According to the New York Times (Defying U.S., China and Iran Near Trade and Military Partnership, 11 July 2020), Iran and China have quietly drafted a sweeping economic and security partnership that would clear the way for billions of dollars of Chinese investments in energy and other sectors, undercutting the Trump administration’s efforts to isolate the Iranian government because of its nuclear and military ambitions.
The emerging Sino-Iranian Comprehensive Strategic Partnership, if it is confirmed, will help Iran in gaining an overall infrastructure rehaul, thanks to Chinese investments to the tune of $400 billion, while Beijing will have guaranteed fuel supply from the oil-producing nation for the coming 25 years. The impact of the proposal can be gauged from the proposed amount of investments and the likelihood of it eventually becoming a part of China’s Belt and Road Initiative (BRI).
The partnership, detailed in an 18-page proposed agreement, would vastly expand Chinese presence in banking, telecommunications, ports, railways and dozens of other projects. In exchange, China would receive a regular — and, according to an Iranian official and an oil trader, heavily discounted — supply of Iranian oil over the next 25 years.
The document also describes deepening military cooperation, potentially giving China a foothold in a region that has been a strategic preoccupation of the United States for decades. It calls for joint training and exercises, joint research and weapons development and intelligence sharing — all to fight “the lopsided battle with terrorism, drug and human trafficking and cross-border crimes.”
The agreement, yet to be approved by Iran’s Parliament or made public, has also not been disclosed by the Xi Jinping government. If put into effect as detailed, the partnership would create new and potentially dangerous flash points in the deteriorating relationship between China and the United States.
The nearly 100 projects cited in the draft agreement include airports, high-speed railways and subways, free-trade zones in Maku, in northwestern Iran; in Abadan, where the Shatt al-Arab river flows into the Persian Gulf, and on the gulf island Qeshm. The agreement also includes proposals for building the infrastructure for a 5G telecommunications network, new Chinese Global Positioning System, Beidou, and help in control over cyberspace.
Strategic Ports
China plans to develop the Jask port in Iran. It would possibly play the role in the Persian Gulf that the Djibouti base is supposed to play on the Gulf of Aden. The two ports may also operate as a support system for one another. Without doubt, Jask will also play a role for monitoring and technical espionage for the PLA Navy. Moreover, this would also allow China to achieve a better balance between Saudi Arabia and Iran.
India’s Role in Chabahar-Zahedan Rail Project
While Iran has assured India, some analysts have concluded that India has lost the Chabahar-Zahedan rail link (eventually extending to Zaranj in Afghanistan) project to China. The Chabahar-Zaranj project is a key link for India’s land-based connectivity with Afghanistan. India’s infrastructure projects in Afghanistan have been developed on the assumption of activating the rapid connectivity for landlocked Afghanistan via the Chabahar project. India has been invested in the initiative for close to 15 years now and more actively in the last decade after its numerous initiatives for India-Pakistan-Afghanistan received cold treatment from Pakistan.
This route is also significant for the International North South Transport Corridor with Iran at the heart of the network. This project, an outcome of the Ashgabat Agreement, brings East Europe and Central Asia closer to the Indian Ocean. This can be a significant element for India’s connectivity aspirations and once again Chabahar holds the key.
Had Galwan incident not happened, Chinese role in Iranian projects would have been received somewhat differently.
Reportedly Iran shunted India out of the key Chabahar port rail project, citing delays in India’s funding and other reasons. It has been four years since India and Iran reached an agreement to construct the 628 km rail line along the Iran-Afghanistan border. Though Iran has left the door open for India to join at a later date, while deciding to fund and develop the rail link under the second phase of the Chabahar Port on its own, the Iranian decision is a huge strategic setback to India-Iran ties.
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Tehran’s desperation has pushed it into the arms of China. Iran has been one of the world’s largest oil producers, but its exports have plunged since the Trump administration began imposing sanctions in 2018.
The draft agreement with Iran shows that unlike most countries, China feels it is in a position to defy the United States, powerful enough to withstand American penalties, as it has in the trade war waged by President Trump.
The Chinese investments in Iran would total $400 billion over 25 years, could spur still more US punitive actions against Chinese companies.
Previous Chinese investment projects have left countries in Africa and Asia indebted and ultimately beholden to the authorities in Beijing. The proposed port facilities in Iran, and two along the coast of the Sea of Oman can fall into Chinese hands. One at Jask, just outside of the Strait of Hormuz, the entrance to the Persian Gulf, would give the Chinese a strategic vantage point on the waters through which much of the world’s oil transits.
Since coming to power in 2017, US President Donald Trump has withdrawn from the 2015 Iran nuclear deal, which froze the country’s nuclear programme, and enforced comprehensive sanctions on Iran, devastating its economy. Iran and China both view this deal as a strategic partnership in not just expanding their own interests but confronting the US. Until now, Iran sought European cooperation for trade and investment, but it has reportedly grown increasingly frustrated with it.
China’s behaviour in the South China Sea, on the Indian border and with countries like Australia shows that it is undertaking unilateral actions to showcase its capacity and intent and elsewhere its behaviour vis-à-vis Taiwan, Japan, Malaysia and Vietnam show that it is gearing up for a hard fight. The Iran deal is part of the same strategy to become a proactive player.
China has taken advantage of Iran’s current weak position as its economy is under strain because of harsh US sanctions and negotiated a pact from a position of strength. It is going to have easy access to Iran’s natural resources for many years to come.
India is losing to China not only in Iran but in the Arab world too. Chinese economic action in the Arab world is also gaining pace as the region embraces China’s Belt and Road Initiative. China’s Digital Silk Road too is gaining ground in the Arab world.
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Chahbahar-Zahedan Rail Link
Chabahar port on Iran’s Makran coast, just 1,000 km from Kandla, is well situated but road and rail links from Chabahar to Zahidan and then 200 km further on to Zaranj in Afghanistan, need to be built.
After 2015 sanctions on Iran were eased with the signing of the Joint Comprehensive Plan of Action, or the Iran nuclear deal. A memorandum of understanding (MoU) was signed with Iran during Prime Minister Narendra Modi’s visit to Tehran in 2016 to equip and operate two terminals at the Shahid Beheshti port as part of Phase I of the project. Another milestone was the signing of the Trilateral Agreement on Establishment of International Transport and Transit Corridor between Afghanistan, Iran and India. In addition to $85 million of capital investment, India also committed to provide a line of credit of $150 million for port container tracks. Phase I was declared operational in 2018 and India’s wheat shipments to Afghanistan have been using this route. A special economic zone (SEZ) at Chabahar was planned but re-imposition of U.S. sanctions has slowed investments into the SEZ.
India was also to be part of the second phase from Chabahar Port to Zahedan but was constrained to go slow due to sanctions imposed by President Donald Trump after annulling the nuclear deal signed by his predecessor administration. India had to strike a delicate balance between its ties with the US and Iran and preferred to go slow despite an Iranian push.
India was given a waiver from U.S. sanctions to continue cooperation on Chabahar as it contributed to Afghanistan’s development. Despite the waiver, the project has suffered delays because of the time taken by the U.S. Treasury to actually clear the import of heavy equipment such as rail mounted gantry cranes, mobile harbour cranes, etc.
Indian public-sector companies, Indian Railways Construction Ltd (IRCON) and Rites, were awarded the second phase of the project to develop the rail link connecting the south-eastern port city of Chabahar to Zahedan, the provincial capital of Sistan-Baluchistan region, and from Zahedan to Sarakhs at the border with Turkmenistan. This strategic transit is part of Iran’s International North-South Transit Corridor, which will significantly reduce the traditional trade routes between the markets of India and the European and Commonwealth of Independent States (CIS) countries.
As per the tie-up between IRCON and Iranian Railways as part of a trilateral project between India, Iran and Afghanistan, India had promised to provide $1.6 billion for “all services, superstructure work and financing”. Now Iran announces that it will pool $400 million from the Iranian National Development Fund to go ahead with the rail line without Indian help. Iranians are not happy with their government’s decision to enter a long-term deal with China. They see that by negotiating the controversial 25-year agreement with China, Iran is selling itself to Beijing.
