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With the help of a few former Soviet neighbors, Iran is set to revitalize their crude oil exports after the profound effect of past sanctions.

Not only has Russia offered to provide goods and services in return for Iranian oil, Azerbaijan and Kazakhstan have proposed reinstating oil swap deals. Oil swaps in general are not new, as they are often used to optimize logistical obstacles. In Iran's case, it is the supply of crude oil to their refineries in the north from countries closer than Iran's own oil fields in the south. An oil-for-goods arrangement has also occurred in the past, notably with Saddam Hussein's Iraq trading oil for food under the auspices of the United Nations.

However, the sanctions against Iran by American and European countries do not make allowances for any such humanitarian trade. Therefore, coordinated efforts by Russia, Azerbaijan, and Kazakhstan could potentially bring more Iranian oil into the global oil market. Iran has offered nearly 500,000 barrels a day to Russia to export from their southern ports in exchange for food and electricity generation expertise. An excess of more than 500,000 barrels a day from Iran, most likely directed at India and China, will notably alter regional oil demand requirements.

Sanctions Inhibiting Iran's Energy Sector
It wasn't until 2006 that much of the developed world joined in sanctioning Iran, and finally, in 2011 and 2012, they had a notable effect on Iran's ability to export crude oil and other petroleum products. With limited access to international finance, oil, and insurance markets, U.S. Deputy Secretary of State William Burns said, "Iran may be losing as much as $50 billion to $60 billion overall in potential energy investments [annually]."

These sanctions come after prolonged failure of UN nuclear negotiation talks with Iran. Russia, an active member of those talks, often tries to capitalize on its role to proffer access to RosAtom into the Iranian nuclear industry. Originally under the guise of preventing the weaponization of spent Iranian fuel cells, Russia now seeks to offer their services in return for Iranian oil.

Oil Swaps and Modern Bartering
In 2010, Iran stopped more than a decade of oil swaps with Kazakhstan, Turkmenistan, and Azerbaijan. Iran, which benefited from the logistical simplicity, was ultimately making only $1 per barrel swapped, yet OPEC was counting the oil swaps against Iran's quota. As Iran saw continued surges in oil prices, the $1 per barrel no longer made long term financial sense; talks had mentioned increasing the price to $5, but ultimately failed.

However, Iran's now struggling crude production and export levels may benefit from these oil swap deals by providing a production incentive. Iran's ability to keep domestic refineries supplied is key to its ability to optimize transportation cost and increase productivity to pay for Russian goods and services. Although Russia is currently stifled by American and European investment restrictions, they still have supply contracts to satisfy. Unfortunately, there are limited other near-term solutions to meet those contracts without American and European investment in greenfield activities in the Arctic or shale oil basins.

Iran, which agrees to provide up to 500,000 barrels a day for the exchange, is only purchasing what amounts to nearly 14,000 barrels a day of grain. The remainder has likely been allocated toward Russian goods and expertise for the "Electricity Generation Sector." Accordingly, on Sept. 12, Russian experts presented their plan for the new Bushehr-2 Nuclear Power Plant (NPP). It is likely that the Iranian side intends on paying for these services with crude oil export out of their southern ports. This provides additional utility for Russia to satisfy export contracts with India and China without increasing domestic productivity.

Iran is thus also able to reallocate funding originally intended for goods and services now provided by Russia. This is likely to go toward mitigating sanctions that have caused a decline in new field developments, precipitating a decline in overall production.

In the event that Azerbaijan and Kazakhstan are able to increase their oil production capacity, oil swaps with Iran may become an increasingly common feature to cut costs to supply distant markets. Through bartering, Russia may be able to undercut threats of an American shale oil export boom by offering reduced oil prices to Northeast Asia. Geopolitically, Russia's support to Iran will place them in a key position to mediate potential future conflicts. However, once Russia is able to supply large quantities of oil via pipeline, Iran's influence will likely decrease and Russia may force rapprochement to garner international goodwill.