On March 27, China and Iran signed a 25-year ‘strategic cooperation pact’, during Chinese Foreign Minister Wang Yi's six-nation tour to West Asia. According to Tehran’s foreign ministry spokesperson Said Khatibzadeh, the deal has "political, strategic and economic" components, and would establish a blue print for "reciprocal investments in the fields of transport, ports, energy, industry and services".
The devil is in the detail and not much is known about the deal, except that China will over a period of 25 years invest $400 billion in Iran in return for low-priced crude supplies. This would come as a major relief for Iran which has been reeling under United States-imposed sanctions.
It is important to note that even during the earlier Iran sanctions, Beijing continued its engagement with Tehran, building infrastructure. It had also been a party to the Joint Comprehensive Plan of Action (JCPOA) or the 2015 Iran nuclear deal.
China has been expanding its footprint in West Asia where it enjoys cordial ties with all major powers, and positions itself as a ‘development partner’.
While former US President Donald Trump reinstated sanctions on Iran in 2018, and pulled out of the JCPOA, the new administration under Joe Biden offered to start negotiations with Tehran to restore the deal. No sooner did the announcement come, than China signed this agreement.
This signals that China wishes to be the first to pick up the bounty Iran can offer. It will also strengthen Iran's position vis-a-vis negotiations regarding resumption of the JCPOA.
So, what does the deal signify as of now?
US dominance in the region has surely been challenged, and China is demonstrating that it's now time for multi-polarity in the region. This is not, however, the first time that other powers, such as Russia for instance, have been widening their footprint in West Asia against a steady US fatigue and retrenchment there. China and Russia, whose ties with the US are currently strained, with both under western sanctions, have significantly deepened bilateral ties, with Iran now joining in.
The agreement with Iran will significantly raise China's profile in the region and signal it's entry as a major player there, giving it a position of strength in the strategic Strait of Hormuz.
More importantly, this deal — and Iran has never shied away from its engagement with China and desire to join the Belt and Road Initiative (BRI) — significantly increases China's strategic space in Central Asia, making it possibly now the dominant power in Eurasia.
Iranian authorities have earlier also proposed linking Gwadar to Chabahar, China's entry into Iran and its ports can negate the advantage India seeks in the Chabahar port it is developing as a counter to Pakistan's Gwadar port.
However, China has other stakes, besides Iran in the region. Half of China's oil imports come from the region, and for 11 countries China is the largest trading partner; at least 18 Arab states have signed on to the BRI. China is pushing for a free trade agreement with the GCC.
China also remains Israel's second-largest trade partner, both in exports and imports. Chinese investments into Israeli tech start-ups have been increasing rapidly over recent years, reaching $325m in 2018, and Israel is the only country in the world to have signed a Comprehensive Innovation Partnership with Beijing.
Given the bitter divide in the region between some of the GCC states and Israel with Iran, and the leverage the US still has over Israel, much will depend on the response of these states to the deal. All these countries are also trying to diversify their foreign policy and strategic relationships.
Broadly speaking, there are three options available to them. First, would be to deepen already good ties with India. The second would be to hedge ones risks by co-operating with China. The third alternative would be to either incentivise or pressure China to water down its engagement with Iran.
Some have noted that the region is still dependent on western arms sales while projects and investments China has announced within the framework of the BRI have not often fared well, abandoned, or delayed.
Factoring in the above, the China-Iran deal may not be as significant as portrayed. However, with the US dominance in the region over, and a phase of multi-polarity begins, India must gear up to play a bigger role in the region.
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