by Dr. Sebastien Goulard
On March 27, 2021, during his tour to Middle East, Foreign Affairs Minister and State Councilor Wang Yi met with Mohammad Javad Zarif, Iran’s Foreign minister; the two leaders signed a 25-year cooperation agreement. No details have been released yet. But in July 2020, a draft version of this document was leaked to the New York Times. According to the leaked document, China will invest up to $400 billion to Iran, a country that has already joined in the Belt and Road Initiative. Chinese companies will not only invest in the oil and energy, but in most sectors of the Iranian economy.
China and Iran have spent several years negotiating this agreement, as it was first announced during President Xi Jinping’s state visit to Iran in 2016. This agreement shows China and Iran’s mutual trust and commitment to work together for a 25-year period.
Oil and energy
A major aspect of this new China Iran partnership regards the oil and energy sector. China is a major importer of Iranian oil. Beijing has continued to import oil from Iran in spite US sanctions, although some shipments were “indirect imports” coming from third countries. Following this agreement, we may expect an increase of China’s oil imports from Iran.
But China-Iran cooperation in energy is not limited to oil. Iran like other oil-rich countries, is looking for developing greener energy and reduce dependence on fossil fuel. According to Caspian news, 115 renewable power plants operated across Iran as of August 2019; and this figure is bound to increase. China, the world leader in renewable energy, can help Iran succeed this diversification.
Another major sector where Chinese companies are to invest in Iran is transportation. Due to Western sanctions, Iran has suffered from aged and poorly adapted infrastructure. With this agreement signed by China, it will be possible for Iran to modernize most of its infrastructure including railroads and ports.
Under the BRI framework, since 2018, some railway freight services have been already connecting Iran to Inner Mongolia. In December 2020 was announced the launch of another line connecting Istanbul, Turkey, to Islamabad, Pakistan, via Tehran.
This new agreement may also help Chinese companies upgrade most Iranian cities’ transportation networks. In 2019, Tehran Municipality and Beijing Rail Transit Technology Equipment Group Co. signed an agreement regarding the purchase of subway cars. Similar contracts may be signed with other cities.
The leaked draft document mentioned a possible participation of Chinese companies in the development of the port of Jask. With more oil imports from Iran to China, Beijing will be interested in developing the ports of Jask and Chabahar in the Persian Gulf.
From recovery to growth
For Iran, this is a crucial agreement, as the country has been suffering from US sanctions that pushed many Western companies outside the Iranian market. The Coronavirus crisis had also a negative impact on the Iranian economy (that entered a third consecutive year of recession), and Tehran needs to boost its trade and modernize its infrastructure to avoid social unrest and give more opportunities to its companies.
This agreement can be described as a good deal for China, as Chinese companies will face less competitors on the Iranian market due to the coyness of Western companies. Iran is an emerging economy whose manpower is highly qualified thanks to a good education system. It is a very educated society, and this may create opportunities for Chinese high tech companies operating in the AI sector.
Iran and its neighbours
Iran was not the only destination visited by Wang Yi in during this tour to the Middle East, the State Councilor also went to several Gulf countries. He first went to Saudi Arabia, China’s first oil supplier, and met with Foreign Minister Faisal bin Farhan Al Saud, and discussed about possible cooperation between the “Belt and Road Initiative” and KSA’s Vision 2030 programme. He then flew to Turkey and met with President Recep Tayyip Erdogan. Turkey is quite interested in developing the middle corridor of the “Belt and Road Initiative” together with China to increase trade with Asian countries.
On March 29, Wang Yi also met with UAE, Bahrain and Oman leaders to talk about post-Covid crisis cooperation.
In the Middle East region, China presents itself as a possible peace-broker, and the Belt and Road Initiative may give opportunities to Sunni and Shia countries to work together on connectivity projects and thus create stability and dialogue.