China and Iran have unveiled a 25-year draft comprehensive cooperation agreement, details of which will be negotiated before being signed. The deal is expected to boost cooperation in the energy, infrastructure, industry, technical, military and security fields. But the ambitious plan, which the Iranian government defends strongly, has its fair share of critics inside and outside Iran.
Drawn up during the visit by Chinese President Xi Jinping to Iran in 2016, and approved at a recent meeting between President Hassan Rouhani and the Iran-China Chamber of Commerce, the China-Iran deal is only half complete. The secret nature of the agreement has been criticized. Iran’s Foreign Ministry is charged with finalizing the agreement and says its details could be released later. China has received a draft agreement, and after modifications, returned it to Iran, until a final document is produced.
According to Iran’s hardliners, the deal with China is beneficial to Iran. Iran concluded a nuclear deal with the world powers in 2015, but the United States pulled out of the deal in 2018 and forced western companies to comply with its unilateral sanctions against Iran. Due to this reality, Supreme Leader Ali Khamenei has defended the deal and has called it a “wise” choice. His adviser for economic affairs, Ali Agha Mohammadi, says hardly anyone in Iran would support the idea of negotiating with the West when China is Iran’s strategic client.
But the agreement has generated a great deal of criticism inside Iran. Former President Mahmoud Ahmadinejad says a secret deal with a foreign country is not valid because Article 77 of Iran’s Constitution requires parliamentary approval of all international agreements. Other Iranians took to social media to call the deal a form of Chinese imperialism, under the hashtag #IranNot4SELLnot4RENT.
Chinese investment, much likely to be in the form of loans could result in Iran incurring debt, leading to the Iranian economy going bankrupt. However, China could gain exclusive access to Iran’s incomparably rich crude oil and gas reserves. Even worse is the fact that Chinese infrastructure and industrial companies are considered by the Iranians to be low- tech, and dealing with them could prevent the growth of Iranian industries. Moreover, Chinese insistence on employing its own material and human resources could destroy Iran’s ambition to build its own local industries and lower its growing unemployment rate.
Chinese energy companies could potentially refuse to take on the pressure of US sanctions, if they were to operate in Iran, or agree to set up oil refineries. This is despite the fact that developing Iran’s oil and gas fields is considered to be part of the China-Iran deal. Previously, Chinese energy firms left Iran because of US sanctions, despite having contracts with Iran, leaving Iranian industries with billions of dollars in lost investments.
Iran’s need for investments and China’s need for energy is expected to make the agreement lucrative for both sides for the time being. Iran’s ability to produce and export oil has plummeted to its lowest levels because of US sanctions. According to Agha Mohammadi, Iran needs a strategic partner like China to produce 10 million barrels of oil daily to avoid being “eliminated” from world energy markets. Through the deal, Iran will allow China to offset its energy dependence on US energy exports, estimated to reach over $30 billion in 2021. But Tehran denies granting China a 32 percent discount on oil sales to reach this goal.
Tehran thinks that it is defending its national interests by working with China, and some in Iran even argue that the deal does not signal an Iranian pivot toward the East. But the deal is seen as a soft pivot toward China. By working with China in the Shanghai Cooperation Organization, Iran has already seen a 17 percent increase in its exports to Eurasian countries, totaling a value of $681 million, and a 13 percent increase in its imports from the region totaling $1,736 million since the conclusion of a deal between Iran’s Trade Development Organization and the Eurasian Economic Union last year.
But there are indications that the United States will try to stall the China-Iran deal. Washington says that its sanctions against Iran, and against Chinese companies working in Iran, mean that the China-Iran deal does not stand a chance to succeed. The US State Department envoy for Iran, Brian Hook, says the agreement is an ambitious plan that casts a shadow of doubt over its feasibility. In the past 15 years, China invested $27 billion in Iran, which is a far cry from the promised $400 billion the two countries have discussed in the new deal.
The US Secretary of State Mike Pompeo has expressed concern about Iranian efforts to acquire Chinese arms. Arms sales to Iran are expected to resume once the arms embargo on Tehran is lifted in October. China along with Russia can veto Washington’s initiative to halt arms sales to Iran at the United Nations Security Council (UNSC).
It is too early to say if the China-Iran deal will succeed, but evidence shows that it might hold up given the determination by both sides to ignore the United States. Iran’s other Asian partners, including India and Russia, have refused to commit to developing Iran’s economy, which would strengthen the China-Iran deal.
The China-Iran deal at the moment is tactical but has the potential to transform into a multi-dimensional economic and security alliance between the two countries. If the deal succeeds, the ramifications for Iran and the region are likely to be significant, especially if China proceeds with its One Road One Belt initiative, through which Iran’s interaction with Eurasian markets will increase and its access to regional ports will increase as well.