Iran and China signed a 25-year strategic cooperation agreement on March 27, 2021, in the face of draconian U.S. sanctions.
Known as the Comprehensive Strategic Partnership, the agreement focuses on various economic initiatives, including promoting industrial development in Iran. Additionally, the report mentions collaborations in transportation and agriculture. The deal also facilitates tourism and cultural cooperation.
The announcement coincides with China and Iran’s 50th anniversary of diplomatic relations. However, both parties were tight-lipped regarding further details of the deal – Iran’s first-ever long-term partnership with a world power.
In this piece, we look closely at the significant economic and geopolitical implications of this China-Iran agreement.
An Iranian-Chinese Quid Pro Quo
Like many agreements between countries, both parties will get something out of the deal. For Iran they get a $400 billion investment in its banking, transport, and developmental sector. Experts say China could gain more influence in the Middle East due to the deal, undermining American efforts to keep Iran isolated.
China will receive regular supplies of Iranian oil at a heavy discount for the next 25 years as compensation.
The deal forms part of the Belt and Road Initiative (BRI), an ambitious Chinese President Xi Jinping’s attempt to extend economic and strategic influence throughout Eurasia.
To learn more, you can turn to experts like Amir Handjani, who have written extensively on these topics and been interviewed in articles like this one.
A Setback for India
Some weeks after announcing the potential partnership between Iran and China, an Indian outlet reported that Iran had dropped New Delhi from an Afghan border rail project due to American sanctions.
Although the news of Iran’s newly formed strategic alliance with China and its alleged neglect of India made headlines around the same time, they were not technically connected.
However, due to the tensions between U.S. and China, Trump’s administration’s strict policy towards Iran, and the Himalayan border dispute between China and India – a Chinese-Iranian collaboration was bound to happen. As a result, India suffered a significant strategic disadvantage.
Both of these developments provide valuable insight into Asia’s evolving geopolitical realignment.
Iran excluded India from the extensive rail project connecting the Iranian port city of Chabahar to Zahedan, a town near its border with Afghanistan. And this is despite Indian consultancy IRCON promising $1.6 billion.
Although the Iranian government disputed this claim, stating that they had no agreement with New Delhi in the first place.
According to other reports, Iran’s disassociation from India resulted from the South Asian country ceasing to purchase oil from Iran to appease the United States.
China Gets Tactical Advantage
According to the new deal between Beijing and Tehran, China plans to develop several ports in Iran, including Bandar-e-Jask, strategically located east of the Strait of Hormuz.
The deal gives Beijing control over one of the world’s foremost maritime chokepoints. In the Middle East, this could threaten U.S… naval dominance.
As a result, China would be able to monitor the U.S. Navy’s Fifth Fleet based in Bahrain from Bandar-e-Jask. It would also boost the Chinese presence in the Indian Ocean Region with a base at Gwadar and Djibouti ports.
Pakistan Also Benefits at the Expense of India
Not only does this realignment provide new opportunities for China, but also Pakistan.
Firstly, Pakistan’s main rival, India, would be weakened by China’s involvement in Iran, and Islamabad could better deal with its current security and political challenges.
In addition, Beijing could assist Islamabad in pacifying Balochistan’s ethnic-separatist armed uprising by fully integrating Iran into the BRI framework.
As a result of the Chinese presence in Iran, Chabahar, an Iranian port city, would not compete with China’s Gwadar, which operates as a port for Pakistan.
Lastly, if India were expelled from Iran, Afghan and Central Asian transit trade would continue to flow through Pakistani ports.
The Winners and Losers
The overwhelming winner of this new partnership is China. Their influence in the Middle East and Asia is increasing. China is on a winning spree, from a tactical advantage in Iran to developing India’s arch-rival.
The losers are India. They lost the Chabahar rail project and now have to deal with criticism from its domestic media for not adequately protecting Iran’s interests. Additionally, their arch-rivals in Pakistan are also benefiting in terms of trade and security.
The new agreement between China and Iran could begin a new strategic era in Asia.
An important takeaway is that China saw the United States’ international sanctions on Iran as an opportunity in business and geopolitics. They seized the opportunity and are now filling the vacuum.
The $400 billion investment in the banking and transport sector signals their increasing regional influence