BAKU – Desperate times call for desperate measures. China and Iran have drafted a long-term trade and military partnership that will see some 400 billion USD of Chinese investments pour into Iran in the first phase of the 25-year deal. It’s expected that even more funding will be made available as the pact progresses. Considering the time and place, Beijing would be effectively bailing out the struggling government in Tehran, and while doing so, secure hydrocarbon commodities for itself and further extend its influence across the Middle East and the Indian Ocean.

The root of the deal

China has nurtured bilateral relations with Tehran for decades. Since 2010, Beijing has invested up to 18 billion USD in Iran, while the total foreign direct investment of the rest of the globe amounted to less than 28 billion. So, most of the investments in Iran came from Chinese sources. Realizing this unique bond, Iranian President Hassan Rouhani and Chinese President Xi Jinping started negotiations for a comprehensive 25-year strategic partnership in January 2016.

Diplomatic efforts became more pressing when President Trump applied his maximum pressure policy on Iran. The moment the US sanctions were reinstated, Iran’s economic growth plummeted. Oil production, the lifeline of Iran’s economy, dropped from nearly 4 million barrels per day to barely above 2.5 million barrels per day. Left with little choice, the Iranians accelerated the negotiations with their Chinese counterparts and added a new military component to the deal. If there is one thing you can count in geopolitics, it’s that if you push a country too far, sooner or later, they’ll start pushing back.

In August 2019, some of the details of the Chinese Iranian deal were leaked to the public. Beijing will invest 280 billion USD in developing Iran’s oil, gas and petrochemicals industries, and another 120 billion USD in upgrading the country’s transport and manufacturing infrastructure. It’s important to note that the total amount of 400 billion USD will be invested in the first 5year period of the 25-year deal. So, each subsequent five-years will see further amounts of investments provided that both parties agree.

According to the leak, Chinese manufacturing companies will set up new factories in Iran and use the cheap labour to manufacture goods that can access Western markets via China’s Belt and Road transport corridors. Nearly 100 projects, such as railways, highways, ports, factories, refineries, etc., are cited in the deal. In exchange, Chinese businesses will be provided with the first option to bid on any new gas, oil and petrochemicals projects in Iran, and possibly even given discounts up 12 per cent. China would also be developing a new special economic zone in the northwest of Iran. Still interesting, China will be granted the right to delay payment for up to two years. It will also be able to make payments in soft currencies, which is a type of currency that is unlikely to maintain its value over time compared to the dollar, euro, pound, franc, yen, etc.

Chinese telecommunications giant Huawei will also be providing Iran with the technology to roll out its 5G network, while Chinese global positioning system BeiDou will assist Iran’s in regulating the country’s cyberspace, possibly developing an Iranian version of China’s Great Firewall. Beijing will also be gaining access to Iranian ports in the Persian Gulf. The seaport of Jask is one such facility. It sits just outside of the Strait of Hormuz by the entrance to the Persian Gulf. Control over Jask would grant the Chinese a vantage point on the waters through which much of the world’s hydrocarbons transit. China already has constructed a series of ports in Gwadar, Hambantota, and Djibouti. In that context, the Iranian port would fit neatly along a network of refuelling and resupply stations from the South China Sea to the Suez Canal, in what is referred to as the String of Pearls.

String of Pearls

The draft also calls on both countries to boost military cooperation by joint training exercises, joint defence research, and intelligence sharing. It’s also believed that some 5,000 Chinese troops would be stationed in Iran to protect Beijing’s investments, while Chinese bombers, fighters and transport planes would gain access to some Iranian airbases. Somewhere down the line, China is also expected to provide Iran with sophisticated electronic warfare capabilities, including early warning systems, jamming systems, surveillance systems, etc. These assets would significantly strengthen the Iranian anti-missile defence network from Israeli or American attacks while boosting Iran’s missile and drone attack capabilities in the Persian Gulf.

Much of the content of the Chinese Iranian deal is a closely guarded secret. All we know comes from the leak last year. As things stand now, the draft has yet to be presented to the Iranian parliament, and Beijing has yet to disclose the terms and conditions of the deal. But, even if half the speculation is accurate, and the draft is put into effect, it would create a new flashpoint in the trilateral relationship between Beijing, Tehran, and Washington.

For Iran, the deal is one of necessity and even one of desperation. President Rouhani is under political and public pressure for his mismanagement of the economy and the fallout of the 2015 nuclear deal. The country is battered by sanctions, low oil prices, and a deadly pandemic. At the same time, a string of unexplained explosions at nuclear and civilian sites have shaken the country. Now, more than ever, Iran must make it known that it can hold its ground. So, moving towards China’s camp not only discredits Trump’s maximum pressure policy, but it also shows that Iran has international allies and options.

For China, meanwhile, the deal is a breakthrough. Stretching from the Caspian Sea to the Indian Ocean, Iran would make for an indispensable ally in China’s Belt and Road Initiative, to which all the nearby states have subscribed. Plus, thanks to its vast deposits of crude oil and natural gas, Tehran could technically aid Beijing in withstanding an American blockade on its sea line of communication. More importantly, having a capable ally in the heart of the Middle East would frustrate Washington and divert its attention and resources at a time of Beijing’s choosing.

Façade of progress  

On the surface, the Chinese Iranian strategic partnership seems like one of colossal weight, but the deal may not be what it appears. China may be promising more than it can deliver. From 2010 to 2019, China’s entire outbound foreign investment averaged roughly 200 billion USD each year. Now, however, the state is feeling the strain of a slowing economy and the trade war with the United States. Does Beijing really have an additional 400 billion USD to spend over the next 5 years? Can China really devote half its outward foreign direct investment to a single medium-sized country? 

If you would ask Islamabad, the answer would be no. Since its inauguration, the China-Pakistan Economic Corridor, the centrepiece of the Belt and Road Initiative, has absorbed 62 billion USD, but the megaproject has yet to benefit Pakistani citizens or the Pakistani state in any meaningful way. That experience is likely to be reflected in the Chinese Iranian deal as well. One might even argue that with the severe sanctions currently imposed on Iran, China’s goal to expand its economic footprint in Iran could be even more complex than the venture in Pakistan.

So, the Chinese Iranian deal might bring the two nations closer together, but it is unlikely to be a game-changer in the foreseeable future. Foremost, China is not going to take Iran’s side in the power plays of the Middle East. China has no reason to side with one and jeopardize its relationship with another. Saudi Arabia is currently courting China to invest in its Vision 2030 megaproject, and last year, the two countries signed a new energy deal worth over 10 billion USD. In Israel, meanwhile, Chinese firms are involved in seaports, shipping, and desalination plants, while Chinese investors have provided over a billion dollars in financing for Israeli start-ups. Beijing is not keen on sacrificing its businesses in Israel and Saudi Arabia for the sake of Iran.

Shirvan Neftchi

Watch it on YouTube

Photos

  1. Azadi Tower, Tehran – muhammad nuri via Pexels
  2. Belt and Road Initiative (BRI) – Lommes via Wikipedia
  3. China’s President Xi Jinping with Ayatollah Khamenei (Jan 23, 2016) – Khamenei.ir

References

· Top Rouhani Aide Says Iran-China Pact Can Be Finalized By March 2021 (Radio Liberty, July 2020) https://en.radiofarda.com/a/top-rouhani-aidesays-iran-china-pact-can-be-finalized-by-march2021/30721927.html

· Foreign Ministry Spokesperson Zhao Lijian’s Regular Press Conference on July 6, 2020 (Ministry of Foreign Affairs of the People’s Republic of China, July 2020) https://www.fmprc.gov.cn/mfa_eng/xwfw_665399/s2510_665401/2511_665403/t1795337.shtml

· Shared vision binds Iran-China relations (Global Times, August 2019) http://www.globaltimes.cn/content/1162671.shtml

· Defying U.S., China and Iran Near Trade and Military Partnership (The New York Times, July 2020) https://www.nytimes.com/2020/07/11/world/a sia/china-iran-trade-military-deal.html

· China’s crude oil imports surpassed 10 million barrels per day in 2019 (U.S. Energy Information Administration, March 2020) https://www.eia.gov/todayinenergy/detail.php?id=43216

· China Inks Military Deal With Iran Under Secretive 25-Year Plan (OilPrice, July 2020) https://oilprice.com/Energy/EnergyGeneral/China-Inks-Military-Deal-With-IranUnder-Secretive-25-Year-Plan.html

· Iran’s deeper partnership with China is not all that it appears to be (The National, July 2020) https://www.thenational.ae/business/comment/iran-s-deeper-partnership-with-china-is-not-allthat-it-appears-to-be-1.1047946

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