The new China-Iran deal upends the US, cuts India to size and is bigger than CPEC

A new and formidable alliance is emerging between China and Iran with the two countries signing a deal that will ensure Chinese investment in Iran and China receiving oil at discounted prices

The new China-Iran deal upends the US, cuts India to size and is bigger than CPEC
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Saurabh Kumar Shahi

While we were all glued to the TV finding out whether the mammoth ship blocking the Suez Canal would sail again, something far more tectonic happened closer in the neighbourhood. After almost half a decade of deliberations, China and Iran inked a strategic pact cum investment deal that calls for Chinese investment to the tune of $400 billion in Iran over the next 25 years in return for a discounted price for Iranian petroleum exports. The deal gives both countries strategic breathing space in the face of aggressive US posturing.

Unilateral withdrawal of the United States from the Nuclear Deal and re-imposition of stringent sanctions have affected Iran badly. The economy has shrunk by around 15 per cent and aggravated by the pandemic. The investment that Iran expected from the West fell through and the Rouhani Zarif duo, who favoured a deal with the West rather than with China or Russia, were blamed for it. This deal has come as a face-saver to both.

The deal will ensure much-needed investment to Iran not only in the field of transportation, infrastructure, high-speed railways, ports, irrigation and power generation but also in the oil and gas sector that has stagnated in the absence of cutting-edge technology. People close to the negotiation team claim China is going to invest in more than 100 projects. In its sheer scope, it is bigger than even the CPEC in Pakistan. The deal will also see China establish a free-trade zone in Maku, a modern port at Jask and other free-trade zones on the island of Qeshm in the Persian Gulf.

Experts suggest that the deal offers Iran much more than just economic revitalisation. It paves the way for Iran to join the prestigious Shanghai Cooperation Organisation grouping. The joint statement released following the deal admits as much.

It’s a win-win deal for China too as it opens a new market for China’s over-producing iron and steel, cement and other industries looking for newer markets to justify their over-capacity. All the subways, roads, ports, highspeed railways etc. that the Chinese will build in Iran will keep its furnaces and foundries running for decades to come. China also secures oil and gas for a relatively discounted price for years to come. China and Iran will also trade in Yuan and other currencies that China has accumulated following its trade with other nations in the Third World. Iran will see its profits from oil go down a bit but hopes to gain a lot more.

There is much more in it for China than what meets the eye. China is dependent on other Persian Gulf nations for its oil. It understands that it is not beyond the US, pushed by civilisational decline, to pressurise these Persian Gulf States to cut supplies to China. In Iran, it now has a partner that doesn’t care much to American pressure tactics and can be depended upon when push comes to shove. This was articulated in the joint statement which pointedly mentions, “Iran is not like other countries which change their policy on one phone call.”


Then there is a military angle as well. After the expiry of the relevant UN sanctions, Iran can now buy military hardware and modernise its ageing arsenal. China, the world’s fifth-largest arms exporter, can more than help it in doing so. While Tehran can diversify its sources by giving contracts to Russia as well, sources in Tehran maintain that the majority of arms and equipment will come from China. It is also expected that military cooperation, military training and intelligence-sharing will feature heavily as well. It is also expected that Iran will allow the Chinese Navy to use Jask Port as and when it is up and running.

Unfortunately for India, this renders Chabahar which falls between Jask and Gwadar almost useless. Since Iran will now see much-reduced use of Chabahar Port, India’s plan to gain a footprint inside Iran has gone for a toss. India’s dithering in the face of American pressure and China openly thumbing US’ nose teaches us a valuable lesson, which mandarins in New Delhi may or may not have learnt.

While sanctions have hurt Iran, they failed to bring Iran to its knees. Far from it in fact. Iran has started to lessen its dependency on oil and has shifted to what it calls a “resistance economy”. This has boosted domestic production and consumption. The dual circulation policy that China has started to implement in the light of the US’ effort to decouple from it has also been implemented by Iran. Even the Western press—always a mouthpiece of their respective governments—have started to begrudgingly admit that the sanctions have actually revitalised Iranian production and consumption.

The upcoming election is likely to see a relatively hardliner as President in Tehran, not much interested in bringing the US back to the table. Very clearly, the Biden administration went for broke but lost the gambit. The window for diplomacy is fast closing. Even Biden with his cognitive decline can see that the US has been upended in the region and a new formidable alliance is taking its place.

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