauto- the latter is an assembly line of Iran Khodro’s Samand cars, branded as Centauro locally. At a smaller scale, Iran also tapped into the energy and machinery sectors in Bolivia, Nicaragua, and Ecuador.

Iran has mostly been investing and exporting engineering services to Venezuela. In 2013, for example, the Iranian Association of Engineering and Technical Services Exporters (ICCA) estimated that the aggregate Iranian engineering services in Venezuela exceeded $8.3 billion. The high number of construction projects often require substantial financial capital and transaction channels; thus, the Iran-Venezuela Bilateral Bank (IVBB) was established in 2010 to finance the joint projects.

Having a presence in Venezuela’s engineering service sector made it slightly easier for Iran to get back its payments in the 2000s. However, the investment climate did not last long. With economic troubles mounting in Venezuela starting in 2014, many projects practically failed. As a result, collaboration was mainly focused on the processed food and pharmaceutical industries and revitalising Venezuelan farmlands to export some agricultural goods to Iran. Simultaneously, economic cooepration between Tehran and Havana have been mainly focused on the pharmaceutical biotechnology.

The U.S.-imposed embargo on Venezuela’s state-owned oil company led to the withdrawal of foreign companies, impacting whole Venezuela´s hydrocarbon industry since 2020. As a result, Venezuela's gasoline production fell dramatically, and its economy took a further downturn hit. The multiple Iranian fuel shipment to Venezuela was a successful attempt to maintain vital mobility in Venezuela amid the pandemic, despite external threats and differences in octane standards.

While the Covid-19 pandemic has had a significant impact on trade globally, Iran’s economic interaction with Venezuela sharply increased in 2020. In July 2020, an Iranian supermarket chain opened in Venezuela. Megasis, a supermarket valued at $10 million, represents an example of renewed cooperation between the Venezuelan and Iranian food sectors. The products at the supermarket are priced in foreign currencies, in accordance with the 2019 policy by Venezuela's Central Bank.

Lack of resources has persuaded Venezuela to swap gold, jet fuel, and agricultural goods in exchange for engineering services, shipping derivatives, and fuel from Iran. Such types of business relations during Ruhani administration was not expected to be a sustainable trade mechanism or solve the deep economic issues that Venezuela or Iran are facing. First and foremost, these actions were meant to showcase free their resistance to sanctions. The arms trade is the new field that we can observe from now on.

Neither Caracas nor Tehran, as two old OPEC founders, no longer get access to significant oil revenues as they did in the past decades. Furthermore, economic sanctions and the crisis in both countries may slow down bilateral projects. However, the entire trajectory show even though a part of sanctions against “revolutionary” governments in Tehran, Caracas and even Havana are finally lifted, they will likely remain close allies in next few years.