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DECEMBER 2020

State-Owned Russian Railways To Leave €1.2Bn Project In Iran Over Sanction Threat

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State-Owned Russian Railways To Leave €1.2Bn Project In Iran Over Sanction Threat

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The state-owned Russian Railways is to leave a €1.2 billion project in Iran due to US sanctions, Interfax reported.

Russian Railways decided to leave Iran after the United States imposed sectoral sanctions on the country on January 10th [pdf]. The project launched in 2018 on the electrification of the railway line in the Islamic Republic was estimated at €1.2 billion.

“On January 10th, the United States expanded sanctions on individuals involved in major transactions involving construction, mining, manufacturing, and textiles in the Iranian economy. The group is taking steps to exit the project,” the statement by Russian Railways said.

Under the restrictions imposed by the United States, 17 companies from the metallurgical and mining sectors, as well as several entities registered in China and the Seychelles were subject to sanctions.

Back in May 2018, Oleg Belozerov, CEO of the company, called this Russian Railways project “civilian and not subject to US sanctions.” The start of the project for electrification of the Garmsar – Inche Burun railway line with a length of 495 km and routes to ports took place in July 2018.

Russian Railways noted that 85% of the project will be financed by an export loan from the Russian Federation, and the remaining funds will come from Iranian railways.

The company expected work on the project to begin in mid-2019 and will last approximately 4 years. To strengthen business relations with the Iranian Railways, in 2016 Russian Railways opened a representative office in Tehran.

“Sanctions are a force majeure circumstance, therefore, the matter will most likely not be resolved in court. The decision of Russian Railways is unpleasant from the point of view of developing the international engineering business of the monopoly, but objectively the only possible one taking into account risks,” said Mikhail Burmistrov, CEO of INFOLine-Analytics.

The project was to increase the capacity of the line to 10 million tons per year and increase the maximum speed of trains in certain sections to 120 km/h.

It is possible that the project isn’t entirely concluded, since it is a significant one in Russian-Iranian cooperation. Currently, actions are necessary due to short-term risks, but in the long-term the project would be quite beneficial to both sides.

The Russian Railways decision appears to lack foresight, and shows that short-term interests are being pursued to defend assets that are currently present, as the company is owned by the Russian state. It probably was made by the leadership of the company, and was made not at the discretion of the Russian government, as it does, in fact lack foresight and appears to cave in to US sanction threats.

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