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Foreign Policy

Could Iran be the Key to China’s Eurasian Plans?

Oct 08, 2019

China and Iran’s strategic partnership in energy, transport, and infrastructure is an additional indicator that Eurasian coordination is inevitable and only accelerated by Washington’s unilateralism. The updated 2016 deal suggests that the Iranians do not see an opportunity for productive negotiations with Washington, and that Beijing is firm on its defiance of US sanctions on Iran and its trading partners. In his recent visit to Beijing, Iranian foreign minister Mohammad Zarif stressed that “[we] both face overseas hostility by populist unilateralist bigotry.” Zarif’s unifying message does not just oppose the Trump administration; instead, it welcomes Eurasian cooperation as an alternative to America’s dominant role in the Middle East.   


The updated Beijing-Tehran strategic partnership reverberates Xi Jinping’s calls for “mutual respect, fairness, justice, and win-win cooperation” at the 2017 Asia-Pacific Economic Cooperation summit. The deal significantly benefits both countries as it opposes US control of international energy markets and hints at a ‘global economic transition’ toward a more Eurasian-centric future. However, Beijing also “opposes any action that may intensify events in the Middle East.” Given Iran’s recent conflicts with Saudi Arabia and the US, China’s role as a diplomatic broker in the region and in the United Nations will likely develop. 


China will provide Iran with $280 billion in investment for petroleum, gas, and oil development, along with an additional $120 billion for upgrades in transport and infrastructure. This massive $400 billion figure roughly matches Iran’s GDP. Since August, China revitalized three energy projects in Iran, including the South Pars gas field, which Iran shares with Qatar, the Yadavaran oil field bordering Iraq, and the Jask oil terminal, which sits east of the Strait of Hormuz. 


China is filling the space leftover from Western energy firms, which US sanctions prevent from operating in Iran. In South Pars, China National Petroleum Corporation (CNPC) increased its 30 percent stake to 50.1 percent after a French firm withdrew in response to US sanctions. CNPC is also developing oil fields in West Karoun and North Azadegan. Another Chinese firm, Sinopec, is heavily involved in Yadavaran, and with Chinese investment, Iran increases oil and gas production despite US pressures. Another key benefit for Iran is that China agreed to increase imports of oil despite the US decision not to extend China’s waiver on imports from Iran in May. China imported over 925,000 barrels per day since July, reflecting a 4.7 percent increase on a month-on-month basis. The actual figure is higher because excess barrels are stored in floating storage in and around China and are not listed on customs data. To protect investments, Beijing is sending 5,000 security personnel to guard installations, which will send a geopolitical signal to the United States, Israel, and Saudi Arabia. Since the bilateral agreement also incorporates provisions for the priority of at least one Russian company, it will facilitate cooperation between China, Iran, and Russia, which also grants Tehran two permanent UN Security Council members on its side. 


Under the deal, Chinese firms will receive priority for new, stalled, or uncompleted oil and gas developments, in addition to first refusal rights on petrochemical projects, including technology systems, process ingredients, and the personnel requirements necessary for project completion. Even better, China will be able to delay payment for Iranian production for up to two years. Within the Belt and Road Initiative framework, Tabriz, a site for oil, gas, and petrochemical production in northwestern Iran, is the starting location for the Tabriz-Ankara pipeline and pivot point for the New Silk Road, which links Urumqi in Xinjiang to Tehran, also passing through Kazakhstan, Kyrgyzstan, Uzbekistan, and Turkmenistan. 


Accompanying China’s warming of relations with Iran is a recently revived friendship with Russia. Further Eurasian coordination between the three states secures vital energy resources to feed China’s oil and gas appetite. Behind Russia, Iran is the second-largest gas reserve and one of the largest conventional crude oil reserve countries in the world. China views Iran as a critical supplier of quality natural resources, a large pool of human capital, and an untapped market in the region. Beijing is Tehran’s largest trading partner, and China intends to utilize low-cost labor in Iran to build factories on par with Chinese standards and design models. Xi Jinping’s win-win approach seems to be pulling Iran firmly into the China-Russia Eurasian orbit.  


Further, Beijing and Tehran agreed to avoid the use of USD in all commodity transaction payments between China, Iran, and Russia under the new strategic partnership. China is also able to pay in soft currencies for business dealings in Africa and the former Soviet Union states. Under the deal, China will purchase oil, gas, and chemical products at a discount of at least 12 percent, with another 6-8 percent added as “risk-adjusted compensation.” Therefore, China will recycle foreign currency reserves accrued from trade surpluses and avoid USD altogether to bypass prevailing international payment systems. Under preferential exchange rates, Beijing could save an addition 12 percent. China’s involvement in Iran along with its inclusion of Russia signals a reduction of the US role in international energy markets and that the overuse of tariffs under the Trump administration might be hurting Washington’s interests in vital ‘swing regions’ in Asia, the Middle East, the Balkans, and even Central Europe.  


As the US and China struggle over Iran’s fate, we ought to ruminate over Robert Kaplan’s words in his recent New York Times article: “Iran is the key to China’s plans, just as China’s plans are key to Eurasia’s destiny.” Although often dismissed as a cheap and cynical orator, Steve Bannon, Trump’s former chief strategist, also emphasizes China’s ambitions in dominating the Eurasian landmass, controlling both the Persian Gulf and the South China Sea, and regulating commerce through the ‘rim’ surrounding the Eurasian heartland. Washington’s Trump-era unilateralism only provokes a more transparent and decisive China. Aleksandr Dugin, Putin’s alleged philosopher king, also views the BRI as an opportunity to accelerate the formation of a neo-Eurasian bloc firmly in opposition to the liberal and capitalist West. It seems as if the more the US deconstructs supply chains so vital to the Chinese economy, the more overtly Beijing pursues its geostrategic plans that resemble a new ‘Eurasian bloc.’ The Trump trade war seems to encourage Eurasian coordination, as evidenced by deals like the strategic partnership between China and Iran. 


As Iran looks to China and Russia as viable long-term partners, cross-border investments between China and the US hit its lowest levels since 2014. Intel and AMD halted or failed to extend partnerships with Chinese entities, and the Department of Commerce reduced the number of licenses assigned to Chinese citizens in sectors involving sensitive technology by half. A ‘decoupling’ or ‘restructuring of interdependence’ between the US and China is occurring, while Beijing is looking to pull more states of strategic importance into its good graces. The United States must make a genuine attempt to understand the interests of both emerging and remerging global competitors. If Washington ignores Chinese, Iranian, or Russia geostrategic lenses, or even worse, openly dismisses them, Beijing, Tehran, and Moscow will unify under a common struggle. Today, the ‘other’ might be populist or unilateralist, but tomorrow, the divergence of interests between East and West will still certainly remain.

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