What is the new Iran-China deal and what it means for Pakistan

By: Behzad Taimur      Published: 03:09 PM, 4 Apr, 2021
focus on trade
China-Iran deal sealed.

A week ago, China and Iran inked a massive $400 billion deal and established a “Comprehensive Strategic Partnership” between the two countries. The occasion has been greeted with mixed views in Pakistan, bringing us to take this deal up in this week’s column. While some have viewed the deal with appreciation, a few have drawn parallels with China-Pakistan Economic Corridor (CPEC) and have come to see the Iran-China deal as a rival to CPEC. Here, those of a more skeptical disposition, have viewed it as something that diminishes both the potential and the importance of the CPEC. So then, does the skeptical standpoint have any value and should Pakistan be worried? Let’s us try to answer this by first seeing what the deal is.

While exact details on the twenty-five-year cooperation agreement remain sketchy, a 2020 New York Times (NYT) exposè leaked some information on the 100 projects that comprise the new partnership. As per the NYT, the agreement seeks to bring some $400 billion Chinese foreign direct investment into Iranian energy sector, infrastructure, banking, telecommunications, manufacturing among others. In addition, it seeks to develop several strategically located “Special Economic Zones” and at least one Iranian port, called Jask, on the strategic Persian Gulf which importantly, flanks the more strategic global energy-and-trade chokepoint, the Straits of Hormuz. Further, it includes deepening of defense ties between the two countries, including, through joint trainings, intelligence sharing and joint weapons development. 

In return, China is said to be getting access to sustained Iranian oil supplies over 25 years, perhaps, at discounted prices. Next, the Chinese will gain access to an 83-million-strong Iranian consumer market for its own exports, and to extremely cheap labour to manufacture some of the things they have to manufacture at a slightly higher cost back home. 

Further, China’s ambitious Belt and Road Initiative will finally manage to win through on at least one major front: China’s East Asia-West Asia-Europe Corridor. This extensive corridor envisages creation of a land-bridge that links Chinese east and Central Asian Republics with western Asian nations, such as Turkey and Azerbaijan, and then onwards to Europe. While this corridor has been somewhat operational, one missing element was Iran – the actual geographical and topographical ‘land bridge’ between eastern and central Asia, and west Asia. With this deal, this final missing link in the said corridor has been established.

We must also quickly review why this deal was needed and how it came about. The answer to that is three-pronged. The first prong is rather straightforward. The gargantuan Chinese economy is an oil-guzzling machine, consuming more than 10 million barrels of oil every day. Naturally, China needed to secure more and cheap supplies in order to continue to grow. 

The reverse of this is true for Iran. As an oil-rich country, it can export tens of millions of barrels a day – but, cannot because of stifling American sanctions. Its trade partners, such as India and Japan, have driven their oil imports from Iran toward zero figures as they have moved closer and closer to the US. Similarly, foreign investment has dried up as a result of the sanctions. Clearly, Iran was looking for countries who would be willing to buy its oil and invest there. China offered, Iran accepted. 

The second prong is more China-centric. China has been facing escalating competition from its Indo-Pacific neighbors and their patron-in-chief, the US. Additionally, Chinese trade with the globe needs to go through several choke-points, such as the Straits of Malacca in the far east; the Bab al-Mandeb strait between Africa and the Arabian peninsula; the Suez Canal in Egypt; and, of course, the Straits of Hormuz at the Persian Gulf. To secure its strategic interests at these chokepoints, China established an Iran-like “strategic partnership” with Egypt in 2014; established a naval base in Djibouti just off the Bab al-Mandeb strait in 2016; and, to cut around the Malacca Straits, it established Gwadar port in Pakistan in 2016 and began building another deep-sea port at Sittwe in Myanmar in 2020. Thus, with Iran’s Jask port, China hopes to secure Straits of Hormuz for itself. While it can still hope to project influence over Hormuz through Gwadar 600 KM away, Iran’s Jask brings China right to the mouth of Hormuz. If one adopts a neutral perspective, and looks at the strategic picture for China wearing a Chinese hat, developing Jask not only makes perfect strategic sense but also appears as an inevitability. 

The third prong to this is the ‘Middle East’. It is true that China has been signing similar “strategic partnership” deals with a string of countries that comprise the region. This includes, Egypt, Saudi Arabia, the UAE, and Algeria. China even has a longstanding partnership with Israel. Yet, most of these partnerships have been purely economic in nature – barring its partnership with Israel, with which China has deep defence ties as well. However, by signing this new deal with Iran, China has become a strategic power player in the region in a way that mirrors the US here. How? You see, most other Middle Eastern countries have hostile relationships with Iran. The China-Iran deal will boost Iranian economy to a degree where it can better match its Middle Eastern competitors.

More so, and most importantly, through military cooperation, China will inadvertently help improve Iranian military capabilities. This will translate into Iran becoming increasingly better positioned to meet the challenge that its Middle Eastern rivals pose. Put another way, if Iran strengthens both economically and militarily, it will be better able to roll back the influence of its adversaries. This alone has the potential to dramatically alter the strategic picture in the Middle East over time – and this is why, Michael Kugelman, has termed the deal “a watershed for international relations”. 

With this deal, Middle Eastern countries will view China as a direct player in their rivalries because now China is developing the military capacity of their adversary.  I will leave this here for now and will, perhaps, return to it at a later point in time.

So then, with this extensive review of the deal and some of its implications, we are prepared to answer the question we had begun with: Should Pakistan be concerned? To answer this question, I will pose a counter-question: Does any of this have anything to do with Pakistan? It does not – at all! This is a broader, larger-than-Pakistan game that draws into itself the strategic interests of world’s new and rising power, China, and a browbeaten Iran looking for some economic breathing space. If anything, it should worry the US as it increases China’s influence in the Middle East. Yet, the US has downplayed the deal and, in fact, stated that it shares “a narrow tactical alignment’ with China on Iran. This is because the US envisages a constructive Chinese role in dissuading Iran from its purported nuclearization course and, in its view, offering an economic lifeline to the country is a veritable way forward.

Pakistan stands only to gain from the Iran-China deal. For its part, Iran has been seeking to join the CPEC for some time now. From China and Pakistan’s perspective, expanding CPEC toward Iran is a logical way forward. By linking Chinese-built infrastructure in Pakistan with Iran, Iranian exports can be routed through Pakistan and into China. Further, an energy corridor that links Iran, Pakistan and China is a win-win for all. The old Iran-Pakistan gas pipeline project or a new LNG pipeline that follows CPEC routes have been rendered more possible by the deal. Conversely, Pakistan’s own extant ambitions of establishing a land-bridge with Turkey through Iran (remember Regional Cooperation for Development framework of the 1960s?) may yet come to fruition through Chinese auspices.

Lastly, two more things. Is the Iran-China deal a rival to CPEC? Not at all. The CPEC is a north-south corridor that seeks to bring exports from China’s east and south-east into Pakistan for onward shipment. The Iran-China deal, on the other hand, seeks to build an east-west corridor that opens trade between China, western Asia and Europe. Next, and speaking of North-South corridors – India was building one in Iran hoping to open a Gwadar-like port at Iran’s Chabahar and give Central Asian Republics and Afghanistan a trade link to the world that would circumvent Pakistan. Chabahar was a strategic challenge to Pakistan, indeed. However, now, with China in Iran, I will leave you with this: Who can sort out the Indians better – we, Pakistanis, or our bigger, more muscular elder brother, China?