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Opinion: China and Iran eye 25 year strategic deal

12 August 2020

A proposed China-Iran 25 year strategic agreement may change the power balance in the wider Middle East. It may also increase Chinese interests in Armenia, argues Benyamin Poghosyan in this op-ed for commonspace.eu

In January 2016, Chinese President Xi Jinping became the first world leader to visit Tehran following the lifting of international sanctions alongside the 2015 Iran nuclear deal. The visit resulted in the signing of 17 agreements on issues ranging from energy to boosting bilateral trade to $600bn. Now, discussions are underway regarding the possibility of a new China-Iran 25-year strategic partnership deal - an idea floated by President Xi, which has apparently received a warm reception amongst the Iranian leadership.

Following the 2015 Iran nuclear agreement, all major powers sent high-level delegations to Tehran seeking lucrative deals and access to the vast Iranian market. However, in May 2018, as President Trump withdrew the US from the deal and launched its "maximum pressure" campaign against Iran, many European companies were forced to cancel their plans and leave the country. Two-years on, the US assassination of Quds Force Commander General Qasem Soleimani in January 2020 brought US-Iran relations to probably their lowest point since the hostage crisis from November 1979 to January 1981.

Meanwhile, since 2018, the US has been involved in a trade war against China. By 2020, issues such as COVID-19, Hong Kong, Taiwan, US concerns over the protection of Uyghur rights in Xinjiang, and free navigation in the South China Sea have brought US-China relations to their lowest point since the restoration of the full diplomatic relations in 1979.

Under these new circumstances, discussions over a China-Iran strategic partnership have taken on new geopolitical meaning as a clear sign of Chinese interest to defy US policy against Iran and accomplish its strategic shift to the Indo-Pacific region. China has already built a string of logistical station ports along the Indian Ocean to Djibouti and the Suez Canal, and Iran plays a crucial role in President Xi's flagship 'Belt and Road' initiative, with many viewing a China-Iran deal as another success story for the project.

According to a paper published on 22 July 2020 by "The Begin - Sadat Center for Strategic Studies" of Bar-llan University, China-Iran strategic cooperation will include petrochemical production, renewable energy, civilian nuclear energy, high-speed railways, highways, subways, airports, and maritime connections. Among the projects mentioned is the development of the Makran coastline on the Oman Sea, which is Iran's outlet to the Indian Ocean. The agreement would give China a presence in the Gulf, notably through the port of Jask, just outside the Straits of Hormuz - a transit passage for a significant part of the world's oil. Jask is also critical to the US, whose Fifth Fleet is headquartered in nearby Bahrain. A powerful Chinese presence there would brush away decades of American strategic domination of the Gulf and swaths of the Indian Ocean. Beijing has also promised to create three free-trade zones - in Maku, Abadan, and on the Gulf island of Kish - to boost the local economy.

China has promised to invest up to $400 billion over the duration of the agreement. In return, Iran would provide China with regular oil deliveries, allegedly at a considerable discount. The agreement also obligates Iran to use China's fifth-generation telecommunication technology and internet platforms.

A section of the draft agreement reveals an exceptionally high-level of future military cooperation between the two countries. This includes, amongst other things, the shared development of defence industries, intelligence sharing, and joint military manoeuvres.

If signed, the agreement may significantly change the power balance of the entire Middle East. Together with China's offer to provide Lebanon with up to 12 billion USD investment to overcome its current economic and political turmoil, an agreement with Iran may strategically increase China's influence in the region.

For Armenia, its land border with Iran provides one of only two gateways to the world alongside Georgia. In general, Armenia and Iran enjoy friendly relations, and Iran is satisfied by the current status quo in the Karabakh conflict - the state of which is in Armenia's interests. Despite the small scale of economic cooperation between the two countries (85 percent of Armenia-Iran trade turnover is the import of Iranian gas and exports of Armenian electricity within "Gas for electricity" swap scheme), Armenia views its relations with Iran also through the prism of possible transit projects. Since 2016, Armenia, Iran, Georgia, Bulgaria, and Greece have been discussing the implementation of the 'Persian Gulf - Black Sea' multimodal transport corridor project to connect Iran with Europe. And in May 2018, the Eurasian Economic Union (EAEU) and Iran signed an interim agreement to establish a free trade area. Armenia is the only EAEU member state that has a land border with Iran, and thus, was hoping to become a production hub for foreign companies wanting to export their goods to Iran without tariffs.

However, the US's 'maximum pressure' campaign against Iran has effectively stopped these initiatives. As for now, Armenia is not included in the Chinese 'Belt and Road' initiative despite years of expert-level discussion over the inclusion of the 'Persian Gulf - Black Sea' multimodal transport corridor. Armenia lacks the significance for China to seriously consider large-scale economic cooperation with Yerevan on its own; however, in this context, a China-Iran strategic partnership may be helpful. If Iran hints to China that the implementation of "Persian Gulf - Black Sea" project is of vital Iranian interests, it may move them towards its inclusion into "Belt and Road" initiative.

The key part missing from this project is the 555 km-long "North-South" highway in Armenia. Launched in 2012 with loans provided by the Asian Development Bank, the project intends to connect the Armenia-Georgia and Armenia-Iran borders with a new "North-South" highway, thus facilitating the Iran-Europe cargo flows via Armenia and Georgia. The highway should have been opened in 2019, but at present, just 10 percent is complete, and work underway on the Yerevan-Gyumri section is only expected to finish in late 2021. Almost nothing has been done to realise the key component of the highway connecting Yerevan to the Iranian border, and only the 22 km Yerevan-Artashat section is ready. According to several estimates, construction of the remaining Artashat-Iran border section may cost up to 1.5 billion USD. Armenia lacks recourse to fund this, but the China-Iran strategic partnership may help. Armenia should launch discussions with Iran to reinvigorate the "Persian Gulf - Black Sea" transport corridor project, and to convince Tehran to negotiate with China the inclusion of the "North-South" highway into "Belt and Road" initiative. As for now, lobbying by Iran is the only hope of bringing much needed Chinese investment into the Armenian transport infrastructure.   

source: Benyamin Poghosyan is the Founder and Chairman of the Center for Political and Economic Strategic Studies in Yerevan

photo: The presidents of Iran and China at a recent meeting (archive picture)

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