Chronicle of the Middle East and North Africa

China’s Belt and Road Initiative & Iran

China Belt and Road Initiative
Iranian officials applaud on the platform as the first train connecting China and Iran arrives at Tehran Railway Station on February 15, 2016. Photo: STRINGER / AFP

Ever since it was officially announced in 2013, China’s Belt and Road Initiative (BRI) has attracted global attention. Many questions were raised with regards to its scope, aims and feasibility. Now, five years on and with two major meetings concluded (the second was the size of an UN General Assembly), these questions are beginning to fade.

Economically – based on China’s announced plans – the BRI is attractive for many of the countries covered by the initiative. Besides supporting development of their transportation infrastructure, which is the BRI’s main objective, China is investing huge amounts to connect the infrastructure of over 60 nations in Asia, Europe and Africa. The aim, according to the Chinese, is to boost trade and facilitate the flow of goods and capital between these nations. There are, however, worries about the long-term geopolitical effects of such a project. Some critics have gone even further, calling the BRI China’s version of globalization.

For Iran, the BRI represents an opportunity at a time when Western powers are withholding much-needed investment and advanced technology to develop its oil and gas infrastructure and transportation capacity. Successive Iranian administrations have envisaged Iran becoming a transportation hub for the Middle East and beyond, embarking on several national projects to that end.

The Bandar Abbas-Sarakhs railway, linking the Persian Gulf to northern Iran and from there to Central Asia, and the Sarakhs-Razi railway, which links Iran’s north-western border with Turkey to its north-eastern border with Turkmenistan, were constructed in line with this thinking.

Iran’s later focus on developing the Chabahar Port adjacent to the Indian Ocean in the south-east is also part of the same strategy. The port aims to circumvent Pakistan by linking India, which has long had strained relations with Islamabad over Kashmir, to Afghanistan. This is part of the reason why Indians have been the project’s main investors.

There are many other similar planned projects, although not all of them have reached the execution phase. Indeed, the political situation between Iran and the West, and the United States (US) in particular, has stymied Iran’s efforts to compete with other emerging transit and transport hubs. This was especially true during the previous crippling sanctions period (2011-2015) and after the US withdrew from the Joint Comprehensive Plan of Action (JCPOA), better known as the Iran nuclear deal, in 2017, which again dealt a serious blow to Iran’s development projects.

Ever since it was announced and pursued by China, the BRI has been seen as an opportunity to make up, at least some of, the delay in the development of Iran’s transportation infrastructure. As such, Iran welcomed being part of the BRI and embarked on several negotiations with China on the matter. Numerous official visits between the two countries followed and multiple agreements were signed both related to and beyond the BRI. As mentioned earlier, however, the political situation between Iran and the US has affected Chinese firms’ willingness and ability to engage in the Iranian economy as they might otherwise have wished to do.

BRI china
Sources: “The Belt and Road Initiative creates a global infrastructure”, Mercator Institute for China Studies. @Fanack

Under the US and UN sanctions that preceded the JCPOA, China, although affected, kept its trade and oil imports from Iran flowing, resulting in many of its companies and banks being sanctioned themselves. Yet while Iran was the natural central route for the BRI, China developed its plans for the megaproject circumventing Iran so as not to be hit by the sanctions. After the JCPOA was concluded in July 2015, China changed course, re-planning its initial BRI routes. As expected, the central land and sea routes were to cross Iranian territory, recognizing Iran’s prime location between Asia on the one hand and Europe and Africa on the other.

Following the US’ withdrawal from the JCPOA, many international enterprises, including Chinese, were cautious about getting involved in the Iranian economy until the ramifications became clear. Nevertheless, the Chinese government and public and even some of its main private firms signed several billion dollars’ worth of contracts with their Iranian counterparts. Indeed, Chinese-Iranian business, compared to Iran’s business with Europe, is booming.

This has been especially strongly felt in the oil, gas and auto industries. With Trump’s election and his declaration that the JCPOA was the “worst deal ever”, international businesses stopped entering the Iranian market and many – including some Chinese companies – started getting out. The US’ withdrawal from the JCPOA and its reinstatement of strict sanctions on Iran has exacerbated this trend.

China’s official stance remained unchanged, however, as Beijing repeatedly criticized the US’ unilateral sanctions and Washington’s suggestion that it should stop cooperating with Iran and buying its oil. The real question, however, is whether the Chinese will continue counting on Iran’s position in developing the BRI. There are contradictory indications in this regard. While China has moved to the pre-JCPOA era in terms of its announced and official trade and business with Tehran, many believe that its unofficial business is far bigger.

There are three reasons to believe that China will continue to include Iran in the BRI. First, the fact that Chinese firms such as Huawei are also a target of US sanctions, which stems from Washington’s prioritization of China in its threat assessments, puts Iran in a very peculiar position. Iran and China both favour multilateralism in global affairs, but that has come under attack now more than ever, according to Iran’s Foreign Minister Mohammad Javad Zarif.

The situation regarding the US enhances Iran’s strategic value for China to counter the US. On the other hand, the continued inclusion of Iran in the BRI would lessen US economic pressure on Iran and open up alternatives to Western capital and technology. In other words, Iran and China are both falling foul of the US’ unilateral policies, and it is to be expected that this shared position would encourage them to work together against a common ‘enemy’.

Second, experts from China and Iran as well as the World Bank have assessed Iran as being one of the most convenient and feasible geographical locations connecting the eastern and western parts of the BRI. Though this is a cost-benefit calculation for China to make, the aforementioned political situation regarding the US will be taken into account, certainly more than it was before the JCPOA and Trump. As such, the geopolitics of the BRI are encouraging China to stick to its original plan of including Iran.

Third, China can, and many believe is, trying to tie Iran’s economy to its own in times of tension in order to enhance its economic competitiveness vis-à-vis Western businesses during normal times. In other words, while Western businesses – if they have not already left – are planning to leave Iran, China is strengthening its economic ties with Iran. The aim is to maintain these ties and enhance them in some areas in a way that favours Chinese businesses as partners when the current situation passes.

Finally, business with Iran is lucrative for China in times of tension. An example is the 20-30 per cent discount China receives on Iranian oil imports. To put it another way, excluding Iran from the BRI does not make economic sense. That’s likely why China has pledged to continue developing Iran’s railway projects, which it agreed to do before the reintroduction of US sanctions. These projects are in line with the BRI’s Iran piece, connecting its eastern and western borders and speeding up the transportation time between the two regions.