China - Iran Long Term Bilateral Cooperation Plan

Iran and China are negotiating a 25 year bilateral cooperation plan involving Chinese investment in Iran’s petroleum industry, transport infrastructure and other sectors of the Iranian economy. While the Iranian Foreign Minister has alluded to this plan in his tweets as also on the floor of the Iranian Parliament¹, China has not officially confirmed or denied the same with the Foreign Ministry spokesperson saying that she does “not have any information” to a specific question on the issue in a recent press conference².

Economic Aspects. The existence of this long term plan was first reported in September 2019³. It involves a total investment of about USD 280 billion by China in the oil, gas and petroleum sectors of Iran with another USD 120 billion in the transport infrastructure and the manufacturing sectors. The deal gives preferential rights to China in the development of Iran’s oil and gas sector while also providing huge discounts, upto 32%, for China on these products. Circumvention of the problems associated with transactions in USD also appears to have been factored into this deal. The plan also highlights the feasibility of cooperation through JVs in Pakistan, Iraq and Syria.

Domestic Opposition. The deal has been criticised by former President Ahmadinejad as being against the interests of Iran while others in the Parliament have decried the lack of legislative oversight. Rumours of a suspected sale of Kish Island (in the Persian Gulf), as part of the deal, evoked strong public opposition warranting a public rejection of the same from the Kish Free Zone Organization (KFZO).

Benefits to Iran and China. It appears that Iran is looking to utilise the deal for providing an impetus to its economy, especially in the light of current American sanctions. On the other hand, China stands to gain an assured long term supply of energy while also expanding its footprint in this region, both economically and militarily. The deal will also help internationalisation of the Yuan through the facility of non-USD transactions. However, China’s ability to contend with American pressure, more so amidst the current bilateral tensions, is likely to create hurdles and is also the cause for the rather subdued approach to this deal. Nevertheless, the conclusion of this deal has the potential to create a Chinese ‘arc of influence’ along the Northern Arabian Sea and the Persian Gulf, an area of vital Chinese interest.

Regional Security. An increased Chinese military presence as also augmentation of Iranian military capabilities have the potential to upset the regional balance in the Persian Gulf and West Asia. The envisaged trilateral cooperation will put American interests at risk,especially in Syria and Iraq. Iranian influence in the region, especially in Yemen and Iraq, is likely to gain further impetus due to perceptions of support from China. Further, the possibility of Iran serving as a springboard for sales of Chinese arms will be high.