The new Silk Road and Iran

While Donald Trump has chosen to pull the United States out o the Iran nuclear deal (or Joint Comprehensive Plan of Action, JCPOA) , other signatories hope to increase their exchanges with Iran. For  European Union members, the main issue will be to enter the Iranian market while avoiding US sanctions. As stated by Angela Merkel , the Iran nuclear deal may not be perfect, but the European Union has pledged to respect it to promote stability in the Middle East. Russia, too, will continue to respect the Iran agreement, and will even increase trade with Tehran since on May 17, 2018, Iran signed a free trade treaty with the Eurasian Union led by Russia (the Eurasian Union includes Russia, Armenia, Belarus, Kazakhstan and Kyrgyzstan).

Finally, Beijing reiterated its support for the Iran nuclear deal, and encouraged the entire international community to respect it. US withdrawal from this agreement may have several consequences on relations between China and Iran and the development of the new Silk Roads.

Greater internationalization of RMB

First, the withdrawal of the United States could strengthen the internationalization of RMB. Since 2012, Iran has accepted the Chinese currency for its crude oil exports to Beijing. This phenomenon could be amplified by the withdrawal of the United States from the Iran nuclear deal.

Tehran may seek to diversify its currency reserves and reduce its reliance on US dollars. On April 18, 2018, Tehran announced its desire to favor the European currency at the expense of the dollar in its trade with the rest of the world. However, if the EU lined up with the US position, then Iran might opt for the RMB.

To avoid US sanctions, the euro and the RMB could be used jointly by other states in their relations with Iran.

In March 2018, Beijing announced its intention to develop a petro yuan by inaugurating the first RMB contracts at the “Shanghai International Energy Exchange”. Compared with London Brent and US WTI, the petroyuan remains quite marginal, but the US withdrawal from the Iran nuclear deal could strengthen it by encouraging non-US companies to use the RMB to avoid sanctions.

More opportunities for Chinese companies

In 2017, China became the largest oil importer, ahead of the United States, it is also Iran’s largest trading partner, and Beijing is also a major importer of Saudi oil.

Chinese oil companies are expected to expand in Iran if Europeans pull out of the market for fear of US sanctions. According to Reuters, CNPC could buy back Total’s share in the South Pars project, if the French company would pull out of the Iranian market.

Generally speaking, Chinese companies may take advantage of the US withdrawal from the Iranian nuclear deal.

An obstacle to the new Silk Roads

However in the long run, US withdrawal from Iran nuclear agreement may be considered as an obstacle to the realization of the new Silk Roads. The Belt and Road initiative is a multilateral project, and its success will depend on its ability to attract as many countries as possible. Iran has been a major gateway to ancient Silk Roads, and thanks to its central position between the Arabian Peninsula, Central Asia and South Asia, Iran continues to be an important crossroads. The US decision must not slow down the construction of infrastructure through Iran, and divert foreign investors from this economic corridor linking Europe to China.

Furthermore, many fear that the US withdrawal would exacerbate tensions in the Middle East and strengthen regional competition between Iran and Saudi Arabia. Today, more than ever, the new Silk Roads are needed to bring stability and cooperation to Middle East.

BRI for more stability

The best way to prevent Iran and other regional states from acquiring nuclear weapons is not to exclude Tehran from world trade, but rather to deepen its regional integration. Building infrastructure and strengthening trade through the BRI is one way to bring stability to the region. Multilateral projects including both Iran and Saudi Arabia under the BRI would be the most effective way to promote appeasement.

The US decision should not discourage China from developing its plans with Iran; Beijing  has the opportunity to become a peace-maker thanks to the BRI. As for the European Union, its (political and economic) interest is to promote inter-regional dialogue and to support projects related tothe new Silk Roads with the aim of stabilizing the Middle East.