Analysis | China making deep inroads into Iran

Iranian President Hassan Rouhani, right, and his Chinese counterpart Xi Jinping in Tehran, Iran, in 2016.   | Photo Credit: AP

Both countries are at odds with the U.S. One is a huge energy market and is abundant with surplus cash and the other is a sanctions-hit, cash-strapped energy exporter. At a time when the U.S. is targeting both through a host of economic measures, China and Iran are taking their partnership to a new level through a $400-billion long-term agreement.

According to a New York Times report, the countries are in an advanced stage of finalising the agreement that would allow China to expand its presence in banking, telecommunications, ports, railways and several other sectors in the Islamic Republic in return for heavily discounted oil for 25 years. While for Iran, whose oil sales plummeted after President Donald Trump unilaterally pulled the U.S. out of the Iran nuclear deal in May 2018 and reimposed sanctions on the country, this agreement could be an economic lifeline, China could enhance its strategic influence in a region where the U.S. has built a strong presence since the Second World War.

The partnership was first proposed by China’s President Xi Jinping during a visit to Iran in 2016. The Iranian government cleared it last month, according to Foreign Minister Javad Zarif. This means, Mr. Xi made the proposal after the nuclear deal was reached in 2015 that led to most international sanctions on Iran being lifted. Now, when Iran is grappling with a struggling economy hit by sanctions following the unravelling of the deal, its leadership has cleared the Chinese proposal.

Strategic value

“Iran has a very crucial place in China’s Belt and Road Initiative. China always wanted to bring Iran on board. As the Americans pursued the policy of ‘maximum pressure’ against Iran and left Iran under extraordinary privation and deprivation, it is now open to the Chinese initiative. This is a meeting of two countries that have very unfairly been mistreated by the Americans,” said Ambassador Talmiz Ahmad, who was India’s Ambassador to several Gulf countries.

The China-Iran partnership agreement has to get the final clearance from the Iranian Parliament. Foreign Minister Zarif said the deal has the support of Supreme Leader Ayatollah Ali Khamenei. According to the NYT, which has reviewed an 18-page draft of the agreement, China and Iran would launch joint training exercises, joint research and weapons development and intelligence sharing. China will also offer its GPS to Iran, build infrastructure for 5G rollout and develop free trade zones.

“It is a long-term strategic partnership agreement with energy, economic, logistical and military aspects. Iran and China will be enmeshed — two countries under extraordinary and sustained American pressure found comfort with each other,” said Mr. Ahmad.

What are the implications of this agreement? It could offer an immediate reprieve to Iran’s economy that is reeling under the U.S.’s ‘maximum pressure’ policy. The International Monetary Fund has forecast that Iran's economy, hit by the triple whammy of U.S. sanctions, fall in oil prices and the coronavirus outbreak, will contract by 6% this year. “Iran has been isolated. And its infrastructure is in a shambles. Over a period of time, this will receive an upgrade. From the Chinese point of view, Iran would present a very major energy, economic, geopolitical and logistical partner and a very crucial role player in the BRI,” said Ambassador Ahmad.

In his view, the existing U.S.-centric world order is in decline and a new multipolar order is emerging in which China is playing a crucial role. China has already cemented ties with Russia in this emerging world order. Iran has joined this bloc. “In terms of the evolution of the new world order, this agreement is a game changer.”

The agreement, if goes through, could attract punitive measures from the U.S. against China. The U.S. State Department has already said it would target Chinese companies if they make investments in Iran defying American sanctions. But China, which is already in a trade and technological war with the U.S., seems determined to go ahead with its partnership. China continued to buy Iranian oil over the past year even after the U.S. sanctions waivers expired in May 2019, although in smaller volumes. In contrast, India stopped buying Iranian oil last year after U.S. waivers ended. In 2019-20, India’s crude oil imports from Iran were 1.7 million tonnes, down from 23.9 million tonnes in the previous fiscal.

India’s receding influence

Coincidently, at a time when Iran and China are finalising this long-term partnership agreement, Iran has dropped India from a project to build a rail line from the Chabahar port to Zahedan, along the border with Afghanistan, The Hindu reported on Tuesday. The project, signed in 2016 when Prime Minister Narendra Modi visited Iran, was hailed as a major trilateral project that would give India access to Afghanistan bypassing Pakistan. But Iranian officials cited delay in the proposed $400 million funding from India as the reason for dropping India from the project.

Under their partnership agreement, China is likely to play a role in Chabahar’s duty-free zone and in the port.

The original Chabahar agreement between India and Iran was signed in 2003 between Iranian President Mohammad Khatami and Prime Minister A.B. Vajpayee. “Within a year, we abandoned it. We started engaging with the Americans, so we stopped pursing it. And again, we brought it up. Prime Minister Modi went to Tehran and we agreed on a trilateral track with Iran and Afghanistan that we would develop Chabahar and then we would go forward with building a railway and road networks. This is crucial for India’s strategic interest. It has crucial geopolitical value — the outreach to Afghanistan, Central Asia and right up to Moscow. The strategic plan was to make India a potential role player in the Eurasian scenario,” said Mr. Ahmad.

“None of this has happened because under the second Modi government, India has pursued the American line. I think it’s a very very serious mistake. Iran cannot afford to wait for India forever. They waited for 17 years. And look at the value they have reached. Now they don’t need you. I think India has lost out very badly,” the Ambassador added.

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Printable version | Jun 21, 2021 4:23:47 AM |

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